This Prospectus and Prospectus
Supplement, dated April 25, 1995,
filed pursuant to Rule 424(b)(2),
relates to Registration Statement
No. 33-41485
PROSPECTUS SUPPLEMENT
(To Prospectus Dated April 25, 1995)
U.S. $800,000,000
Sears, Roebuck and Co.
Medium-Term Notes Series VIII
Due from 9 Months to 30 Years from Date of Issue
Sears, Roebuck and Co. (``Sears'') may offer from time to time up to U.S.
$800,000,000 aggregate principal amount or its equivalent in foreign
currencies (based on the applicable exchange rate at the time of offering)
of its Medium-Term Notes Series VIII due from 9 months to 30 years from the
date of issue, as selected by the purchaser and agreed to by Sears. In
addition, Short-Term Notes, issued in connection with an election by a
Holder to terminate the automatic extension of maturity date of Renewable
Notes, will be due on the Interest Payment Date occurring in the sixth
month (unless otherwise specified in the applicable Pricing Supplement)
after the Interest Payment Date immediately following such election. The
Notes may be denominated in U.S. dollars or in such foreign currencies as
may be designated by Sears at the time of offering. The specific
currencies, interest rates (including whether fixed or floating) and
maturity dates of the Notes will be set forth in Pricing Supplements to
this Prospectus Supplement.
Purchasers of the Notes are required to pay for them in the currency
specified in the Pricing Supplement by delivery of the requisite amount of
the Specified Currency to an Agent, unless other arrangements have been
made. Principal of and interest on the Notes are generally payable by Sears
in the Specified Currency. See ``Important Currency Exchange Information''
and ``Description of Notes''.
Except as described herein, interest on Fixed Rate Notes will be payable
April 1 and October 1 of each year (or on either of such dates or on such
other dates as specified therein and in the applicable Pricing Supplement)
and at maturity. Interest on Floating Rate Notes will be payable on the
dates specified therein and in the applicable Pricing Supplement.
Unless either a Redemption Commencement Date or one or more Redemption
Dates are specified in the applicable Pricing Supplement, the Notes will
not be redeemable prior to their Stated Maturity, except in limited
circumstances. See ``Description of Notes-General'' and ``Description of
Notes-Special Redemption Provisions''. If a Redemption Commencement Date is
so specified, the Notes will be redeemable at the option of Sears on or
after such date as described herein. If one or more Redemption Dates is so
specified, the Notes will be redeemable on such Redemption Dates at the
option of either Sears or the Holders thereof, or both, and at such
Redemption Prices, in each case as specified in the Pricing Supplement;
provided, however, Renewable Notes will be redeemable solely at the option
of Sears.
The Notes will be issued only in a minimum denomination of U.S. $100,000 or
the approximate equivalent thereof in the Specified Currency and (except as
otherwise specified in the applicable Pricing Supplement) will initially be
Book-Entry Notes represented by one or more Global Notes registered in the
name of the Depository's nominee as described herein. An interest in a
Global Note will be shown on, and transfers thereof will be effected only
through, records maintained by the Depository and its participants. Notes
will be issued in fully registered, certificated form to owners of
beneficial interests therein or their nominees, rather than to the
Depository's nominee, only as specified in the applicable Pricing
Supplement, or under the limited circumstances described herein. See
``Description of Notes-General'' and ``Description of Notes-Book-Entry
Notes''.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE
PROSPECTUS OR ANY SUPPLEMENT THERETO. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Initial Public Agents' Proceeds to Sears
Offering Price(1) Commissions(2) (1)(2)(3)
Per Note 100% .125%-.750% 99.250%-99.875%
Total $800,000,000 $1,000,000-$6,000,000 $799,000,000-$794,000,000
(1) Unless otherwise indicated in the applicable Pricing Supplement, the
Notes will be issued at 100% of their principal amount.
(2) Sears will pay to Dean Witter Reynolds Inc., Goldman, Sachs & Co.,
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated or Salomon Brothers
Inc (the ``Agents'') a commission of from .125% to .750%, depending on
maturity, of the principal amount of any Note sold through such Agent.
Sears has agreed to indemnify each Agent against certain liabilities,
including liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $380,000 payable by Sears,
including $65,000 of estimated expenses of the Agents to be reimbursed
by Sears.
Dean Witter Reynolds Inc.
Goldman, Sachs & Co.
Merrill Lynch & Co.
Morgan Stanley & Co.
Incorporated
Salomon Brothers Inc
April 25, 1995
The Agents have agreed to use their reasonable efforts to solicit offers to
purchase Notes from time to time on behalf of Sears. Notes may be sold to
each of the Agents, as principal, at discounts equal to the commissions
applicable to Agency sales of Notes or, if so indicated in the applicable
Pricing Supplement, at negotiated discounts, for resale in negotiated
transactions, at fixed public offering prices or at varying prices related
to prevailing prices determined at the time of resale. The Agents may act
as agents for sales of Notes, or may offer the Notes they have purchased as
principals, to or through dealers, and such dealers may receive
compensation from the Agents. Sears reserves the right to sell the Notes
directly on its own behalf. Sears also reserves the right to withdraw,
cancel or modify the offering contemplated hereby without notice. No
termination date for the offering of the Notes has been established. Sears
or the soliciting Agent may reject any order. See ``Plan of Distribution''.
No dealer, salesman or other person has been authorized to give any
information or to make any representation other than those contained or
incorporated by reference in this Prospectus Supplement, any accompanying
Pricing Supplement and the accompanying Prospectus and, if given or made,
such information or representation must not be relied upon as having been
authorized. Neither this Prospectus Supplement, any accompanying Pricing
Supplement nor the accompanying Prospectus constitutes an offer to sell or
the solicitation of an offer to buy any securities other than the
registered securities to which it relates or an offer to sell or the
solicitation of an offer to buy such securities in any jurisdiction to any
person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus Supplement, any
accompanying Pricing Supplement or the accompanying Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company since the date
hereof or that the information is correct as of any time subsequent to its
date.
TABLE OF CONTENTS
Page
Prospectus Supplement
Currency Exchange and Other Information S-3
Description of Notes S-3
Foreign Currency Risks S-14
United States Tax Considerations S-14
Plan of Distribution S-20
Prospectus
Available Information 3
Incorporation of Certain Documents by Reference 3
The Company 4
Use of Proceeds 4
Summary Financial Information 5
Ratio of Income to Fixed Charges 6
Description of Debt Securities 7
Plan of Distribution 11
Legal Opinion 12
Experts 12
CURRENCY EXCHANGE AND OTHER INFORMATION
Purchasers are required to pay for the Medium-Term Notes Series VIII (the
``Notes'') in the currency specified in the Pricing Supplement (the
``Specified Currency''). Currently, there are limited facilities in the
United States for conversion of U.S. dollars into foreign currencies, and
vice versa. However, since December 31, 1989, the Federal Reserve Board no
longer objects to the establishment by U.S. banks of non-U.S. dollar
denominated checking or savings account facilities in the United States.
Principal and interest payments in respect of the Notes will be made in the
Specified Currency unless such Specified Currency is unavailable due to
circumstances beyond the control of Sears. See ``Foreign Currency Risks''
and ``Description of Notes''.
References herein to ``U.S. dollars'' or ``U.S. $'' or ``$'' are to the
currency of the United States of America.
DESCRIPTION OF NOTES
The following description, which sets forth the particular terms of the
Notes offered hereby (referred to in the Prospectus as the ``Offered Debt
Securities'') except to the extent otherwise specified in the applicable
Pricing Supplement, supplements the description of the general terms and
provisions of Debt Securities set forth in the Prospectus, to which
description reference is hereby made.
General
The authorized denominations of Notes denominated in U.S. dollars will be
U.S. $100,000 and any larger amount in integral multiples of $1,000. The
authorized denominations of Notes denominated in a Specified Currency other
than U.S. dollars will be the equivalent, as determined by the Market
Exchange Rate (as defined below) on the Business Day (as defined below)
immediately preceding the date on which Sears accepts an offer to purchase
such Notes, of U.S. $100,000 (rounded down to an integral multiple of
10,000 units of such Specified Currency) and any larger amount. The Market
Exchange Rate on a given date for a given Specified Currency is the noon
buying rate in New York City for cable transfers for such Specified
Currency as certified for customs purposes by the Federal Reserve Bank of
New York.
The Notes mature from nine months to thirty years from the date of issue,
as selected by the purchaser and agreed to by Sears, except as described
below with respect to Notes (``Short-Term Notes'') issued in connection
with an election by a Holder to terminate the automatic extension of
maturity of certain Notes (``Renewable Notes''). The Notes will constitute
a single series of Debt Securities under the Indenture, which is unlimited
in aggregate principal amount. The aggregate principal amount of Notes that
may be offered hereunder will be reduced by the aggregate initial public
offering price of any other Debt Securities issued by Sears pursuant to the
Registration Statement that includes this Prospectus Supplement and the
accompanying Prospectus.
The Notes are issuable in registered form only, without coupons, as
Book-Entry Notes initially represented by one or more global notes (each a
``Global Note'') registered in the name of Cede & Co. (``Cede''), as the
nominee of The Depository Trust Company (``DTC,'' and, together with any
successor depository selected by Sears, the ``Depository''), except that
Notes in fully registered, certificated form (``Certificated Notes'') will
be issued to, and registered in the names of, owners of beneficial
interests therein or their nominees if so specified in the applicable
Pricing Supplement or under the limited circumstances described under
``Book-Entry Notes''. All Book-Entry Notes having the same terms,
including, but not limited to, Interest Payment Dates, interest rate,
Maturity Date, and redemption provisions may be represented by a single
Global Note. A beneficial interest in a Global Note will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depository and its participants. Payments of principal and interest on
Book-Entry Notes will be made by the Trustee to the Depository. See
``Book-Entry Notes''.
Except with respect to Renewable Notes, for which both an Initial Maturity
Date and a Final Maturity Date (as such terms are defined below) will be
specified in the applicable Pricing Supplement, and unless previously
redeemed, a Note will mature on the date (``Maturity Date'') that is
specified on the face thereof and in the applicable Pricing Supplement or,
if such Note is a Floating Rate Note (as defined below) and such Maturity
Date is not a Business Day with respect to such Note, the next succeeding
Business Day (or, in the case of a LIBOR Note (as defined below), if such
next succeeding Business Day falls in the next calendar month, the next
preceding Business Day).
Renewable Notes will mature on an Interest Payment Date (as defined below)
specified in the applicable Pricing Supplement occurring in or prior to the
twelfth month following the month in which the Notes were initially issued
(the ``Initial Maturity Date'') unless the maturity of all or any portion
of such Notes is extended in accordance with the procedures described
below. On the Interest Payment Date occurring in the sixth month (unless a
different interval (the ``Special Election Interval'') is specified in the
applicable Pricing Supplement) prior to the Initial Maturity Date (the
``Initial Maturity Extension Date'') and on the Interest Payment Date
occurring in each sixth month (or the last month of each Special Election
Interval) after the Initial Maturity Extension Date (each, together with
the Initial Maturity Extension Date, a ``Maturity Extension Date''), the
maturity of the Renewable Notes will be extended to the Interest Payment
Date occurring in the twelfth month (or, if a Special Election Interval is
specified in the applicable Pricing Supplement, the last month in a period
equal to twice the Special Election Interval) after such Maturity Extension
Date, unless a Holder thereof elects to terminate the automatic extension
of the maturity of the Renewable Notes held by such Holder or any portion
thereof having a principal amount of $100,000 or any integral multiple of
$1,000 in excess thereof by delivering a notice to such effect to the
Trustee not less than 15 nor more than 30 days prior to such Maturity
Extension Date (unless another period is specified in the applicable
Pricing Supplement as the ``Special Election Period''). Such election may
only be exercised with respect to less than the entire principal amount of
any Renewable Note if the principal amount of such Renewable Note (and each
Book-Entry Note) for which such election is not exercised is at least
$100,000 or any larger amount that is an integral multiple of $1,000.
Notwithstanding the foregoing, the maturity of the Renewable Notes may not
be extended beyond the Final Maturity Date specified for such Notes in the
applicable Pricing Supplement.
If a Holder elects to terminate the automatic extension of the maturity of
any portion of the principal amount of the Renewable Notes during the
specified period prior to any Maturity Extension Date, such portion will
become due and payable on the Interest Payment Date occurring in the sixth
month (or the last month in the Special Election Interval) after such
Maturity Extension Date (the ``Extended Maturity Date''). As soon as
practicable following receipt of specified documentation with respect to
such election (and, in the case of a Renewable Note represented in the form
of a Certificated Note, such Renewable Note), the Trustee shall issue in
exchange therefor in the name of such Holder (i) a Short-Term Note for the
principal amount of such exchanged Renewable Note for which the election to
terminate the automatic extension of maturity was exercised with terms
identical to those of such Renewable Note (other than with respect to
maturity) and (ii) if such election is made with respect to less than the
full principal amount of such Holder's Renewable Note, a replacement
Renewable Note for the principal amount of such exchanged Renewable Note
for which no election was made.
Termination of the automatic extension of maturity of all or a portion of a
Renewable Note may be revoked provided that the principal amount of any
portion of such Renewable Note or a Short-Term Note issued in exchange
therefor (and each Book-Entry Note) (i) to which the revocation relates and
(ii) to which the revocation does not relate, each is at least $100,000 or
any larger amount that is an integral multiple of $1,000. Such revocation
may be made by delivering a notice to such effect to the Trustee on any day
following delivery to the Trustee of the election to terminate the
automatic extension of maturity and not less than 60 days prior to the
Extended Maturity Date. If the revocation relates to a Short-Term Note
which has been issued, as soon as practicable following the Trustee's
receipt of specified documentation with respect to such revocation (and in
the case of a revocation relating to a Short-Term Note represented in the
form of a Certificated Note which has been issued, such Short-Term Note),
the Trustee shall issue in exchange therefor in the name of such Holder (i)
a Renewable Note for the principal amount of such exchanged Short-Term Note
to which the revocation relates with terms identical to such Holder's
original Renewable Note and (ii) if such revocation is made with respect to
less than the full principal amount of such Short-Term Note, a replacement
Short-Term Note for the principal amount of such exchanged Short-Term Note
for which no revocation was made.
The Notes will be unsecured obligations of Sears and will be identical
except for currency denomination, interest rate, Interest Payment Dates,
Maturity Date, issue date and applicable redemption provisions. The Notes
will not be subject to any sinking fund and, unless a Redemption
Commencement Date or one or more Redemption Dates are specified in the
applicable Pricing Supplement, will not be redeemable prior to their
Maturity Date, except for Notes having a stated maturity at time of issue
of more than seven years which may be redeemed under specified
circumstances in the event of declining receivables (see ``Description of
Notes-Special Redemption Provisions''). If a Redemption Commencement Date
is so specified with respect to any Note, the applicable Pricing Supplement
will also specify one or more redemption prices (expressed as a percentage
of the principal amount of such Note to be redeemed) (``Redemption Price'')
and the redemption period or periods during which such Redemption Price
shall apply. In addition, if a Redemption Commencement Date is so
specified, any such Note shall be redeemable in whole or in part at the
option of Sears (whether or not any other Note is concurrently redeemed) on
any Business Day on or after such specified Redemption Commencement Date at
the specified Redemption Price applicable to the redemption period during
which such Note is to be redeemed, together with interest accrued to the
redemption date. If one or more Redemption Dates are specified in a Pricing
Supplement with respect to any Note, such Pricing Supplement also will
specify one or more Redemption Prices, the Redemption Date or Dates for
which such Redemption Prices shall apply, and, unless the Pricing
Supplement relates to Renewable Notes, the notice period during which the
option to redeem may be exercised, the methods by which a notice of
redemption may be delivered and whether the option to redeem may be
exercised by Sears, the Holders of such Notes or both. Renewable Notes for
which one or more Redemption Dates are so specified will be redeemable, as
a whole or from time to time in part, solely at the option of Sears upon
not less than 30 days nor more than 60 days notice, delivered by certified
mail, return receipt requested, or by courier to the applicable Holders of
such Notes, except that, notwithstanding the foregoing, redemption of
Global Notes (and notice thereof) shall be made in accordance with
applicable procedures of the Depository. Short-Term Notes issued in
exchange for Renewable Notes will be redeemable, at the option of Sears, on
the Redemption Dates and in accordance with the redemption provisions of
the Renewable Notes for which such Short-Term Notes were exchanged.
Notes will be sold in individual issues of Notes having such interest rate
or interest rate formula, Maturity Date and date of original issuance as
shall be selected by the initial purchasers and agreed to by Sears. Each
Note will bear interest at a fixed rate or at a rate determined by
reference to the Commercial Paper Rate, the Prime Rate, LIBOR, the Treasury
Rate, the CD Rate or the Federal Funds Rate, as adjusted by the Spread or
Spread Multiplier, if any, applicable to such Note (as such terms are
defined below). See ``Description of Notes-Interest Rate''.
The term ``Business Day'' as used herein means each Monday, Tuesday,
Wednesday, Thursday and Friday which is (a) not a legal holiday for banking
institutions in any of the City of Chicago, The City of New York or the
city in which the principal corporate trust office of the Trustee is
located, and (b) with respect to Notes denominated in a Specified Currency
other than U.S. dollars, any such day that is not a legal holiday for
banking institutions in the principal financial center of the country of
the Specified Currency (which in the case of European Currency Units will
be Brussels), and (c) with respect to LIBOR Notes, any day specified in (a)
above on which dealings in deposits in U.S. dollars are transacted in the
London interbank market.
Interest Rate
Each Note will bear interest from its date of issue or from the most recent
Interest Payment Date (or, if such Note is a Floating Rate Note and the
Interest Reset Dates (as defined below) are daily or weekly, from the day
following the most recent Regular Record Date (as defined below)) to which
interest on such Note has been paid or duly provided for at the fixed rate
per annum, or at the rate per annum determined pursuant to the interest
rate formula, stated therein and in the applicable Pricing Supplement until
the principal thereof is paid or made available for payment in accordance
with the terms thereof. Interest will be payable on each Interest Payment
Date and at maturity as specified below under ``Payment of Principal and
Interest''.
Each Note will bear interest at either (a) a fixed rate (a ``Fixed Rate
Note'') or (b) a variable rate (a ``Floating Rate Note'') determined by
reference to the specified Interest Rate Basis (as defined below), which
will be adjusted by adding or subtracting any applicable Spread or
multiplying by any applicable Spread Multiplier. A Floating Rate Note may
also have either or both of the following: (a) a maximum numerical interest
rate limitation, or ceiling, on the rate of interest which may accrue
during any interest period (a ``Maximum Rate''); and (b) a minimum
numerical interest rate limitation, or floor, on the rate of interest which
may accrue during any interest period (a ``Minimum Rate''). The ``Spread''
is the number of basis points, if any, specified in the applicable Pricing
Supplement as being applicable to the interest rate for such Floating Rate
Note and the ``Spread Multiplier'' is the percentage, if any, specified in
the applicable Pricing Supplement as being applicable to the interest rate
for such Floating Rate Note. ``Market Day'' means (a) with respect to any
Note (other than any LIBOR Note), any day which is not a legal holiday for
banking institutions in The City of New York, and (b) with respect to any
LIBOR Note, any such day on which dealings in deposits in U.S. dollars are
transacted in the London interbank market. ``Index Maturity'' means, with
respect to a Floating Rate Note, the period to maturity of the instrument
or obligation on which the interest rate formula is based, as specified in
the applicable Pricing Supplement. Unless otherwise provided in the
applicable Pricing Supplement, Chemical Bank will be the calculation agent
(the ``Calculation Agent'') with respect to Floating Rate Notes.
The applicable Pricing Supplement relating to a Fixed Rate Note will
designate a fixed rate of interest per annum payable on such Fixed Rate
Note. The applicable Pricing Supplement relating to a Floating Rate Note
will designate an interest rate basis (the ``Interest Rate Basis'') for
such Floating Rate Note. The Interest Rate Basis for each Floating Rate
Note will be: (a) the Commercial Paper Rate, in which case such Floating
Rate Note will be a Commercial Paper Rate Note; (b) the Prime Rate, in
which case such Floating Rate Note will be a Prime Rate Note; (c) LIBOR, in
which case such Floating Rate Note will be a LIBOR Note; (d) the Treasury
Rate, in which case such Floating Rate Note will be a Treasury Rate Note;
(e) the CD Rate, in which case such Floating Rate Note will be a CD Rate
Note; (f) the Federal Funds Rate, in which case such Floating Rate Note
will be a Federal Funds Rate Note; or (g) such other interest rate formula
as is set forth in such Pricing Supplement. The applicable Pricing
Supplement for a Floating Rate Note will specify the Interest Rate Basis
and, if applicable, the Calculation Agent, the Index Maturity, the Spread,
the Spread Multiplier, the Maximum Rate, the Minimum Rate, the Interest
Payment Dates, the Regular Record Dates, the Interest Determination Dates
(including the date as of which the Initial Interest Rate is set (the
``Initial Interest Determination Date'')) and the Interest Reset Dates with
respect to such Note.
The initial rate of interest (the ``Initial Interest Rate'') on each
Floating Rate Note will be set on the Initial Interest Determination Date
and reset daily (except in the case of Treasury Rate Notes), weekly,
monthly, quarterly, semi-annually or annually (each an ``Interest Reset
Date''), as specified in the applicable Pricing Supplement. Except for the
Initial Interest Determination Date, the Interest Reset Date will be, in
the case of Floating Rate Notes which reset daily, each Market Day; in the
case of Floating Rate Notes (other than Treasury Rate Notes) which reset
weekly, the Wednesday of each week; in the case of Treasury Rate Notes
which reset weekly, the Tuesday of each week; in the case of Floating Rate
Notes which reset monthly, the third Wednesday of each month; in the case
of Floating Rate Notes which reset quarterly, the third Wednesday of March,
June, September and December; in the case of Floating Rate Notes which
reset semi-annually, the third Wednesday of two months of each year as
specified in the applicable Pricing Supplement; and in the case of Floating
Rate Notes which reset annually, the third Wednesday of one month of each
year as specified in the applicable Pricing Supplement; provided, however,
that the interest rate in effect for the ten days immediately prior to
maturity or redemption of a Note will be that in effect on the tenth day
preceding such maturity or redemption. If any Interest Reset Date for any
Floating Rate Note would otherwise be a day that is not a Market Day with
respect to such Floating Rate Note, the Interest Reset Date for such
Floating Rate Note shall be postponed to the next day that is a Market Day
with respect to such Floating Rate Note, except that in the case of a LIBOR
Note, if such Market Day is in the next succeeding calendar month, such
Interest Reset Date shall be the immediately preceding Market Day.
The Interest Determination Date pertaining to an Interest Reset Date for a
Commercial Paper Rate Note (the ``Commercial Paper Interest Determination
Date''), for a Prime Rate Note (the ``Prime Interest Determination Date''),
for a LIBOR Note (the ``LIBOR Interest Determination Date''), for a CD Rate
Note (the ``CD Interest Determination Date'') and for a Federal Funds Rate
Note (the ``Federal Funds Interest Determination Date'') will be the second
Market Day preceding such Interest Reset Date, except in the case of the
Initial Interest Determination Date. The Interest Determination Date
pertaining to an Interest Reset Date for a Treasury Rate Note (the
``Treasury Interest Determination Date'') will be the day of the week in
which such Interest Reset Date falls on which Treasury bills would normally
be auctioned, except in the case of the Initial Interest Determination
Date. Treasury bills are usually sold at auction on the Monday of each
week, unless that day is a legal holiday, in which case the auction is
usually held on the following Tuesday, except that such auction may be held
on the preceding Friday. If, as the result of a legal holiday, an auction
is so held on the preceding Friday, such Friday will be the Treasury
Interest Determination Date pertaining to the Interest Reset Date occurring
in the next succeeding week, except in the case of the Initial Interest
Determination Date. If an auction date shall fall on any Interest Reset
Date for a Treasury Rate Note, then such Interest Reset Date shall instead
be the first Market Day immediately following such auction date, except in
the case of the Initial Interest Determination Date.
All percentages resulting from any calculations referred to in this
Prospectus Supplement will be rounded upwards, if necessary, to the next
higher one hundred-thousandth of a percentage point (e.g., 9.876541% (or
.09876541) being rounded to 9.87655% or (.0987655)), and all U.S. dollar
amounts used in or resulting from such calculations will be rounded to the
nearest cent (with one-half cent being rounded upwards).
Upon the request of the Holder of any Floating Rate Note, the Calculation
Agent will provide the interest rate then in effect, and, if determined,
the interest rate which will become effective on the next Interest Reset
Date with respect to such Floating Rate Note. The Calculation Agent's
determination of any interest rate will be final and binding in the absence
of manifest error.
Interest rates will be determined by the Calculation Agent as follows:
Commercial Paper Rate Notes
Commercial Paper Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Rate and the Spread or
Spread Multiplier, if any), and will be payable on the dates, specified on
the face of the Commercial Paper Rate Note and in the applicable Pricing
Supplement. The ``Calculation Date'' pertaining to a Commercial Paper
Interest Determination Date will be the tenth day after such Commercial
Paper Interest Determination Date or, if any such day is not a Business
Day, the next succeeding Business Day, except in the case of the Initial
Interest Determination Date, for which the Calculation Date will be the
Initial Interest Determination Date as specified in the applicable Pricing
Supplement.
``Commercial Paper Rate'' means, with respect to any Interest Reset Date,
the Money Market Yield (calculated as described below) of the per annum
rate (quoted on a bank discount basis) for the relevant Commercial Paper
Interest Determination Date for commercial paper having the specified Index
Maturity as published by the Board of Governors of the Federal Reserve
System in ``Statistical Release H.15(519), Selected Interest Rates'' or any
successor publication of the Board of Governors of the Federal Reserve
System (``H.15(519)'') under the heading ``Commercial Paper''. In the event
that such rate is not published prior to 9:00 A.M., New York City time, on
the relevant Calculation Date, then the Commercial Paper Rate with respect
to such Interest Reset Date shall be the Money Market Yield of such rate on
such Commercial Paper Interest Determination Date for commercial paper
having the specified Index Maturity as published by the Federal Reserve
Bank of New York in its daily statistical release, ``Composite 3:30 P.M.
Quotations for U.S. Government Securities'' or any successor publication
published by the Federal Reserve Bank of New York (``Composite
Quotations'') under the heading ``Commercial Paper''. If by 3:00 P.M., New
York City time, on such Calculation Date such rate is not yet published in
either H.15(519) or Composite Quotations, the Commercial Paper Rate with
respect to such Interest Reset Date shall be calculated by the Calculation
Agent and shall be the Money Market Yield of the arithmetic mean of the
offered per annum rates (quoted on a bank discount basis), as of 11:00
A.M., New York City time, on such Commercial Paper Interest Determination
Date, of three leading dealers of commercial paper in The City of New York
selected by the Calculation Agent for commercial paper of the specified
Index Maturity placed for an industrial issuer whose bond rating is ``AA'',
or the equivalent, from a nationally recognized rating agency; provided,
however, that if fewer than three dealers selected as aforesaid by the
Calculation Agent are quoting as mentioned in this sentence, the Commercial
Paper Rate with respect to such Interest Reset Date will be the Commercial
Paper Rate in effect on such Commercial Paper Interest Determination Date.
``Money Market Yield'' means the rate for which is quoted on a bank
discount basis, a yield (expressed as a percentage) calculated in
accordance with the following formula:
D X 360
Money Market Yield = ------------- X 100
360 - (D X M)
where ``D'' refers to the per annum rate for a security, quoted on a bank
discount basis and expressed as a decimal; and ``M'' refers to, if the term
of the applicable Index Maturity approximately corresponds to the number of
days from, and including, the date of issuance of the Note, in the case of
the Initial Interest Determination Date, and the applicable Interest Reset
Date in all other cases (each an ``Applicable Date'') to, but excluding,
the next succeeding Interest Reset Date (a ``Calculation Period''), then
the actual number of days in that Calculation Period and, otherwise, the
actual number of days in the period from, and including, the Applicable
Date to, but excluding, the day that numerically corresponds to that
Applicable Date (or, if there is not any such numerically corresponding
day, the last day) in the calendar month that is the number of months
corresponding to the Index Maturity after the month in which that
Applicable Date occurred.
Prime Rate Notes
Prime Rate Notes will bear interest at the interest rates (calculated with
reference to the Prime Rate and the Spread or Spread Multiplier, if any),
and will be payable on the dates, specified on the face of the Prime Rate
Note and in the applicable Pricing Supplement. The ``Calculation Date''
pertaining to a Prime Interest Determination Date will be the tenth day
after such Prime Interest Determination Date or, if any such day is not a
Business Day, the next succeeding Business Day, except in the case of the
Initial Interest Determination Date, for which the Calculation Date will be
the Initial Interest Determination Date as specified in the applicable
Pricing Supplement.
``Prime Rate'' means, with respect to any Interest Reset Date, the rate set
forth for the relevant Prime Interest Determination Date in H.15(519) under
the heading ``Bank Prime Loan''. In the event that such rate is not
published prior to 9:00 A.M., New York City time, on the relevant
Calculation Date, then the Prime Rate with respect to such Interest Reset
Date will be the arithmetic mean of the rates of interest publicly
announced by each bank that appears on the display designated as page
``NYMF'' on the Reuter Monitor Money Rates Service (or such other page as
may replace the NYMF page on that service for the purpose of displaying
prime rates or base lending rates of major United States banks) (``Reuters
Screen NYMF Page'') as such bank's prime rate or base lending rate as in
effect for such Prime Interest Determination Date as quoted on the Reuters
Screen NYMF Page on such Prime Interest Determination Date. If fewer than
four such rates appear on the Reuters Screen NYMF Page on such Prime
Interest Determination Date, the Prime Rate with respect to such Interest
Reset Date will be the arithmetic mean of the prime rates or base lending
rates (quoted on the basis of the actual number of days in the year divided
by a 360-day year) as of the close of business on such Prime Interest
Determination Date by three major banks in The City of New York selected by
the Calculation Agent; provided, however, that if fewer than three banks
selected as aforesaid by the Calculation Agent are quoting as mentioned in
this sentence, the Prime Rate with respect to such Interest Reset Date will
be the Prime Rate in effect on such Prime Interest Determination Date.
LIBOR Notes
LIBOR Notes will bear interest at the interest rates (calculated with
reference to LIBOR and the Spread or Spread Multiplier, if any), and will
be payable on the dates, specified on the face of the LIBOR Note and in the
applicable Pricing Supplement.
``LIBOR'' with respect to any Interest Reset Date will be determined by the
Calculation Agent in accordance with the following provisions:
(i) On the relevant LIBOR Interest Determination Date, LIBOR will be
the rate for deposits in U.S. dollars having the specified Index
Maturity, commencing on the second Market Day immediately following
such LIBOR Interest Determination Date (or, in the case of the Initial
Interest Determination Date, on such Initial Interest Determination
Date), that appears on the display designated as page ``3750'' on the
Dow Jones Telerate Service (or such other page as may replace page
3750 on that service for the purposes of displaying London interbank
offered rates of major banks) (``Telerate Page 3750'') as of 11:00
A.M., London time, on such LIBOR Interest Determination Date. If such
rate does not appear on Telerate Page 3750, LIBOR with respect to such
Interest Reset Date will be determined as described in (ii) below.
(ii) With respect to a LIBOR Interest Determination Date on which no
such rate appears on Telerate Page 3750 as described in (i) above,
LIBOR will be determined on the basis of the rates at approximately
11:00 A.M., London time, on such LIBOR Interest Determination Date at
which deposits in U.S. dollars having the specified Index Maturity are
offered to prime banks in the London interbank market by four major
banks in the London interbank market selected by the Calculation Agent
commencing on the second Market Day immediately following such LIBOR
Interest Determination Date (or, in the case of the Initial Interest
Determination Date, on such Initial Interest Determination Date), and
in a principal amount equal to an amount of not less than U.S.
$1,000,000 that in the Calculation Agent's judgment is representative
for a single transaction in such market at such time (a
``Representative Amount''). The Calculation Agent will request the
principal London office of each of such banks to provide a quotation
of its rate. If at least two such quotations are provided, LIBOR with
respect to such Interest Reset Date will be the arithmetic mean of
such quotations. If fewer than two quotations are provided, LIBOR with
respect to such Interest Reset Date will be the arithmetic mean of the
rates quoted at approximately 11:00 A.M., New York City time, on such
LIBOR Interest Determination Date by three major banks in The City of
New York, selected by the Calculation Agent, for loans in U.S. dollars
to leading European banks having the specified Index Maturity
commencing on the Interest Reset Date and in a Representative Amount;
provided, however, that if fewer than three banks selected as
aforesaid by the Calculation Agent are quoting as mentioned in this
sentence, LIBOR with respect to such Interest Reset Date will be the
LIBOR in effect on such LIBOR Interest Determination Date.
Treasury Rate Notes
Treasury Rate Notes will bear interest at the interest rates (calculated
with reference to the Treasury Rate and the Spread or Spread Multiplier, if
any), and will be payable on the dates, specified on the face of the
Treasury Rate Note and in the applicable Pricing Supplement. The
``Calculation Date'' with respect to a Treasury Interest Determination Date
will be the tenth day after such Treasury Interest Determination Date or,
if any such day is not a Business Day, the next succeeding Business Day,
except in the case of the Initial Interest Determination Date, for which
the Calculation Date will be the Initial Interest Determination Date as
specified in the applicable Pricing Supplement.
``Treasury Rate'' means, with respect to any Interest Reset Date, the rate
for the auction on the relevant Treasury Interest Determination Date of
direct obligations of the United States (``Treasury bills'') having the
specified Index Maturity as published in H.15(519) under the heading ``U.S.
Government Securities/Treasury Bills/Auction Average (Investment)'' or, if
not so published by 9:00 A.M., New York City time, on the relevant
Calculation Date, the auction average rate (expressed as a bond equivalent,
on the basis of a year of 365 or 366 days, as applicable, and applied on a
daily basis) for such auction as otherwise announced by the United States
Department of the Treasury. In the event that the results of such auction
of Treasury bills having the specified Index Maturity are not published or
reported as provided above by 3:00 P.M., New York City time, on such
Calculation Date, or if no such auction is held during such week, then the
Treasury Rate shall be the rate set forth in H.15(519) for the relevant
Treasury Interest Determination Date for the specified Index Maturity under
the heading ``U.S. Government Securities/Treasury Bills/Secondary Market''.
In the event such rate is not so published by 3:00 P.M., New York City
time, on the relevant Calculation Date the Treasury Rate with respect to
such Interest Reset Date shall be calculated by the Calculation Agent and
shall be a yield to maturity (expressed as a bond equivalent, on the basis
of a year of 365 or 366 days, as applicable, and applied on a daily basis)
of the arithmetic mean of the secondary market bid rates as of
approximately 3:30 P.M., New York City time, on such Treasury Interest
Determination Date, of three primary United States government securities
dealers in The City of New York selected by the Calculation Agent for the
issue of Treasury bills with a remaining maturity closest to the specified
Index Maturity; provided, however, that if fewer than three dealers
selected as aforesaid by the Calculation Agent are quoting as mentioned in
this sentence, the Treasury Rate with respect to such Interest Reset Date
will be the Treasury Rate in effect on such Treasury Interest Determination
Date.
CD Rate Notes
CD Rate Notes will bear interest at the interest rates (calculated with
reference to the CD Rate and the Spread or Spread Multiplier, if any), and
will be payable on the dates, specified on the face of the CD Rate Note and
in the applicable Pricing Supplement. The ``Calculation Date'' pertaining
to a CD Interest Determination Date will be the tenth day after such CD
Interest Determination Date or, if such day is not a Business Day, the next
succeeding Business Day, except in the case of the Initial Interest
Determination Date, for which the Calculation Date will be the Initial
Interest Determination Date as specified in the applicable Pricing
Supplement.
``CD Rate'' means, with respect to any Interest Reset Date, the rate for
the relevant CD Interest Determination Date for negotiable certificates of
deposit having the specified Index Maturity as published in H.15(519) under
the heading ``CDs (Secondary Market)''. In the event that such rate is not
published prior to 9:00 A.M., New York City time, on the relevant
Calculation Date, then the CD Rate with respect to such Interest Reset Date
shall be the rate on such CD Interest Determination Date for negotiable
certificates of deposit having the specified Index Maturity as published in
Composite Quotations under the heading ``Certificates of Deposit''. If by
3:00 P.M., New York City time, on such Calculation Date such rate is not
published in either H.15(519) or Composite Quotations, the CD Rate with
respect to such Interest Reset Date shall be calculated by the Calculation
Agent and shall be the arithmetic mean of the secondary market offered
rates, as of 10:00 A.M., New York City time, on such CD Interest
Determination Date, of three leading nonbank dealers of negotiable U.S.
dollar certificates of deposit in The City of New York selected by the
Calculation Agent for negotiable certificates of deposit of major United
States money market banks with a remaining maturity closest to the
specified Index Maturity in a denomination of U.S. $5,000,000; provided,
however, that if fewer than three dealers selected as aforesaid by the
Calculation Agent are quoting as mentioned in this sentence, the CD Rate
with respect to such Interest Reset Date will be the CD Rate in effect on
such CD Interest Determination Date.
Federal Funds Rate Notes
Federal Funds Rate Notes will bear interest at the interest rates
(calculated with reference to the Federal Funds Rate and the Spread or
Spread Multiplier, if any), and will be payable on the dates, specified on
the face of the Federal Funds Rate Note and in the applicable Pricing
Supplement. The ``Calculation Date'' pertaining to a Federal Funds Interest
Determination Date will be the tenth day after such Federal Funds Interest
Determination Date or, if such day is not a Business Day, the next
succeeding Business Day, except in the case of the Initial Interest
Determination Date, for which the Calculation Date will be the Initial
Interest Determination Date as specified in the applicable Pricing
Supplement.
``Federal Funds Rate'' means, with respect to any Interest Reset Date, the
rate on the relevant Federal Funds Interest Determination Date for Federal
Funds as published in H.15(519) under the heading ``Federal Funds
(Effective)''. In the event that such rate is not published prior to 9:00
A.M., New York City time, on the relevant Calculation Date, then the
Federal Funds Rate with respect to such Interest Reset Date will be the
rate on such Federal Funds Interest Determination Date as published in
Composite Quotations under the heading ``Federal Funds/Effective Rate''. If
by 3:00 P.M., New York City time, on such Calculation Date such rate is not
published in either H.15(519) or Composite Quotations, the Federal Funds
Rate with respect to such Interest Reset Date shall be calculated by the
Calculation Agent and shall be the arithmetic mean of the rates, as of 9:00
A.M., New York City time, on such Federal Funds Interest Determination
Date, for the last transaction in overnight Federal Funds arranged by three
leading brokers of Federal Funds transactions in The City of New York
selected by the Calculation Agent; provided, however, that if fewer than
three brokers selected as aforesaid by the Calculation Agent are quoting as
mentioned in this sentence, the Federal Funds Rate with respect to such
Interest Reset Date will be the Federal Funds Rate in effect on such
Federal Funds Interest Determination Date.
Payment of Principal and Interest
The principal of, premium, if any, and interest on the Notes is payable by
Sears in the Specified Currency. Interest payable on any Interest Payment
Date (other than Defaulted Interest) shall be payable to the person who is
the registered Holder at the close of business on the immediately preceding
Regular Record Date. Cede will initially be the registered Holder of Global
Notes. See ``Book-Entry Notes''. The ``Regular Record Date'' with respect
to any Floating Rate Note shall be the date 15 calendar days prior to each
Interest Payment Date, whether or not such date shall be a Business Day,
and the ``Regular Record Date'' with respect to any Fixed Rate Note shall
be the March 15 and September 15 next preceding any April 1 or October 1
Interest Payment Date and the date 15 calendar days prior to any other
Interest Payment Date, whether or not such date shall be a Business Day.
Interest payable upon redemption or at maturity (other than a redemption or
maturity occurring on an Interest Payment Date) will be paid to the same
person to whom the principal amount is payable. The first payment of
interest on any Note originally issued between a Regular Record Date and an
Interest Payment Date will be made on the Interest Payment Date following
the next succeeding Regular Record Date to the registered owner on such
next succeeding Regular Record Date.
Except as provided below, interest will be payable: in the case of Fixed
Rate Notes, on April 1 and October 1 of each year (or on either of such
dates or on such other dates as specified in the applicable Pricing
Supplement); in the case of Floating Rate Notes which reset daily or
weekly, on the third Wednesday of March, June, September and December of
each year; in the case of Floating Rate Notes which reset monthly, on the
third Wednesday of each month or on the third Wednesday of March, June,
September and December of each year (as indicated in the applicable Pricing
Supplement); in the case of Floating Rate Notes which reset quarterly, on
the third Wednesday of March, June, September and December of each year; in
the case of Floating Rate Notes which reset semi-annually, on the third
Wednesday of the two months of each year specified in the applicable
Pricing Supplement; and in the case of Floating Rate Notes which reset
annually, on the third Wednesday of the month specified in the applicable
Pricing Supplement (each an ``Interest Payment Date''); and, in each case,
at maturity.
If any Interest Payment Date for any Fixed Rate Note falls on a day that is
not a Business Day, the interest payment shall be postponed to the next day
that is a Business Day, and no interest on such payment shall accrue for
the period from and after the Interest Payment Date. If the Maturity Date
of any Fixed Rate Note falls on a day that is not a Business Day, the
payment of interest and principal may be made on the next succeeding
Business Day with the same force and effect as if made on the Maturity
Date, and no interest on such payment shall accrue for the period from and
after the Maturity Date.
If an Interest Payment Date or the Maturity Date with respect to any
Floating Rate Note would otherwise fall on a day that is not a Business Day
with respect to such Note, such Interest Payment Date or Maturity Date will
be the next succeeding Business Day (or, in the case of a LIBOR Note, if
such day falls in the next calendar month, the next preceding Business
Day).
Payments of interest on any Fixed Rate Note or Floating Rate Note with
respect to any Interest Payment Date or Maturity Date (or date of
redemption) will include interest accrued to but excluding such Interest
Payment Date or Maturity Date (or date of redemption); provided, however,
that if the Interest Reset Dates with respect to any Floating Rate Note are
daily or weekly, interest payable on such Floating Rate Note on any
Interest Payment Date, other than interest payable on the date on which
principal on any such Floating Rate Note is payable, will include interest
accrued to but excluding the day following the next preceding Regular
Record Date.
With respect to a Floating Rate Note, accrued interest from the date of
issue or from the last date to which interest has been paid is calculated
by multiplying the face amount of such Floating Rate Note by an accrued
interest factor. Such accrued interest factor is computed by adding the
interest factor calculated for each day from the date of issue, or from the
last date to which interest has been paid, to but excluding the date for
which accrued interest is being calculated. The interest factor (expressed
as a decimal) for each such day is computed by dividing the interest rate
(expressed as a decimal) applicable to such date by 360, in the case of
Commercial Paper Rate Notes, Prime Rate Notes, LIBOR Notes, CD Rate Notes
or Federal Funds Rate Notes, or by the actual number of days in the year,
in the case of Treasury Rate Notes. The applicable interest rate on any
Interest Reset Date will be the interest rate as reset on such date. The
applicable interest rate on any other day will be the interest rate from
the immediately preceding Interest Reset Date (or, if none, the Initial
Interest Rate). Interest on Fixed Rate Notes will be computed on the basis
of a 360-day year of twelve 30-day months.
Payment of principal and interest will be made by wire transfer to any
Holder of $10,000,000 or more in aggregate principal amount of Certificated
Notes having the same Interest Payment Date, and payments of principal will
be made by wire transfer to any Holder of $10,000,000 or more in aggregate
principal amount of Certificated Notes having the same Maturity Date or
date of redemption, if the Holder thereof shall have designated in writing
to the Trustee an account with a bank located in the country issuing the
Specified Currency or such other country as shall be satisfactory to Sears
and the Trustee. If any payment of interest is to be made by wire transfer,
such information must be received by the Trustee at its corporate trust
office in the City of New York on or prior to the Regular Record Date for
an Interest Payment Date. The Trustee will, subject to applicable laws and
regulations and until it receives notice to the contrary, make such payment
to such Holder by wire transfer to the designated account. If a payment of
interest is not made by wire transfer for any reason, payment will be made
by check. Checks for payment of interest on an Interest Payment Date will
be mailed to the Holder at the address of such Holder appearing on the
Security Register on the applicable Regular Record Date. See ``Payment
Currency'' and ``Important Currency Exchange Information''.
To receive payment upon redemption or at maturity of a U.S. dollar
denominated Certificated Note, a Holder must make presentation and
surrender of such Note on or before the redemption date or Maturity Date,
as applicable. Payment will be by check unless proper wire transfer
instructions are on file with the Trustee or are received at presentment.
To receive payment upon redemption or at maturity of a Note denominated in
a Foreign Currency, a Holder must make presentation and surrender not less
than two Business Days prior to the redemption date or Maturity Date, as
applicable. Upon presentation and surrender of a Note denominated in a
Foreign Currency at any time after the date two Business Days prior to the
redemption date or Maturity Date, as applicable, Sears will pay the
principal and interest due upon redemption or at maturity (unless the
redemption date or Maturity Date is an Interest Payment Date) two Business
Days after such presentation and surrender.
Sears will pay any administrative costs imposed by banks in connection with
sending payments by wire transfer, but any tax, assessment or governmental
charge imposed upon payments will be borne by the Holders of the Notes in
respect of which payments are made.
For further information concerning payments of principal and interest on
Book-Entry Notes, see ``Book-Entry Notes''.
Payment Currency
If the principal of or interest on any Note is payable in a Specified
Currency other than U.S. dollars and such Specified Currency is not
available due to the imposition of exchange controls or other circumstances
beyond its control, Sears will be entitled to satisfy its obligations to
Holders of the Notes by making such payment in U.S. dollars on the basis of
the most recently available Market Exchange Rate. Any payment made under
such circumstances in U.S. dollars where the required payment is in a
Specified Currency other than U.S. dollars will not constitute a default
under the Indenture.
Book-Entry Notes
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that Sears believes to be reliable, but
Sears takes no responsibility for the accuracy thereof.
Book-Entry Notes will initially be represented by one or more Global Notes
registered in the name of the nominee of DTC except as set forth below.
Book-Entry Notes will be available for purchase in minimum denominations of
$100,000 and any larger amount in integral multiples of $1,000 in
book-entry form. Sears has been informed by DTC that DTC's nominee will be
Cede. Accordingly, Cede is expected to be the Holder of the Global Notes.
Unless and until Certificated Notes are issued under the limited
circumstances described herein, no person acquiring an interest in the
Book-Entry Notes (a ``Book-Entry Note Owner'') will be entitled to receive
a certificate representing such person's interest in the Book-Entry Notes,
all references herein or in the Prospectus to actions by Holders shall
refer to actions taken by DTC upon instructions from its Participants (as
defined below), and all references herein or in the Prospectus to payments
to Holders shall refer to payments to DTC or Cede, as the registered Holder
of the Global Notes, for distribution to Book-Entry Note Owners in
accordance with DTC procedures.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a ``banking organization'' within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a ``clearing corporation''
within the meaning of the New York Uniform Commercial Code, and a
``clearing agency'' registered pursuant to the provisions of Section 17A of
the Securities Exchange Act of 1934. DTC holds securities that its
participants (``Participants'') deposit with DTC. DTC also facilitates the
settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating the need
for physical movement of securities certificates. Direct Participants
include securities brokers and dealers (including the Agents), banks, trust
companies, clearing corporations and certain other organizations. DTC is
owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly (``Indirect
Participants''). The Rules applicable to DTC and its Participants are on
file with the Securities and Exchange Commission.
Book-Entry Note Owners that are not Participants or Indirect Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Book-Entry Notes may do so only through Participants and
Indirect Participants. In addition, Book-Entry Note Owners will receive all
payments of principal, premium, if any, and interest from the Trustee
through Participants and, if applicable, Indirect Participants. Under a
book-entry format, Book-Entry Note Owners may experience some delay in
their receipt of payments, since such payments will be forwarded by the
Trustee to Cede, as nominee for DTC. DTC will forward such payments to its
Participants which thereafter will forward them to Indirect Participants or
Book-Entry Note Owners. It is anticipated that the only ``Holder'' will be
Cede, as nominee of DTC. Book-Entry Note Owners will not be recognized by
the Trustee as Holders, as such term is used in the Indenture, and
Book-Entry Note Owners will only be permitted to exercise the rights of
Holders indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the ``Rules''), DTC is required to make book-entry
transfers among Participants on whose behalf it acts with respect to the
Book-Entry Notes and is required to receive and transmit payments of
principal, premium, if any, and interest on the Book-Entry Notes.
Participants and Indirect Participants with which Book-Entry Note Owners
have accounts with respect to the Book-Entry Notes similarly are required
to make book-entry transfers and receive and transmit such payments on
behalf of their respective Book-Entry Note Owners.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Book-Entry Note Owner to pledge Book-Entry Notes to persons or entities
that do not participate in the DTC system, or otherwise take actions in
respect of such Book-Entry Notes, may be limited due to the lack of a
physical certificate for such Book-Entry Notes.
DTC has advised Sears that it will take any action permitted to be taken by
a Holder under the Indenture only at the direction of one or more
Participants to whose account with DTC the Book-Entry Notes are credited.
Certificated Notes will be issued to Book-Entry Note Owners or their
nominees, rather than to DTC or its nominees only if (i) Sears advises the
Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as Depository with respect to the Book-Entry
Notes, and the Trustee or Sears is unable to locate a qualified successor,
or (ii) Sears, at its option, elects to terminate the book-entry system
through DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Certificated Notes. Upon surrender by DTC of a
Global Note representing the Book-Entry Notes and instructions for
re-registration, the Trustee will issue the Book-Entry Notes in the form of
Certificated Notes, and thereafter the Trustee will recognize the
registered holders of such Certificated Notes as Holders under the
Indenture. In certain limited circumstances involving the issuance of
Certificated Notes in exchange for Global Notes, the minimum authorized
denomination of Notes may be $1,000 or any integral multiple thereof.
Special Redemption Provisions
Sears right to redeem the Notes under specified circumstances in the event
of declining receivables as set forth under ``Description of Debt
Securities-Special Redemption Provisions'' in the Prospectus will not apply
to Notes having a stated maturity at time of issue of seven years or less.
Modification or Amendment of the Indenture
For the purpose of determining whether the consent of Holders of the
requisite percentage of principal amount of Notes to a modification or
alteration of the Indenture has been obtained, the principal amount of
Notes denominated in a Foreign Currency will be the amount in U.S. dollars
based upon the Market Exchange Rate for such Foreign Currency on the latest
date for which such rate was established on or before the date for
determining the Holders entitled to perform such act. (Section 2.11). See
``Description of Debt Securities-Modification or Amendment of the
Indenture'' in the Prospectus.
FOREIGN CURRENCY RISKS
General
Exchange Rates and Exchange Controls. An investment in securities
denominated in foreign currencies entails significant risks that are not
associated with investments denominated in U.S. dollars. Such risks
(``Foreign Currency Risks'') include, without limitation, the possibility
of significant changes in rates of exchange between the U.S. dollar and the
various foreign currencies and the possibility of the imposition or
modification of foreign exchange controls by either the U.S. or foreign
governments. Foreign Currency Risks generally depend on economic and
political events over which Sears has no control. In recent years, rates of
exchange between the U.S. dollar and certain foreign currencies have been
highly volatile and such volatility may be expected in the future.
Fluctuations in any particular exchange rate that have occurred in the past
are not necessarily indicative, however, of fluctuations in the rate that
may occur during the term of any Note. On a U.S. dollar basis, depreciation
of the currency specified in a Note against the U.S. dollar would result in
a decrease in the effective yield of such Note below its coupon rate and in
certain circumstances could result in a loss to the investor.
FACTORS PRODUCING FOREIGN CURRENCY RISKS, INCLUDING RATES OF EXCHANGE,
CHANGE CONTINUOUSLY. THIS PROSPECTUS SUPPLEMENT CONTAINS A SUMMARY OF
CERTAIN RISKS OF AN INVESTMENT IN THE NOTES THAT RESULT FROM THE NOTES
BEING DENOMINATED IN A FOREIGN CURRENCY. PROSPECTIVE INVESTORS SHOULD
CONSULT THEIR OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY
AN INVESTMENT IN THE NOTES. THE NOTES, WHEN DENOMINATED IN OTHER THAN U.S.
DOLLARS, ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE
UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
The information set forth in this Prospectus Supplement is directed to
prospective purchasers who are United States residents, and Sears disclaims
any responsibility to advise prospective purchasers who are residents of
countries other than the United States with respect to any matters that may
affect the purchase, holding or receipt of payments of principal of and
interest on the Notes. Such persons should consult their own financial and
legal advisors with regard to such matters.
Governing Law and Judgments. The Notes will be governed by and construed in
accordance with the laws of the State of Illinois. If an action based on
the Notes resulted in a judgment against Sears in a court in the United
States, it is likely that the court would grant judgment relating to the
Notes only in U.S. dollars. It is not clear, however, whether, in granting
such judgment, the rate of conversion into U.S. dollars would be that in
effect on the date of default, the date the judgment was rendered, or some
other date.
Exchange Controls, Etc. Governments have imposed from time to time and may
in the future impose exchange controls which could affect exchange rates as
well as the availability of a Specified Currency at the time of payment of
principal of or interest on a Note. Even if there were no actual exchange
controls, it is possible that the Specified Currency for any particular
Note would not be available at the time of such payments. In that event,
Sears will make required payments in U.S. dollars on the basis of the
Market Exchange Rate on the date of such payment, or if such rate of
exchange is not then available, on the basis of the last available Market
Exchange Rate. See ``Description of Notes-Payment Currency''.
With respect to any Note denominated in other than U.S. dollars, the
Pricing Supplement will include information with respect to the applicable
Specified Currency (which supplement shall include information with respect
to applicable current foreign exchange controls, if any). The information
therein concerning rates of exchange is furnished as a matter of
information only and should not be regarded as indicative of the range of
or trends in fluctuations in currency exchange rates that may occur in the
future.
UNITED STATES TAX CONSIDERATIONS
The following summary of the principal United States federal income tax
consequences of the ownership of Notes is based upon the opinion, set forth
in full below, of Baker & McKenzie, special United States tax counsel to
Sears. For purposes of this discussion of United States Tax Considerations,
with respect to Book-Entry Notes, the term ``Holder'' refers only to
Book-Entry Note Owners, and with respect to Certificated Notes, the term
``Holder'' refers to the registered Holder. The discussion deals only with
Notes held as capital assets and does not deal with special tax situations,
such as dealers in securities or currencies, Holders whose functional
currency is not the United States dollar, or persons holding Notes as a
hedge against currency risks or as part of a larger integrated financial
transaction. Persons considering the purchase of Notes should consult their
own tax advisors concerning the application of United States federal income
tax laws to their particular situations and any consequences arising under
the laws of any other taxing jurisdiction.
Notes may be issued under the Indenture providing for payments of principal
in amounts to be determined by reference to an index. Notes may also be
issued under the Indenture with a term of 12 months or less at issue prices
of less than their stated redemption price at maturity, giving rise to
original issue discount for federal income tax purposes. Notes may also be
issued under the Indenture with original issue discount which are
denominated in more than one currency. Federal income tax consequences and
other special considerations applicable to any such Notes will be described
in the Pricing Supplement relating thereto. Certain Notes bearing original
issue discount and certain Floating Rate Notes, in either case with a
maturity date more than five years from the issue date, may constitute
``high yield original issue discount obligations'' for federal income tax
purposes. The United States federal income and estate tax consequences for
Holders of Notes constituting high yield original issue discount
obligations will be discussed in the Pricing Supplements relating to any
such Notes.
In the opinion of Baker & McKenzie, all Notes issued under the Indenture
will be properly characterized as indebtedness of Sears, and Sears will so
characterize all such Notes for all United States federal income tax
purposes. This characterization by Sears will be binding on every Holder of
a Note, unless the Holder discloses its inconsistent characterization on
such Holder's federal income tax return. The Internal Revenue Service will
not be bound by the characterization of the Notes by Sears and the Holders.
United States Holders
As used herein, ``United States Holder'' means a Holder of a Note who is,
or which is, a United States Person. A ``United States Person'' is (i) a
citizen or resident of the United States of America (including the States
and the District of Columbia), its territories, possessions and other areas
subject to its jurisdiction, including the Commonwealth of Puerto Rico (the
``United States''), (ii) a corporation or partnership created or organized
in the United States or under the laws of the United States or of any State
and (iii) an estate or trust the income of which is subject to United
States federal income taxation regardless of its source.
Payments of Interest and Original Issue Discount. Stated interest on a Note
(whether in a foreign currency or U.S. dollars) will be taxable to a United
States Holder as ordinary interest income at the time it accrues or is paid
in accordance with the United States Holder's method of accounting for tax
purposes, subject to the discussion in the succeeding paragraphs.
If Notes are issued at a discount from their stated redemption price at
maturity equal to or more than one-fourth of one percent of the stated
redemption price at maturity multiplied by the number of full years to
maturity, such Notes will be original issue discount obligations
(``Original Issue Discount Notes''). The difference between the issue price
and the stated redemption price at maturity of each such Original Issue
Discount Note will constitute original issue discount (``Original Issue
Discount''). The stated redemption price at maturity will include all
payments other than interest based on a fixed rate (or a floating rate,
unless otherwise stated in a Pricing Supplement) and payable
unconditionally at fixed periodic intervals of one year or less during the
entire term of the Original Issue Discount Notes (``Stated Interest'').
Each initial Holder of an Original Issue Discount Note will be required to
include in gross income, in each taxable year during which the Original
Issue Discount Note is held, a portion of the Original Issue Discount
calculated on a yield to maturity basis in addition to Stated Interest, if
any, paid on such Note, regardless of the United States Holder's method of
accounting for tax purposes. A United States Holder should be aware that,
because of the above original issue discount rules, such Holder will be
required to include increasingly greater amounts of Original Issue Discount
in gross income in each successive accrual period in advance of the receipt
of the cash attributable to such Original Issue Discount income.
A United States Holder of an Original Issue Discount Note must include in
gross income the sum of the daily portions of Original Issue Discount with
respect to an Original Issue Discount Note for each day during the taxable
year such Holder holds such Note. The daily portion is determined by
allocating to each day of the accrual period a ratable portion of an amount
equal to the excess of (i) the Adjusted Issue Price (as defined below) of
the Original Issue Discount Note at the beginning of the accrual period
multiplied by the yield to maturity of such Note (determined by compounding
at the close of each accrual period and adjusted for the length of the
accrual period) over (ii) the amount payable as Stated Interest, if any, on
such Note during such accrual period. United States Holders may accrue
Original Issue Discount using accrual periods of any length, and such
accrual periods may vary in length over the term of the Original Issue
Discount Note, provided that each accrual period must be no longer than one
year and each scheduled payment of principal or interest must occur either
on the final day of an accrual period or on the first day of an accrual
period.
The Adjusted Issue Price of an Original Issue Discount Note at the start of
any accrual period is the issue price of the Original Issue Discount Note
increased by the amount of Original Issue Discount accrued during all prior
accrual periods. A United States Holder of an Original Issue Discount Note
must include in income accrued Original Issue Discount regardless of
whether such Holder uses a cash receipts and disbursements method of tax
accounting or an accrual basis of tax accounting.
The face of each Original Issue Discount Note will set forth the issue
date, issue price, yield to maturity, amount of Original Issue Discount and
any other information required by Treasury regulations. Sears will furnish
to the Internal Revenue Service the amount of Original Issue Discount, the
issue date and any additional information required by Treasury regulations.
Holders, including subsequent Holders, will be required to determine for
themselves the reportable amount of Original Issue Discount income for a
year.
For a Holder who uses a cash receipts and disbursements basis of tax
accounting, if a receipt of payment of stated interest is denominated in a
foreign currency, the amount of interest income will be the U.S. dollar
value of the foreign currency payment amount translated at the spot rate on
the payment date, regardless of whether the payment is in fact converted to
U.S. dollars. For a Holder who uses an accrual basis of tax accounting, if
an accrual of interest is denominated in a foreign currency, the amount of
interest income will be the U.S. dollar value of the amount of interest
accrued in foreign currency translated at the appropriate accrual
translation rate. The ``appropriate accrual translation rate'' is the
average spot rate in effect during such accrual period or, at the Holder's
election, the spot rate on the last day of such accrual period (or on the
day of receipt of such interest if such day is within five days of the end
of the applicable accrual period). If the latter translation convention is
elected, such convention will apply with respect to all other debt
instruments held by the Holder during or after the taxable year for which
the election is made. Upon receipt of the interest payment in foreign
currency or upon disposition of the Note, a Holder will recognize currency
gain or loss with respect to the accrued interest equal to the difference
between the Holder's accrued foreign currency interest income translated at
the appropriate accrual translation rate and the U.S. dollar value of the
foreign currency payment translated at the spot rate on the payment date,
regardless of whether the payment is in fact converted to U.S. dollars.
In the case of Original Issue Discount Notes, Treasury regulations provide
similar rules for both cash basis and accrual basis United States Holders
for calculating currency gain or loss with respect to accrued Original
Issue Discount. Original Issue Discount will accrue in the currency in
which the Note is denominated and will be translated into U.S. dollars at
the appropriate accrual translation rate. Upon receipt of the accrued
Original Issue Discount or the disposition of the Note, such a Holder will
recognize currency gain or loss with respect to the accrued Original Issue
Discount equal to the difference between the Holder's accrued Original
Issue Discount income translated at the appropriate accrual translation
rate and the U.S. dollar value of the foreign currency payment translated
at the spot rate on the payment date or the date of disposition.
Currency gain or loss recognized by a Holder upon receipt of a foreign
currency payment will be treated as ordinary income or loss. In accordance
with current Treasury regulations, currency gain or loss will not be
treated as interest income or expense.
If a United States Holder acquires a Note (including an Original Issue
Discount Note) other than upon original issue for an amount less than the
principal amount or, in the case of an Original Issue Discount Note, less
than the Revised Issue Price (defined as the sum of the issue price of the
Note and the aggregate amount of Original Issue Discount includible in
gross income for all periods prior to the acquisition without regard to
acquisition premium) of such Original Issue Discount Note on the date of
acquisition, the Note may be considered to be a ``market discount bond''.
As a result, a portion of the gain on the sale or redemption of the Note
(see ``United States Tax Considerations-United States Holders-Purchase,
Sale and Redemption of Notes'') equal to the amount of market discount
accrued with respect to the Note while it was held by the United States
Holder will be treated as interest income. In addition, interest on
indebtedness incurred or continued to purchase or carry a Note that is a
market discount bond, to the extent that it exceeds in any year the
interest (including Original Issue Discount) on the Note includible in the
United States Holder's income for that year, may not be fully deductible in
that year. The foregoing market discount rules will not apply if the United
States Holder elects to include in income in each taxable year the portion
of the market discount attributable to that year (accrued on either a
straight line or constant interest rate basis) with respect to all market
discount bonds acquired during or after the taxable year in which such
election is made. In the case of a Note denominated in a foreign currency,
the amount of market discount will be determined in units of foreign
currency in which the Note is denominated. Unless the Holder elects to
include in income in each taxable year such market discount, the resultant
market discount is required to be translated at the spot rate on the date
of sale or redemption of the Note. No part of such market discount is
treated as currency gain or loss. If the Holder elects to include in income
in each taxable year such market discount, the accrued market discount
currently includible in income will be translated at the average spot rate
for the accrual period. Currency gain or loss with respect to accrued
market discount currently includible in income will be determined in a
manner similar to that for accrued Original Issue Discount as discussed
above.
If a United States Holder acquires a Note other than upon original issue
for an amount more than the redemption price, a Holder may elect to
amortize such bond premium on a yield to maturity basis. In the case of a
Note denominated in a foreign currency, the amount of bond premium will be
determined in units of the foreign currency in which the Note is
denominated. If a Holder elects to amortize such bond premium, the amount
of accrued bond premium in units of foreign currency in each taxable year
will reduce interest income in units of foreign currency for such taxable
year. Currency gain or loss will be taken into account with respect to
accrued bond premium in each taxable year by treating the portion of
premium amortized with respect to any period as a return of principal (see
``United States Tax Considerations-United States Holders-Purchase, Sale and
Redemption of Notes'').
If a United States Holder acquires an Original Issue Discount Note other
than upon original issue for an amount more than the Revised Issue Price of
such Note on the date of acquisition, but less than the redemption price of
such Note, such a Holder will be required to reduce each daily portion of
accrued Original Issue Discount by an allocable portion of such acquisition
premium. The allocable portion of such acquisition premium will be equal to
the daily portion of accrued Original Issue Discount multiplied by a
fraction (i) the numerator of which is the excess of the cost of the
Original Issue Discount Note incurred by such Holder over the Revised Issue
Price of such Note on the date of acquisition and (ii) the denominator of
which is the excess of the stated redemption price of the Original Issue
Discount Note at maturity over the Revised Issue Price of such Note on the
date of acquisition. In the case of an Original Issue Discount Note
denominated in a foreign currency, the amount of acquisition premium will
be determined in units of foreign currency in which the Note is
denominated. The amount of the allocable portion of acquisition premium in
units of foreign currency in each taxable year will reduce accrued Original
Issue Discount in units of foreign currency for such taxable year. Currency
gain or loss will be taken into account with respect to accrued acquisition
premium in each taxable year by treating the portion of acquisition premium
amortized with respect to any period as a return of principal (see ``United
States Tax Considerations-United State Holders-Purchase, Sale and
Redemption of Notes'').
A Holder may elect to include in gross income its entire return on a Note
(i.e., the excess of all remaining payments to be received on the Note over
the amount paid for such Note by the Holder) based on the compounding of
interest at a constant rate. This election for a Note with amortizable bond
premium or market discount results in a deemed election to apply the same
accrual principles to all of the Holder's debt instruments with amortizable
bond premium or market discount. This election may be revoked only with the
consent of the IRS.
Purchase, Sale and Redemption of Notes. A United States Holder's tax basis
in a Note will be its U.S. dollar cost. Such Holder's original tax basis in
a Note will be increased by (i) the net amount of accrued Original Issue
Discount included in income and (ii) the amount of accrued market discount
included in income. Such Holder's tax basis in a Note will be decreased by
(i) the amount of accrued bond premium and (ii) payments other than Stated
Interest received by the Holder with respect to a Note. Although the issue
has not yet been directly addressed by Treasury regulations, in the case of
a Note denominated in a foreign currency, such Holder's original tax basis
likely will be increased by (i) the net amount of accrued Original Issue
Discount income in units of foreign currency translated at the appropriate
accrual translation rate in effect during such accrual period and (ii) the
amount of accrued market discount included in income in units of foreign
currency translated at the average spot rate in effect during such accrual
period. Such Holder's tax basis likely will be decreased by (i) payments
treated as receipts of accrued bond premium in units of foreign currency
translated at the spot rate on the date of acquisition; (ii) payments
treated as receipts of accrued Original Issue Discount translated at the
appropriate accrual translation rates, or accrued market discount
translated at the average spot rate, for the relevant accrual period; and
(iii) payments treated as receipts of principal translated at the spot rate
on the date of acquisition. In accordance with current Treasury
regulations, payments in units of foreign currency received on a Note by
such a Holder will be treated first as a receipt of Stated Interest, second
as a receipt of Original Issue Discount to the extent accrued, and finally
as a receipt of principal.
Subject to the discussion below and the discussion of Notes which are
market discount bonds (see ``United States Tax Considerations-United States
Holders-Payments of Interest and Original Issue Discount''), upon the sale
or redemption of a Note, a United States Holder will recognize capital gain
or loss equal to the difference between the amount realized on the sale or
redemption of the Note and the tax basis of the Note. The amount realized
on a sale or redemption of a Note denominated in a foreign currency will be
equal to the sale proceeds or redemption price in units of foreign currency
translated at the spot rate on the date of sale or redemption. Except to
the extent described in the next paragraph or described in ``United States
Tax Considerations-United States Holders-Payments of Interest and Original
Issue Discount'', gain or loss will be long-term capital gain or loss if at
the time of the sale or redemption the Note has been held for more than one
year.
Except to the extent described in the discussion of market discount bonds
(see ``United States Tax Considerations-United States Holders-Payments of
Interest and Original Issue Discount''), the portion of the gain or loss
recognized by a United States Holder on the sale or redemption of a Note
that is attributable to changes in exchange rates will be treated as
ordinary income or loss. If a United States Holder acquires a Note
denominated in a foreign currency on or after the date of original issue,
such Holder's currency gain or loss with respect to principal will be
calculated by multiplying the principal amount in units of foreign currency
by the change in spot rates between the date such Holder acquired the Note
and the date it was sold or redeemed. For purposes of computing currency
gain or loss, the principal amount of a Note will be a Holder's purchase
price for the Note in units of foreign currency. The sum of any currency
gain or loss with respect to the principal of and accrued but unpaid
interest (including accrued but unpaid Original Issue Discount, if any) on
a Note will be realized only to the extent of the total gain or loss
realized on the sale or redemption.
Exchange of Foreign Currency. Foreign currency received as interest on a
Note or on the sale or redemption of a Note will have a tax basis equal to
its U.S. dollar value (translated at the spot rate) at the time such
interest is received or at the time of sale or redemption of the Note.
Foreign currency purchased will generally have a tax basis equal to the
U.S. dollar cost of acquisition. Any gain or loss recognized on a sale or
other disposition of the foreign currency (including its use to purchase
Notes or its exchange for U.S. dollars) will be ordinary income or loss.
Foreign Holders
U.S. Withholding Tax. Under United States federal income tax laws now in
effect, and subject to the discussion of backup withholding which follows,
payments by Sears or any paying agent thereof (in its capacity as such) of
principal of and interest (including payments of Original Issue Discount,
if any) on (and premium, if any, on) a Note to a Holder who is not a United
States Person will not be subject to United States federal withholding tax,
provided in the case of interest (including payments of Original Issue
Discount, if any) that (i) such Holder does not actually or constructively
own 10 percent or more of the total combined voting power of all classes of
stock of Sears entitled to vote; (ii) such Holder is not a controlled
foreign corporation for United States tax purposes with respect to which
Sears is a ``related person'' as defined in the Code; and (iii) (A) the
beneficial owner of the Note provides a signed written statement to Sears
or its agent, under penalties of perjury, that certifies that it is not a
United States Person and provides its name and address, (B) a securities
clearing organization, bank or other financial institution that holds
customers' securities in the ordinary course of its trade or business (a
``Financial Institution'') and holds the Note on behalf of the beneficial
owner provides an intermediary certificate to Sears or its agent under
penalties of perjury that such a statement has been received from the
beneficial owner by it or by a Financial Institution between it and the
beneficial owner and furnishes the payor with a copy thereof, or (C) a
securities clearing organization that is the last intermediary in the chain
before Sears or its agent (a ``qualified clearing organization'')
electronically provides an intermediary certificate to Sears or its agent
under penalties of perjury that such a statement has been received from the
beneficial owner by it or by an intermediary that is a member of the
qualified clearing organization and agrees to furnish (or to cause the
relevant member intermediary to furnish) promptly upon the request of Sears
or the Internal Revenue Service such statement. A statement described in
this paragraph is effective only with respect to interest payments made to
the certifying Holder after the issuance of the statement in the calendar
year of its issuance and the two immediately succeeding calendar years.
U.S. Income Tax. Except for the possible imposition of United States
withholding tax (see ``United States Tax Considerations-Foreign
Holders-U.S. Withholding Tax'') and backup withholding tax (see ``United
States Tax Considerations-Backup Withholding''), payments of principal of
and interest (including accrued Original Issue Discount, if any) on (and
premium, if any, on) a Note to a Holder who is not a United States Person
will not be subject to United States federal income tax, and gains from the
sale, redemption or other disposition of a Note will not be subject to
United States federal income tax, provided that:
(a) The Holder (or the fiduciary, settlor, or beneficiary of, or a
person holding a power over, such Holder, if such Holder is an estate
or trust; or a partner of such Holder, if such Holder is a
partnership) shall not be or have been engaged in a trade or business,
or be or have been present in, or have or have had a permanent
establishment in the United States;
(b) There shall not have been a present or former connection between
such Holder (or between the fiduciary, settlor, or beneficiary of, or
a person holding a power over, such Holder, if such Holder is an
estate or trust; or a partner of such Holder, if such Holder is a
partnership) and the United States, including, without limitation,
such Holder's status as a citizen or former citizen thereof or
resident or former resident thereof; and
(c) The Holder (or the fiduciary, settlor, or beneficiary of, or a
person holding a power over, such Holder, if such Holder is an estate
or trust; or a partner of such Holder, if such Holder is a
partnership) is not and has not been, for United States tax purposes,
(i) a personal holding company, (ii) a corporation that accumulates
earnings to avoid United States federal income tax, or (iii) a person
treated as making an election the effect of which is to make payments
of principal of and interest (including accrued Original Issue
Discount, if any) on (and premium, if any, on) Notes subject to United
States federal income tax.
If a Holder who is not a United States Person is engaged in a trade or
business in the United States and interest (including accrued Original
Issue Discount, if any), gain or income in respect of a Note of such Holder
is effectively connected with the conduct of such trade or business, the
Holder, although exempt from the withholding tax discussed in the preceding
paragraphs, may be subject to United States income tax on such interest
(including accrued Original Issue Discount, if any), gain or income at the
statutory rates provided for United States Persons after deduction of
deductible expenses allocable to such effectively connected interest, gain
or income. In addition, if such a Holder is a foreign corporation, it may
be subject to a branch profits tax equal to 30% of its effectively
connected earnings and profits for the taxable year, as adjusted for
certain items, unless a lower rate applies under a United States income tax
treaty with the Holder's country of residence. For this purpose, interest
(including accrued Original Issue Discount, if any), gain or income in
respect of a Note will be included in earnings and profits subject to the
branch tax if the interest (including accrued Original Issue Discount, if
any), gain or income is effectively connected with the conduct of the
United States trade or business of the Holder.
U.S. Estate Tax. A Note held by an individual who at the time of death is
not a citizen or resident of the United States will generally not be
subject to United States federal estate tax if the individual does not
actually or constructively own 10% or more of the total combined voting
power of all classes of stock of Sears and interest (including accrued
Original Issue Discount, if any) on the Note is not effectively connected
with a United States trade or business of the individual.
Backup Withholding
A 31% ``backup'' withholding tax and information reporting requirements
apply to certain payments of principal of and interest (including payments
of Original Issue Discount, if any) on (and premium, if any, on) an
obligation, and to proceeds of the sale of an obligation before maturity,
to certain noncorporate United States Holders, if such Holders fail to
provide correct taxpayer identification numbers and other information or
fail to comply with certain other requirements. Sears, its paying agent, or
a broker, as the case may be, will be required to withhold from any payment
that is subject to backup withholding, a tax equal to 31% of such payment
unless the Holder furnishes its taxpayer identification number in the
manner prescribed in applicable Treasury regulations and certain other
conditions are met.
In the case of payments of principal of and interest (including payments of
Original Issue Discount, if any) on (and premium, if any, on) Notes by
Sears or paying agents of Sears to Holders who are not United States
Persons, temporary Treasury regulations provide that backup withholding and
information reporting will not apply if the Holder has provided the
required certification of its non-United States status under penalties of
perjury or has otherwise established an exemption (provided that neither
Sears nor its paying agent has actual knowledge that the Holder is a United
States Person or the conditions of any other exemption are not in fact
satisfied). In addition, if payment is collected by a foreign office of a
custodian, nominee or other agent acting on behalf of an owner of a Note,
such custodian, nominee or other agent will not be required to apply backup
withholding to its payments to such owner. However, in such case if the
custodian, nominee or other agent is a United States Person, a controlled
foreign corporation for United States federal income tax purposes, or a
foreign person 50% or more of whose gross income is from a United States
trade or business for a specified three-year period, such custodian,
nominee or other agent will be subject to certain information reporting
requirements with respect to such payment unless such custodian, nominee or
other agent has evidence in its records that the Holder is not a United
States Person and no actual knowledge that such evidence is false or the
Holder otherwise establishes an exemption or is an exempt recipient. An
exempt recipient includes a bank, corporation or Financial Institution.
Under current regulations, payments of the proceeds of the sale of a Note
by a Holder who is not a United States Person to or through a foreign
office of a broker will not be subject to backup withholding. Payments by
foreign offices of a broker that is a United States Person, a controlled
foreign corporation for United States federal income tax purposes or a
foreign person 50% or more of whose gross income is from a United States
trade or business for a specified three-year period are currently subject
to certain information reporting requirements, unless the payee is an
exempt recipient or the broker has evidence in its records that the payee
is not a United States Person and no actual knowledge that such evidence is
false. Payments of the proceeds of a sale to or through the United States
office of a broker will be subject to information reporting and backup
withholding unless the payee certifies under penalty of perjury that he is
not a United States Person and provides his name and address or the payee
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to a
Holder will be allowed as a refund or a credit against such Holder's United
States federal income tax, provided that the required information is
furnished to the United States Internal Revenue Service.
The foregoing is based on the Internal Revenue Code of 1986, as amended,
regulations, rulings, administrative pronouncements and judicial decisions
as of the date hereof. Subsequent developments in these areas could have a
material effect on this opinion.
PLAN OF DISTRIBUTION
The Notes are offered on a continuing basis by Sears through the Agents,
each of which has agreed to use its reasonable efforts to solicit purchases
of the Notes. Sears will pay each Agent a commission ranging from .125% to
.750% of the principal amount of Notes sold through such firm as Agent,
depending on maturity. Sears has also agreed to reimburse the Agents for
certain of their expenses.
Sears may also sell the Notes to any Agent, as principal, at negotiated
discounts for resale to investors or other purchasers. Sears reserves the
right to sell Notes directly on its own behalf in those jurisdictions where
it is authorized to do so. No commission will be payable on any sales made
directly by Sears.
Each Agent may act as an agent for sales of Notes, or may offer the Notes
they have purchased as principal, to or through dealers and, unless
otherwise specified in the applicable Pricing Supplement, such dealers may
receive compensation in the form of discounts, concessions or commissions
from the Agents not in excess of 66-2/3% of the discount or commission
received by the Agent from Sears.
Unless otherwise indicated in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price
equal to 100% of the principal amount thereof less a percentage equal to
the commission applicable to an agency sale of a Note of identical
maturity, and may be resold by the Agent to investors and other purchasers
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices related
to prevailing prices determined at the time of sale or may be resold to or
through certain dealers as described above. After an initial public
offering of Notes purchased by an Agent as principal which are to be resold
to investors and other purchasers on a fixed public offering price basis,
the offering and other selling terms may be varied by such Agent. The
applicable Pricing Supplement may set forth further information with
respect to distribution of the Notes.
Sears will have the sole right to accept offers to purchase Notes and may
reject any proposed purchase of Notes. Each Agent will have the right, in
its discretion reasonably exercised, to reject any offer received by it.
Payment of the purchase price of Notes will be required to be made in
immediately available funds.
Each Agent may be deemed to be an ``underwriter'' within the meaning of the
Securities Act of 1933, as amended (the ``Securities Act''). Sears has
agreed to indemnify the Agents against certain liabilities, including
liabilities under the Securities Act.
The Notes are a new issue of securities with no established trading market.
The Agents have informed Sears that they intend to make a market in the
Notes, but are under no obligation to do so and such market making may be
discontinued at any time. No assurance can be given as to the liquidity of
a trading market for the Notes.
In the course of their respective businesses, certain of the Agents and
their affiliates have engaged, and may in the future engage, in investment
banking transactions with Sears or certain of its affiliates.
Sears, Roebuck and Co.
Debt Securities
Sears, Roebuck and Co. (``Sears'') from time to time may offer up to
$2,000,000,000 aggregate principal amount of its debt securities consisting
of debentures, notes and/or other unsecured evidences of indebtedness (the
``Debt Securities''). If so provided in the accompanying Prospectus
Supplement, the Debt Securities of any series may be represented in whole
or in part by one or more global notes (``Global Notes'') registered in the
name of a depository's nominee and, if so represented, beneficial interests
in such Global Notes will be shown on, and transfers thereof will be
effected only through, records maintained by the depository and its
participants. The Debt Securities may be offered as separate series in
amounts, at prices and on terms to be set forth in supplements to this
Prospectus. Sears may sell Debt Securities to or through underwriters, and
also may sell Debt Securities directly to other purchasers or through
agents. See ``Plan of Distribution''. Such underwriters may include any or
all of Dean Witter Reynolds Inc., Goldman, Sachs & Co. and Morgan Stanley &
Co. Incorporated, or may be a group of underwriters represented by firms
including any or all of such firms. Such firms, and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Salomon Brothers
Inc, may also act as agents.
The terms of the Debt Securities, including, where applicable, the specific
designation, aggregate principal amount, denominations, maturity, premium,
if any, rate (which may be fixed or variable) and time of payment of
interest, if any, terms for redemption at the option of Sears or the
Holder, terms for sinking fund payments, the initial public offering price,
the names of, and the principal amounts, if any, to be purchased by
underwriters and the compensation of such underwriters, deferred pricing
arrangements, if any, and the other terms in connection with the offering
and sale of the Debt Securities in respect of which this Prospectus is
being delivered, are set forth in the accompanying Prospectus Supplement or
Prospectus Supplements (the ``Prospectus Supplement'').
As used herein, Debt Securities shall include securities denominated in
U.S. dollars or, at the option of Sears if so specified in the applicable
Prospectus Supplement, in any other currency or in composite currencies or
in amounts determined by reference to an index.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Dean Witter Reynolds Inc.
Goldman, Sachs & Co.
Merrill Lynch & Co.
Morgan Stanley & Co.
Incorporated
Salomon Brothers Inc
The date of this Prospectus is April 25, 1995
No dealer, salesman or other person has been authorized to give any
information or to make any representation other than those contained or
incorporated by reference in this Prospectus and, if given or made, such
information or representation must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the registered
securities to which it relates or an offer to sell or the solicitation of
an offer to buy such securities in any jurisdiction to any person to whom
it is unlawful to make such offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information is correct as of any time subsequent to its date.
TABLE OF CONTENTS
Page
Available Information 3
Incorporation of Certain Documents by Reference 3
The Company 4
Use of Proceeds 4
Summary Financial Information 5
Ratio of Income to Fixed Charges 6
Description of Debt Securities 7
Plan of Distribution 11
Legal Opinion 12
Experts 12
AVAILABLE INFORMATION
Sears is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the ``Exchange Act''), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the ``Commission''). Such reports,
proxy statements and other information can be inspected and copied at the
public reference facilities of the Commission at Room 1024, 450 Fifth
Street N.W., Washington, D.C. 20549; 7 World Trade Center, 13th Floor, New
York, New York 10048; and Suite 1400, Northwestern Atrium Center, 500 W.
Madison Street, Chicago, Illinois 60606; and copies of such materials can
be obtained from the public reference section of the Commission at 450
Fifth Street N.W., Washington, D.C. 20549, at prescribed rates. Reports,
proxy statements and other information concerning Sears can also be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005, the Chicago Stock Exchange Incorporated,
440 South LaSalle Street, Chicago, Illinois 60605, and the Pacific Stock
Exchange, Inc., 301 Pine Street, San Francisco, California 94104.
Additional information regarding Sears and its consolidated subsidiaries
and the Debt Securities is contained in the Registration Statement and the
exhibits relating thereto, filed with the Commission under the Securities
Act of 1933, as amended (the ``Act''). For further information pertaining
to Sears and its consolidated subsidiaries and the Debt Securities,
reference is made to the Registration Statement, and the exhibits thereto,
which may be inspected without charge at the office of the Commission at
450 Fifth Street N.W., Washington, D.C. 20549, and copies thereof may be
obtained from the Commission at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Annual Report on Form 10-K for the year ended December 31, 1994 and the
Current Reports on Form 8-K dated January 17, February 7 and April 20,
1995, filed by Sears with the Commission pursuant to Section 13 of the
Exchange Act, and the proxy statement dated February 21, 1995 relating to a
Special Meeting of Shareholders held on March 31, 1995 to consider and vote
on a proposal that provides for the distribution to the holders of Sears
common shares of all of the common stock of The Allstate Corporation that
is owned by Sears filed by Sears pursuant to Section 14 of the Exchange
Act, are incorporated in and made a part of this Prospectus by reference.
All documents filed by Sears with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Prospectus and prior to the termination of the offering of the Debt
Securities (other than those portions of such documents described in
paragraphs (i), (k) and (l) of Item 402 of Regulation S-K promulgated by
the Commission) shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such
documents.
Sears will provide without charge to each person to whom a copy of this
Prospectus is delivered, on the written or oral request of any such person,
a copy of any or all of the documents incorporated herein by reference (not
including exhibits to such documents unless such exhibits are specifically
incorporated by reference in such documents). Written or telephone requests
for such copies should be directed to Sears, Roebuck and Co., Sears Tower,
Chicago, Illinois 60684, Attention: Director of Investor Relations, Dept.
962 (312/875-1468).
THE COMPANY
Sears originated from an enterprise established in 1886. It was
incorporated under the laws of New York in 1906. Its general offices are
located at Sears Tower, Chicago, Illinois 60684 (312/875-2500). Sears and
its consolidated subsidiaries (the ``Company'') conduct Domestic and
International merchandising operations. The Company, through Sears
Merchandise Group, a multi-line retailer, is among the largest retailers in
the world on the basis of sales of merchandise and services.
Domestic operations include Domestic merchandising and Domestic credit.
Domestic merchandising consists of the Company's core merchandising and
product services businesses in the United States and Puerto Rico. Domestic
credit operations primarily relate to the SearsCharge card, the largest
proprietary credit card in the United States, which is used to pay for
purchases of goods and services from Domestic merchandising.
International operations consist of merchandising and credit operations
conducted through majority-owned subsidiaries in Canada and Mexico.
On November 10, 1994, the Company announced a decision to distribute to
Sears common shareholders the Company's interest in its Allstate Insurance
Group (``Allstate'') in a tax-free spin-off (the ``Allstate spin-off'').
Allstate engages in property-liability insurance and life insurance in the
United States and Canada. The business of Allstate is conducted through The
Allstate Corporation (``Allcorp''), an 80.3%-owned subsidiary of the
Company. Sears anticipates that the Allstate spin-off will be effected in
mid-1995 by means of a special dividend to Sears common shareholders of all
of the Allcorp common stock owned by the Company.
In addition, the Company is pursuing the divestiture of Homart Development
Co. (``Homart'') and an affiliated company. Homart and the affiliated
company are wholly-owned subsidiaries of the Company that develop, own and
manage shopping centers and retail community centers and own and manage
office properties. Homart has been treated as a discontinued operation in
the Company's consolidated financial statements.
These transactions are subject to market conditions, final approvals by
Sears Board of Directors and, with respect to the Allstate spin-off, any
required regulatory approvals and a favorable tax ruling or opinion on the
tax-free nature of the spin-off. The Allstate spin-off was approved at a
special meeting of Sears shareholders on March 31, 1995.
The Company's continuing operations employ approximately 360,000 people,
including its Corporate staff.
USE OF PROCEEDS
The net proceeds to be received by Sears from the sale of the Debt
Securities offered hereby will be added to its general funds for general
corporate purposes and initially will be used to effect a reduction of
short-term borrowings. It is anticipated that funds in addition to the net
proceeds from the sale of the Debt Securities will be required from time to
time to continue expansion of the business of Sears and its subsidiaries,
refinance short-term debt and refund portions of existing long-term debt.
Substantial funds for these purposes are expected to be generated from
operations, with the balance from various means of external financing. It
is anticipated that Sears and its subsidiaries will continue their practice
of short-term borrowing and will, from time to time, incur additional
long-term debt, engage in securitization programs in which credit card
receivables are sold in public or private transactions and issue equity
securities.
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain summary consolidated financial
information of the Company for the five years ended December 31, 1994. The
summary information should be read in conjunction with the financial
statements and financial statement schedules of the Company incorporated
herein by reference. Operating results and financial position reflect
Homart, Dean Witter, Discover & Co., the Coldwell Banker Residential
Services businesses, Allstate's group life-health business and the
commercial division of Coldwell Banker as discontinued operations.
1994 1993 1992 1991 1990
(millions)
Operating results
Revenues $54,559 $51,486 $53,110 $51,592 $50,889
Costs and expenses 51,390 47,898 53,253 49,181 48,681
Restructuring 154 - 2,782 - 265
Interest 1,339 1,400 1,389 1,568 1,651
Operating income (loss) 1,676 2,188 (4,314) 843 292
Other income 36 784 20 (22) (38)
Income (loss) before
income taxes (benefit)
and minority interest 1,712 2,972 (4,294) 821 254
Income taxes (benefit)
Current operations 358 404 (1,965) (57) (263)
Fresh start adjustment - - - - (139)
Income (loss) from
continuing operations 1,244 2,420 (2,311) 883 646
Income from discontinued
operations 15 165 252 396 256
Extraordinary gain (loss) 195 (211) - - -
Cumulative effect of
accounting changes - - (1,873) - -
Net income (loss) 1,454 2,374 (3,932) 1,279 902
Financial position
Investments $46,942 $47,753 $40,304 $37,724 $31,785
Receivables 21,969 20,019 18,116 16,677 18,215
Property and equipment,
net 5,041 5,223 5,479 5,846 5,488
Merchandise inventories 4,044 3,518 4,048 4,459 4,074
Net assets of
discontinued operations 473 452 3,549 2,887 2,581
Total assets 91,896 88,925 83,947 77,845 71,050
Insurance reserves 40,136 37,444 35,889 31,612 27,184
Short-term borrowings 6,190 4,636 4,469 1,775 7,462
Long-term debt 10,854 11,640 12,432 16,398 10,782
Total debt 17,044 16,276 16,901 18,173 18,244
Shareholders' equity 10,801 11,664 10,773 14,188 12,824
The following table, which sets forth certain pro forma summary
consolidated financial information of the Company for the year ended
December 31, 1994, assumes Allstate had been treated as a discontinued
operation as of the end of the year. The pro forma summary information is
derived from, and should be read in conjunction with, the pro forma
condensed consolidated statement of income and balance sheet set forth in
the notes to the financial statements of the Company incorporated herein by
reference.
1994
(millions)
Operating results
Revenues $33,025
Costs and expenses 30,320
Interest 1,279
Operating income 1,426
Other income 45
Income before income taxes 1,471
Income taxes 614
Income from continuing operations 857
Financial position
Receivables $18,522
Property and equipment, net 4,253
Inventories 4,044
Net assets of discontinued operations 7,231
Total assets 37,312
Short-term borrowings 6,190
Long-term debt 9,985
Total debt 16,175
Shareholders' equity 10,801
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the results of operations or financial
position that would have occurred; nor is the pro forma information
intended to be indicative of the Company's future results of operations or
financial position.
If the Allstate spin-off is approved by the Board, shareholders' equity
will be reduced by approximately the Company's investment in Allstate. At
December 31, 1994, the Company's investment in Allstate was $6.76 billion.
In addition, The Savings and Profit Sharing Fund of Sears Employees, which
includes an Employee Stock Ownership Plan (the ESOP), will be split into
two different plans, a plan for employees of the Company and it affiliates
other than Allstate and a plan for Allstate employees. The ESOP will be
split with 50% of the unallocated shares in the ESOP and 50% of the ESOP
debt being transfered to the Allstate plan. In connection with this
transfer, Allstate will purchase from the Company 50% of the Company's
remaining loan to the ESOP. The purchase price is expected to be $327
million. In addition, in April 1995, the Company repaid a $450 million note
payable to Allstate related to a capital contribution in 1990.
RATIO OF INCOME TO FIXED CHARGES
The ratio of income to fixed charges for the Company for each of the years
ended December 31, 1994, 1993, 1991 and 1990 was 2.05, 2.76, 1.44 and 1.13,
respectively, and for the year ended December 31, 1992, earnings did not
cover fixed charges by $4,275 million. In the computation of the ratio of
income to fixed charges for the Company, income consists of income from
continuing operations less undistributed net income of unconsolidated
subsidiaries plus fixed charges (excluding capitalized interest) and
federal and state income taxes. Fixed charges consist of interest costs
plus the portion of operating lease rentals which is estimated to represent
the interest element in such rentals.
DESCRIPTION OF DEBT SECURITIES
The following descriptions of the terms of the Debt Securities set forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt
Securities offered by any Prospectus Supplement (the ``Offered Debt
Securities'') and the extent, if any, to which such general provisions may
apply to the Debt Securities so offered will be described in the Prospectus
Supplement relating to such Offered Debt Securities.
The Debt Securities are to be issued under an Indenture (the
``Indenture''), dated as of September 15, 1991, between Sears and Chemical
Bank (successor by merger to Manufacturers Hanover Trust Company), as
Trustee (the ``Trustee''), a copy of which has been filed as an exhibit to
the Registration Statement. The following summaries of certain provisions
of the Debt Securities and the Indenture do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, all
the provisions of the Indenture, including the definitions therein of
certain terms. Whenever particular provisions or defined terms in the
Indenture are referred to herein, such provisions or defined terms are
incorporated by reference.
General
The Debt Securities will be unsecured obligations of Sears.
The Indenture does not limit the amount of Debt Securities that may be
issued thereunder and provides that Debt Securities may be issued
thereunder from time to time in one or more series.
Reference is made to the Prospectus Supplement relating to the particular
series of Offered Debt Securities offered thereby for the following terms
of the Offered Debt Securities: (i) the title of the Offered Debt
Securities; (ii) any limit on the aggregate principal amount of the Offered
Debt Securities; (iii) the date or dates on which the Offered Debt
Securities will mature; (iv) the price (expressed as a percentage of the
aggregate principal amount thereof) at which the Offered Debt Securities
will be issued; (v) the rate or rates (which may be fixed or variable) per
annum at which the Offered Debt Securities will bear interest, if any; (vi)
the date from which such interest, if any, on the Offered Debt Securities
will accrue, the dates on which such interest, if any, will be payable, the
date on which payment of such interest, if any, will commence and the
Regular Record Dates for such Interest Payment Dates, if any; (vii) the
date or dates, if any, after or on which and the price or prices at which
the Offered Debt Securities may, pursuant to any optional or mandatory
redemption provisions, be redeemed at the option of Sears or of the Holder
thereof and the other detailed terms and provisions of such optional or
mandatory redemption; (viii) the dates, if any, on which and the price or
prices at which the Offered Debt Securities will, pursuant to any mandatory
sinking fund provisions, or may, pursuant to any optional sinking fund
provisions, be redeemed by Sears, and the other detailed terms and
provisions of such sinking fund; (ix) if other than the principal amount
thereof, the amount of Offered Debt Securities which shall be payable upon
declaration of acceleration of the Maturity thereof; (x) the terms of any
warrants attached to the Offered Debt Securities; (xi) the currency or
currencies, including European Currency Units or other composite
currencies, in which Offered Debt Securities may be purchased and in which
principal, premium, if any, and interest, if any, on the Offered Debt
Securities will be payable; (xii) any index used to determine the amount of
payments of principal, premium, if any, and interest, if any, on the
Offered Debt Securities; (xiii) whether the Offered Debt Securities are
issuable in whole or in part as one or more Global Securities and, in such
case, the name of the Depository for such Global Security or Global
Securities; (xiv) the place or places, if other than as set forth in the
Indenture, where the principal, premium, if any, and interest, if any, on
the Offered Debt Securities will be payable; and (xv) any other terms
relating to the Offered Debt Securities not inconsistent with the Indenture
but which may modify or delete any provision of the Indenture insofar as it
applies to such series; provided that no term thereof shall be modified or
deleted if imposed under the Trust Indenture Act of 1939, as amended, and
that any modification or deletion of the rights, duties or immunities of
the Trustee shall have been consented to in writing by the Trustee.
Principal, premium, if any, and interest, if any, will be payable, and the
Debt Securities (other than Debt Securities represented by Global Notes)
will be transferable, at the office or agency of Sears maintained for such
purposes in the Borough of Manhattan of The City of New York, which will
initially be the principal corporate trust office of the Trustee in the
Borough of Manhattan of The City of New York, and at such other places, if
any, in the City of Chicago, the city in which the principal corporate
trust office of the trustee is located or the city in which the principal
executive offices of Sears are located, as Sears may designate. Unless
other arrangements are made, interest on the Debt Securities (other than
Debt Securities represented by Global Notes) will be paid by checks mailed
to the Holders at their registered addresses. (Sections 2.5, 3.1, 3.2)
Information with respect to payment of principal, premium, if any, and
interest, if any, on, and transfers of beneficial interests in, Debt
Securities represented by Global Notes will be set forth in the Prospectus
Supplement relating thereto.
If the principal, premium, if any, and interest, if any, will be payable in
a currency other than U.S. dollars, including European Currency Units or
another composite currency, and such currency is not available for payment
due to the imposition of exchange controls or other circumstances beyond
the control of Sears, Sears shall satisfy its payment obligations in U.S.
dollars on the basis of the Market Exchange Rate for such currency on the
latest date for which such rate was established on or before the date on
which payment is due. (Section 2.12)
Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Debt Securities will be issued only in fully registered form, without
coupons, in denominations of $1,000 or any integral multiple thereof. No
service charge will be made for any registration of transfer or exchange of
the Offered Debt Securities, but Sears may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith. (Sections 2.2, 2.5)
Debt Securities may be issued under the Indenture as Original Issue
Discount Securities to be offered and sold at a substantial discount below
their stated principal amount. Federal income tax consequences and other
special considerations applicable to any such Original Issue Discount
Securities will be described in the Prospectus Supplement relating thereto.
``Original Issue Discount Security'' means any security which provides for
an amount less than the principal amount thereof to be due and payable upon
the declaration of acceleration of the Maturity thereof upon the occurrence
of default and the continuation thereof. (Sections 1.1, 6.1)
Special Redemption Provisions
Unless otherwise provided in the Prospectus Supplement, Debt Securities of
any series will be subject to redemption at any time prior to stated
Maturity, in whole or in part, at the option of Sears at 100% of the
principal amount of the Debt Securities of that series to be redeemed
together with interest accrued and unpaid to the Redemption Date if and
whenever, as of the last day of each month in any three-calendar-month
period, the amount of outstanding Customer Receivables arising from the
merchandise business (including credit granting) of Sears (whether or not
then owned by Sears) is less than two-thirds of the highest arithmetic
average amount of such Customer Receivables on the last day of each of any
three consecutive calendar months ending on or after the last day of the
calendar month during which such series of Debt Securities is issued,
provided that any such redemption may only occur on a date not more than 90
days next following the last day of the later three-month period. (Section
4.8)
Certain Restrictions
So long as any Debt Securities are outstanding, Sears will not
(a) declare any dividend on its capital stock except in capital stock,
(b) acquire or permit a Subsidiary to acquire any capital stock or
Subordinated Debt of Sears,
(c) become liable for or guarantee (i) any Indebtedness for Borrowed
Money except certain refundings and except Subordinated Debt, or (ii)
any Customer Receivables where such liability or guarantee would be
included in Liabilities,
(d) acquire assets or make any Investment other than those which would
be included in Unencumbered Assets,
(e) Encumber any Unencumbered Assets,
(f) permit a Wholly-Owned Subsidiary to cease to be such unless all
capital stock and Indebtedness for Borrowed Money of such Subsidiary
owned by Sears and its other Wholly-Owned Subsidiaries are disposed
of,
(g) lease any property (except certain equipment) for a term in excess
of three years or renew any lease for more than three years, or
(h) merge, consolidate or transfer all or substantially all of its
assets,
unless after giving effect to any such transaction Unencumbered Assets plus
Capitalized Rentals will aggregate at least 150% of Liabilities plus
Capitalized Rentals, provided, however, that the acquisitions referred to
in (b) and (d) above may be made through substantially concurrent sales of
capital stock or Subordinated Debt. (Sections 3.5, 9.1). These restrictions
would not necessarily prevent a highly leveraged transaction involving
Sears. Except as may otherwise be provided in the accompanying Prospectus
Supplement, there are no other provisions of the Debt Securities which are
designed to afford protection in the event of a highly leveraged
transaction involving Sears. As of December 31, 1994, Unencumbered Assets
plus Capitalized Rentals exceeded 150% of Liabilities plus Capitalized
Rentals by approximately $8.0 billion under the Indenture and other similar
indentures applicable to outstanding indebtedness of Sears.
Certain Definitions
``Unencumbered Assets'' are assets which are Unencumbered and which would
appear on a balance sheet of Sears other than (i) Investments in any
person, except (A) commercial paper and (B) Investments in Wholly-Owned
Subsidiaries, and (ii) intangibles. Such Investments in Wholly-Owned
Subsidiaries shall be included as an asset in such balance sheet at the
equity in the net assets of such Subsidiaries as shown by their books. In
addition, (i) Unencumbered inventories shall be included as determined on
the first-in, first-out method of accounting and (ii) Customer Receivables
which are the subject of a Non-Recourse Receivables Transaction shall not
be included in Unencumbered Assets but the proceeds of a Non-Recourse
Receivables Transaction shall be included in Unencumbered Assets. An asset
is ``Unencumbered'' if it is not subject to any mortgage, pledge, lien or
title retention arrangement except specified types of deposits, pledges,
and liens. (Section 1.1)
``Liabilities'' are those included as liabilities in a balance sheet of
Sears (except liabilities due to any Wholly-Owned Subsidiary, pension and
other post-retirement liabilities, Subordinated Debt, contingent
liabilities, unearned maintenance agreement income, deferred income taxes,
capital stock, capital in excess of par or stated value, surplus, surplus
reserves and liabilities arising from a Non-Recourse Receivables
Transaction) plus guarantees other than of Customer Receivables except,
where an agreement covering the transfer of an interest in Customer
Receivables includes a provision that, in addition to any warranties
respecting merchandise or the validity of the receivables, the transferee
will realize a specified percentage of amounts unpaid in excess of any
purchase price withheld, there shall be included an amount (not exceeding
25%) equal to the percentage specified in the agreement of the outstanding
balances on said Customer Receivables after deducting from such balances
any purchase price withheld. ``Indebtedness for Borrowed Money'' means all
indebtedness for borrowed money and also other indebtedness which matures
more than one year after its creation, but excluding liabilities based on
capitalization of rentals. ``Subordinated Debt'' is debt which is
subordinated to the Offered Debt Securities and to parity debt in certain
insolvency proceedings and during any default in payment of their
principal, premium, interest or periodic payment. ``Customer Receivables''
are amounts owing to Sears or its Affiliates as a result of sales of goods
or services (including, but not limited to, financial services) whether by
such entities or others. (Section 1.1)
``Capitalized Rentals'' means the capitalization determined by dividing by
12% the aggregate amount of rentals payable by Sears for any future fiscal
year in which the largest aggregate amount of rentals (excluding all rental
obligations which under good accounting practice are capitalized on a
balance sheet of Sears as of the end of the most recent fiscal period) will
be payable under the then current term of all leases having remaining terms
in excess of three years, after excluding any portion of rentals based on
sales and excluding payments other than fixed rentals under net leases.
(Section 1.1)
``Non-Recourse Receivables Transaction'' means a transaction transferring
an interest in Customer Receivables in respect of which the contract in
respect of the transaction expressly provides that the transferee has
acquired the interest in Customer Receivables without recourse; provided,
however, that none of the following shall be deemed to negate or be
inconsistent with an express provision that the transferee has no such
recourse: (i) the existence of contractual provisions or statutory rights
which give the transferee (or its assigns) limited rights against the
transferor or its assets, (ii) contractual provisions which contemplate
ongoing services from the transferor or changes in the economic terms of
ongoing relationships between the transferor (or its Affiliates or assigns)
and the transferee (or its assigns), (iii) lack of notice to obligors on
the Customer Receivables, (iv) limited repurchase rights or obligations, or
(v) other facilitating rights or obligations. (Section 1.1)
``Wholly-Owned Subsidiaries'' are those all of whose Voting Stock is owned
by Sears or Wholly-Owned Subsidiaries. (Section 1.1)
Defaults
The following are defaults with respect to any series of Debt Securities:
(a) failure to pay the principal amount on such series when due and
payable; (b) failure to pay any interest on such series when due, continued
for 30 days (unless the entire amount of such payment is deposited by Sears
with the Trustee or with a paying agent prior to the expiration of 30
days); (c) failure to perform any other covenant of Sears in the Indenture
(other than a covenant included in the Indenture solely for the benefit of
any series of Debt Securities other than that series), continued for 60
days after written notice; (d) acceleration of $25,000,000 or more in
principal amount of indebtedness of Sears (including acceleration with
respect to Debt Securities other than that series) under the terms of the
instrument under which such indebtedness is issued or secured (including
the Indenture), if such indebtedness shall not have been discharged or such
acceleration is not annulled within ten days after written notice or prior
to the time principal owed on the outstanding Debt Securities of that
series shall be declared due and payable, except as a result of compliance
with applicable laws, orders or decrees; and (e) certain events of
bankruptcy, insolvency, or reorganization. If a default shall occur and be
continuing with respect to any series of Debt Securities, the Trustee or
the Holders of 25% in principal amount of the outstanding Debt Securities
of that series may declare the principal amount of such series (or, if the
Debt Securities of that series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of that
series) due and payable immediately, which declaration may, in certain
instances, be annulled by the Holders of a majority of the principal amount
of outstanding Debt Securities of that series. In the case of such
declaration, there would become due and payable such principal amount plus
any accrued interest or other periodic payments. (Section 6.1)
No Holder of any Debt Security of any series will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such Holder previously shall have given to the Trustee
written notice of a default and unless also the Holders of a majority of
the principal amount of outstanding Debt Securities of that series shall
have made written request upon the Trustee, offering reasonable indemnity,
to institute such proceeding as Trustee, and the Trustee shall have
neglected or refused to institute such proceeding within a reasonable time.
However, the right of any Holder of any Debt Security of that series to
enforce the payment of principal and interest on such Debt Security, on or
after the due dates expressed in such Debt Security, may not be impaired or
affected. (Section 6.7)
Sears is required to furnish annually to the Trustee statements as to the
performance or fulfillment of its covenants, agreements or conditions in
the Indenture and as to the absence of default. (Section 3.7)
Modification or Amendment of the Indenture
Modifications and alterations of the Indenture may be made by Sears with
the consent of the Holders of 66-2/3% of the aggregate principal amount of
the outstanding Debt Securities of each series affected by the modification
or alteration, provided that no such change shall be made without the
consent of the Holders of each Debt Security then outstanding affected
thereby which will (a) permit the extension of the time of payment of any
payment on any such Debt Security, or a reduction in any such payment or
(b) reduce the above-stated percentage of Holders of any series of Debt
Securities whose consent is required to modify or alter the Indenture.
(Article XI)
Defeasance
Unless otherwise provided for in the accompanying Prospectus Supplement,
Sears may discharge the Indenture with respect to Debt Securities of any
series (except for certain obligations to register the transfer or exchange
of Debt Securities of such series, replace mutilated, destroyed, lost and
stolen Debt Securities of such series, maintain paying agencies and hold
moneys for payment in trust) upon the deposit with the Trustee or a paying
agent, in trust, of (1) money in an amount sufficient, or (2) U.S.
Government Obligations (if the Debt Securities are denominated in U.S.
dollars) or Eligible Obligations (if the Debt Securities are denominated in
a Foreign Currency) which through the payment of interest and principal in
respect thereof in accordance with their terms will provide money in an
amount sufficient, or (3) any combination thereof in an amount sufficient,
to pay the principal, premium, if any, and each installment of interest on
the Debt Securities of such series on the dates such payments are due in
accordance with the terms of the Indenture and such Debt Securities. Such a
trust may only be established if, among other things, Sears has received a
ruling from the Internal Revenue Service or an opinion of recognized
counsel who is not an employee of Sears, in either case to the effect that,
among other things, the Holders of the Debt Securities of such series will
not recognize income, gain or loss for federal income tax purposes as a
result of such deposit and defeasance of the Indenture and will be subject
to federal income tax on the same amount and in the same manner and at the
same times, as would have been the case if such deposit and defeasance had
not occurred. Notwithstanding such deposit, the obligations of Sears under
the Indenture to pay interest and principal shall remain in full force and
effect until the Debt Securities of such series have been paid in full.
(Section 13.4)
If and when a ruling from the Internal Revenue Service or an opinion of
recognized counsel can be provided without reliance upon the continuation
of Sears obligations regarding the payment of interest and principal, then
such obligations of Sears shall cease upon delivery to the Trustee of such
ruling or opinion and compliance with the other conditions precedent
provided for in the Indenture. Under present ruling positions of the
Internal Revenue Service, such a ruling is not obtainable. (Section 13.4)
Regarding the Trustee
Chemical Bank, which is the Trustee under the Indenture described herein,
performs banking and other services for Sears.
PLAN OF DISTRIBUTION
General. Sears may sell Debt Securities to or through underwriters, and
also may sell Debt Securities directly to other purchasers or through
agents. It is anticipated, however, that the Debt Securities will be sold
to one or more of Dean Witter Reynolds Inc., Goldman, Sachs & Co. and
Morgan Stanley & Co. Incorporated, or to an underwriting syndicate
represented by one or more of such firms, for public offering. Such firms,
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Salomon Brothers Inc, also may act as agents.
The distribution of the Debt Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. The
Prospectus Supplement will describe the method of distribution of the
Offered Debt Securities.
In connection with the sale of Debt Securities, underwriters may receive
compensation from Sears or from purchasers of Debt Securities for whom they
may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell Debt Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers
for whom they may act as agent. Underwriters, dealers and agents that
participate in the distribution of Debt Securities may be deemed to be
underwriters, and any discounts or commissions received by them and any
profit on the resale of Debt Securities by them may be deemed to be
underwriting discounts and commissions, under the Act. Any such underwriter
or agent will be identified, and any such compensation will be described,
in the Prospectus Supplement.
Under agreements which may be entered into by Sears, underwriters, dealers
and agents who participate in the distribution of Debt Securities may be
entitled to indemnification by Sears against certain liabilities, including
liabilities under the Act.
Delayed Delivery Arrangements. If so indicated in the Prospectus
Supplement, Sears will authorize dealers or other persons acting as Sears
agents to solicit offers by certain institutions to purchase Debt
Securities from Sears pursuant to contracts providing for payment and
delivery on a future date. Institutions with which such contracts may be
made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and
others, but in all cases such institutions must be approved by Sears. The
obligations of any purchaser under any such contract will not be subject to
any conditions except that (i) the purchase of the Offered Debt Securities
shall not at the time of delivery be prohibited under the laws of the
jurisdiction to which such purchaser is subject, and (ii) if the Offered
Debt Securities are also being sold to underwriters, Sears shall have sold
to such underwriters the Offered Debt Securities not sold for delayed
delivery. The dealers and such other persons will not have any
responsibility in respect of the validity or performance of such contracts.
Deferred Pricing Arrangements. The Prospectus Supplement relating to an
issue of Debt Securities will disclose any deferred pricing arrangement
between Sears and any entity acting as an underwriter which would permit
Sears to determine its ultimate cost of funds pertaining to such Debt
Securities at a later date through certain transactions indexed to U.S.
Treasury securities. Any such arrangement would be made pursuant to a
deferred pricing agreement signed simultaneously with the pricing agreement
which supplements the underwriting agreement. The deferred pricing
agreement would contain the formula used to determine any post-closing
purchase price adjustments.
LEGAL OPINION
The legality of the Debt Securities has been passed upon for Sears by David
Shute, Senior Vice President, General Counsel and Secretary of Sears. At
March 31, 1995, Mr. Shute owned 17,870 Sears common shares, including
non-transferable restricted shares awarded under Sears 1979 Incentive
Compensation Plan and 1990 Employees Stock Plan, which are subject to
forfeiture under certain circumstances, and shares credited to his account
in The Savings and Profit Sharing Fund of Sears Employees as of February
28, 1995, and had options granted under Sears employee stock plans relating
to 54,687 Sears common shares.
EXPERTS
The financial statements and the related Summary Financial Information of
the Company incorporated in this prospectus by reference from the Sears
Annual Report on Form 10-K for the year ended December 31, 1994, have been
audited by Deloitte & Touche LLP, independent certified public accountants,
as stated in their report (which expresses an unqualified opinion and
includes an explanatory paragraph relating to the Company changing its
accounting for certain investments in debt securities in 1993 and for
postretirement benefits in 1992), which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of
such firm and given upon their authority as experts in accounting and
auditing.
Sears, Roebuck and Co.
U.S. $800,000,000
Medium-Term Notes Series VIII
PROSPECTUS
SUPPLEMENT
Dean Witter Reynolds Inc.
Goldman, Sachs & Co.
Merrill Lynch & Co.
Morgan Stanley & Co.
Incorporated
Salomon Brothers Inc
April 25, 1995
