UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 28, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-416
SEARS, ROEBUCK AND CO.
(Exact name of registrant as specified in its charter)
New York 36-1750680
(State of Incorporation) (I.R.S. Employer Identification No.)
3333 Beverly Road, Hoffman Estates, Illinois 60179
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 847/286-2500
Registrant (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
As of June 30, 1997 the Registrant had 391,608,464 common shares, $.75
par value, outstanding.
<PAGE>
Sears, Roebuck and Co.
Index to Quarterly Report on Form 10-Q
June 28, 1997
Page
Part I - Financial Information.
Item 1. Financial Statements.
Condensed Consolidated Statements of Income (unaudited) -
Three and Six Months Ended June 28, 1997 and June 29, 1996. 1
Condensed Consolidated Balance Sheets -
June 28, 1997 (unaudited), June 29, 1996 (unaudited)
and December 28, 1996. 2
Condensed Consolidated Statements of Cash Flows (unaudited) -
Six Months Ended June 28, 1997 and June 29, 1996. 3
Notes to Condensed Consolidated Financial Statements
(unaudited). 4
Independent Certified Public Accountants' Review Report. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 8
Part II - Other Information.
Item 1. Legal Proceedings. 15
Item 4. Submission of Matters to a Vote of Security-Holders 16
Item 6. Exhibits and Reports on Form 8-K. 17
<PAGE>
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<TABLE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
(millions, except per common share data) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues
Merchandise sales and services $ 8,563 $ 8,056 $ 16,122 $ 14,964
Credit revenues 1,168 1,076 2,371 2,163
Total revenues 9,731 9,132 18,493 17,127
Costs and expenses
Cost of sales, buying and occupancy 6,272 5,946 11,977 11,195
Selling and administrative 2,006 1,976 3,890 3,726
Depreciation and amortization 201 171 383 329
Provision for uncollectible accounts 315 270 597 508
Interest 341 333 693 687
Reaffirmation charges (note 7) 475 -- 475 --
Total costs and expenses 9,610 8,696 18,015 16,445
Operating income 121 436 478 682
Other income, net 139 23 129 27
Income before income taxes 260 459 607 709
Income taxes 143 185 308 284
Net income $ 117 $ 274 $ 299 $ 425
Net income (loss) consists of:
Domestic operations $ 113 $ 288 $ 340 $ 453
International operations 4 (14) (41) (28)
Net income $ 117 $ 274 $ 299 $ 425
Earnings per common share, after
allowing for dividends on preferred shares $ 0.29 $ 0.67 $ 0.75 $ 1.03
Cash dividends declared per common share $ 0.23 $ 0.23 $ 0.46 $ 0.46
Average common and common
equivalent shares outstanding 397.7 400.1 398.1 399.8
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
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<TABLE>
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
(Unaudited)
June 28, June 29, Dec. 28,
(millions) 1997 1996 1996
<S> <C> <C> <C>
Assets
Current assets
Cash and invested cash $ 247 $ 514 $ 660
Credit card receivables 21,425 19,896 21,563
Other receivables 264 358 335
Merchandise inventories 4,954 4,441 4,646
Prepaid expenses and deferred charges 398 419 348
Deferred income taxes 991 904 895
Total current assets 28,279 26,532 28,447
Property and equipment
Land 456 371 445
Buildings and improvements 5,075 4,616 5,080
Furniture, fixtures and equipment 4,544 4,038 4,279
Capitalized leases 451 335 433
10,526 9,360 10,237
Less accumulated depreciation 4,637 4,081 4,359
Total property and equipment, net 5,889 5,279 5,878
Deferred income taxes 893 840 905
Other assets 955 758 937
Total assets $ 36,016 $ 33,409 $ 36,167
Liabilities
Current liabilities
Short-term borrowings $ 3,334 $ 4,252 $ 3,533
Current portion of long-term debt and
capitalized leases obligations 2,383 2,054 2,737
Accounts payable and other liabilities 7,520 6,220 7,840
Unearned revenues 888 940 840
Total current liabilities 14,125 13,466 14,950
Long-term debt and capitalized leases 12,661 11,212 12,170
Postretirement benefits 2,700 2,808 2,748
Minority interest and other liabilities 1,392 1,287 1,354
Total liabilities 30,878 28,773 31,222
Commitments and Contingent Liabilities (note 7)
Shareholders' Equity
8.88% Preferred Shares, First Series
(note 3) - 325 -
Common shares 323 323 323
Capital in excess of par value 3,600 3,624 3,618
Retained income (note 2) 3,449 2,674 3,330
Treasury stock - at cost (1,657) (1,619) (1,655)
Minimum pension liability (277) (285) (277)
Deferred ESOP expense (220) (239) (230)
Cumulative translation adjustments (80) (167) (164)
Total shareholders' equity 5,138 4,636 4,945
Total liabilities and shareholders'
equity $ 36,016 $ 33,409 $ 36,167
Total common shares outstanding 391.6 392.1 391.4
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
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<TABLE>
SEARS, ROEBUCK AND CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
June 28, June 29,
(millions) 1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 299 $ 425
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and other noncash items 506 434
Reaffirmation charges 475 -
Provision for uncollectible accounts 597 508
Gain on sales of property and investments (118) (27)
Change in (net of acquisitions):
Deferred income taxes (82) 26
Credit card receivables (711) (347)
Merchandise inventories (371) (406)
Other operating assets (80) (35)
Other operating liabilities (634) (351)
Net cash (used in) provided by operating activities (119) 227
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired (115) -
Net proceeds from sales of businesses 379 -
Proceeds from sales of property and investments 9 45
Purchases of property and equipment, net (461) (550)
Net cash used in investing activities (188) (505)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 1,544 1,952
Repayments of long-term debt (1,427) (502)
Decrease in short-term borrowings, primarily
90 days or less (40) (1,098)
Repayments of ESOP note receivable 16 21
Common shares purchased for employee stock plans (77) (92)
Common shares issued for employee stock plans 57 100
Dividends paid to shareholders (178) (195)
Net cash (used in) provided by financing activities (105) 186
Effect of exchange rate changes on cash and invested cash (1) -
Net decrease in cash and invested cash (413) (92)
Cash and invested cash at beginning of year 660 606
Cash and invested cash at end of period $ 247 $ 514
<FN>
See accompanying notes.
</FN>
</TABLE>
<PAGE>
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SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Condensed Consolidated Financial Statements
The Condensed Consolidated Balance Sheets as of June 28, 1997 and
June 29, 1996 and the related Condensed Consolidated Statements of
Income for the three and six months then ended and Condensed Consolidated
Statements of Cash Flows for the six months then ended are unaudited.
The interim financial statements reflect all adjustments (consisting of
normal recurring accruals except as described in note 7) which are, in
the opinion of management, necessary for a fair statement of the results
for the interim periods presented. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Sears, Roebuck and Co. 1996
Annual Report to Shareholders and Annual Report on Form 10-K. The results
of operations for the interim periods should not be considered indicative
of results to be expected for the full year.
2. Shareholders' Equity and Dividend Restrictions
Under terms of indentures entered into in 1981 and thereafter, Sears
cannot take specified actions, including the declaration of cash dividends,
which would cause its consolidated unencumbered assets, as defined, to fall
below 150% of its consolidated liabilities, as defined. At June 28, 1997
approximately $2.4 billion could be paid in dividends to shareholders under
the most restrictive indentures.
On March 13, 1996, the Board of Directors approved a common share
repurchase program for the purpose of acquiring shares for distribution
under employee stock-based incentive plans. The Company plans on acquiring
up to ten million Sears common shares on the open market. Through June 28,
1997 5.0 million common shares had been acquired under the repurchase
program.
3. Earnings Per Common Share
Earnings per common share is computed based on the weighted average
number of common and common equivalent shares (dilutive stock options)
outstanding. In 1996, earnings per common share included an adjustment
for dividends of $7 million and $15 million for the three- and six-month
periods ended June 29, 1996, on the 8.88% Preferred Shares. The Company
redeemed all the 8.88% Preferred Shares on November 12, 1996 at a
redemption price of $25 per depository share plus accrued dividends.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per
Share." The statement is effective for financial statements for periods
ending after Dec. 15, 1997, and changes the method in which earnings per
share will be determined. Adoption of this statement by the Company will
not have a material impact on earnings per share.
4. Accounting Change
The Company adopted Statement of Financial Accounting Standard (SFAS)
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", effective January 1, 1997. This statement
provides consistent guidance for distinguishing transfers of financial
assets (securitizations) that are sales from transfers that are secured
borrowings. SFAS No. 125 requires the Company to recognize gains on
securitizations which qualify as sales. The statement also indicates that
an allowance for uncollectible accounts should not be maintained for
receivables which are sold (securitized). The effect of this accounting
change was to increase net income by $35 million and $74 million for the
three- and six-month periods ended June 28, 1997, respectively.
<PAGE>
-5-
SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Acquisition of Businesses
During the first quarter of 1997, the Company acquired all the
outstanding stock of All America Termite and Pest Control, Inc.
("All America") and Florida Builder Appliances. All America is a termite
and pest control business and Florida Builder Appliances is a supplier of
appliances to residential construction and remodeling contractors in the
Florida market. Additionally in the quarter, the Company acquired the
remaining 35% of the outstanding shares it did not already own of MaxServ,
Inc. These acquisitions were recorded using the purchase method of
accounting. The results of operations from these acquired companies are
not material to the Company's consolidated results of operations.
6. Disposition of Businesses
In April 1997, the Company completed the sale of 60 percent of the
outstanding shares of Sears, Roebuck de Mexico, S.A. de C.V.
("Sears Mexico") to Grupo Carso S.A. de C.V. for cash proceeds of $103
million. The sale was recorded in the first quarter resulting in a pretax
loss of $21 million in other income and tax expense of $15 million for an
after-tax loss of $36 million, or $0.09 per share. The transaction reduced
the Company's ownership in Sears Mexico to 15.5 percent.
In June 1997, the Company sold its 30 percent equity interest in Advantis,
a joint venture between IBM and the Company, to IBM for $450 million.
After contractually required distributions to third parties, the transaction
resulted in cash proceeds of $276 million, a pretax gain of $150 million
reflected in other income and an after-tax gain of $91 million, or $0.23 per
share.
7. Legal Proceedings
On June 3, 1997, the Company entered into a settlement of the consolidated
class action lawsuits filed in the United States Bankruptcy and District
Courts for the District of Massachusetts by certain current and former
credit card holders of the Company who had declared personal bankruptcy
(the "Settlement"). These lawsuits alleged that the Company had violated
the United States Bankruptcy Code and consumer protection laws in various
states through activities related to certain debt reaffirmation agreements.
During the second quarter of 1997, the Company also reached an agreement
in principle with Attorneys General in all fifty states and signed a
consent decree with the Federal Trade Commission relating to these matters.
A civil and criminal investigation of these matters is ongoing.
The terms of the Settlement, which must still be jointly approved by the
United States Bankruptcy and District Courts for the District of
Massachusetts, require, among other things, the Company to pay the debtors
the amounts collected pursuant to reaffirmation agreements that were not
filed with the bankruptcy courts, including finance charges, plus 10%
interest, and to undergo a review of its credit bankruptcy reaffirmation
procedures. In addition, outstanding balances relating to unfiled debt
reaffirmation agreements will be written off. The Company will also
establish a $25 million fund to be distributed to the debtors participating
in the Settlement. A joint fairness hearing on the Settlement has been set
for October 28, 1997. The agreement in principle reached with the States'
Attorneys General requires, among other things, the Company to establish
funds aggregating $40 million to be shared among the states and used in
part for consumer education.
The Company recorded a pretax charge of $475 million ($320 million on an
after-tax basis) in the second quarter for the estimated cost of the matters
referred to above, including other related expenses. This estimate is based
on management's assumptions as to the ultimate outcome of future events and
uncertainties. Actual results could differ from this estimate and there can
be no assurance that additional costs will not be incurred.
<PAGE>
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SEARS, ROEBUCK AND CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On May 14, 1997 and June 11, 1997, several stockholders filed actions on
behalf of the Company against its directors and certain of its officers in
the Supreme Court of the State of New York for the Counties of New York and
Westchester, alleging breach of fiduciary duty for failing to prevent the
improper handling of certain of the Company's debt reaffirmation agreements.
The complaints seek unspecified damages and attorneys' fees and expenses.
The plaintiffs have agreed to consolidate their complaints and to file an
amended and consolidated complaint in the Supreme Court of the State of New
York for the County of New York. The Company intends to vigorously defend
these allegations.
On June 23, 1997, several stockholders of the Company, purporting to
represent a class, filed a consolidated and amended complaint against the
Company and one of its officers in the United States District Court for the
Northern District of Illinois, alleging violations of the Securities Exchange
Act of 1934 for failure to disclose the bankruptcy collection practices
described above in periodic filings with the Securities and Exchange
Commission prior to April 10, 1997. The complaint seeks unspecified damages
and attorneys' fees and expenses. The Company has filed a motion to dismiss
this case.
The Company is subject to various other legal and governmental proceedings
pending against the Company, many involving routine litigation incidental to
the businesses. Other matters contain allegations which are nonroutine and
involve compensatory, punitive or antitrust treble damage claims in very
large amounts, as well as other types of relief. The consequences of these
matters are not presently determinable but, in the opinion of management of
the Company after consulting with legal counsel, the ultimate liability in
excess of reserves currently recorded is not expected to have a material
effect on annual results of operations, financial position, liquidity or
capital resources of the Company.
<PAGE>
-7-
SEARS, ROEBUCK AND CO.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Shareholders and Board of Directors
of Sears, Roebuck and Co.:
We have reviewed the accompanying Condensed Consolidated Balance Sheets of
Sears, Roebuck and Co. as of June 28, 1997 and June 29, 1996, and the related
Condensed Consolidated Statements of Income for the three- and six-month
periods ended June 28, 1997 and June 29, 1996, and the Condensed Consolidated
Statements of Cash Flows for the six-month periods ended June 28, 1997 and
June 29, 1996. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the Consolidated Balance Sheet of Sears, Roebuck and Co. as of
December 28, 1996, and the related Consolidated Statements of Income,
Shareholders' Equity, and Cash Flows for the year then ended (not presented
herein); and in our report dated February 10, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying Condensed Consolidated
Balance Sheet as of December 28, 1996, is fairly stated, in all material
respects, in relation to the Consolidated Balance Sheet from which it has been
derived.
/S/Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
July 24, 1997
<PAGE>
-8-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE- AND SIX-MONTH PERIODS ENDED JUNE 28, 1997 AND JUNE 29, 1996
Operating Results
Operating results for the Company are reported for two business segments:
domestic operations and international operations. The domestic operations
segment includes the Company's operations in the United States and Puerto Rico.
Domestic operations include Retail Stores (comprised of Full-line Stores, Home
Stores and Auto Stores), Home Services, Direct Response Marketing and Credit.
Credit includes the results of the Company's portfolio of receivables which
arise from extending domestic customers credit to pay for purchases of
merchandise and services. International operations consist of similar
merchandising and service operations conducted in Canada through Sears Canada
Inc., a consolidated, 55.0% owned subsidiary ("Sears Canada") and Sears,
Roebuck de Mexico, S.A. de C.V. ("Sears Mexico"), a 75.5% owned subsidiary
until March 29, 1997. As of March 29, 1997 Sears Mexico is no longer
included in the consolidated balance sheet as the Company completed the sale
of its controlling interest in Sears Mexico to Grupo Carso, S.A. de C.V.
For the three-months ended June 28, 1997 net income was $117 million, or
$0.29 per common share. Results for the quarter were affected by three
significant items which together reduced net income by $194 million, or $0.49
per common share. These items include reaffirmation charges, the gain on the
sale of Advantis and the positive impact of the accounting change for SFAS No.
125. Excluding these items, net income would have been $311 million, or $0.78
per common share as compared to $274 million, or $0.67 per common share in the
second quarter of 1996. For the six-months ended June 28, 1997 net income was
$299 million, or $0.75 per common share. Excluding the impact of significant
noncomparable items, net income would have been $490 million, or $1.23 per
common share as compared to $425 million, or $1.03 per common share in the
first half of 1996.
Impact of noncomparable items is summarized as follows:
2nd Quarter Six Months
(millions, except per common share) $ EPS $ EPS
1997 Reported Net Income $ 117 $ 0.29 $ 299 $ 0.75
Less Noncomparable Items:
Reaffirmation Charges (320) (0.80) (320) (0.80)
Sale of Advantis 91 0.23 91 0.23
SFAS No. 125 Acctng. Change 35 0.08 74 0.18
Sale of Sears Mexico -- -- (36) (0.09)
(194) (0.49) (191) (0.48)
1997 Net Income Before
Noncomparable Items $ 311 $ 0.78 $ 490 $ 1.23
1996 Net Income $ 274 $ 0.67 $ 425 $ 1.03
The Company's consolidated effective tax rate in the second quarter of 1997
was 55.0% as compared to 40.2% in the prior year period. The increase was
primarily related to certain components of the reaffirmation charges which
provide no tax benefit. Excluding the impact of the reaffirmation charges,
the Company's consolidated effective tax rate would have been 40.5% in the
second quarter of 1997. For the six-months ended June 28, 1997 the
consolidated effective tax rate was 50.7% versus 40.0% in the first half of
1996. The increase was due to the previously mentioned impact of the
reaffirmation charges and the tax expense from the first quarter sale of Sears
Mexico. Excluding these significant items, the consolidated effective tax rate
would have been 40.7% for the first half of 1997.
<PAGE>
-9-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE- AND SIX-MONTH PERIODS ENDED JUNE 28, 1997 AND JUNE 29, 1996
Revenues increased 6.6% to $9.7 billion and 8.0% to $18.5 billion for the
three- and six-month periods ended June 28, 1997, respectively, from the
comparable 1996 period.
<TABLE>
<CAPTION>
Revenues Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
(millions, except number of stores) 1997 1996 Change 1997 1996 Change
<S> <C> <C> <C> <C> <C> <C>
Domestic operations:
Full-line Stores $ 5,227 $ 5,082 2.9% $ 9,811 $ 9,380 4.6%
Off-the-mall stores 1,823 1,539 18.5 3,461 2,905 19.1
Service and other revenues 789 738 6.8 1,445 1,362 6.0
Merchandise sales and services 7,839 7,359 6.5 14,717 13,647 7.8
Credit revenues 1,106 996 11.0 2,227 1,995 11.6
Total domestic operations 8,945 8,355 7.1 16,944 15,642 8.3
International operations 786 777 1.3 1,549 1,485 4.3
Total revenues $ 9,731 $ 9,132 6.6% $ 18,493 $ 17,127 8.0%
Domestic comparable store sales increase 2.3% 9.4% 2.5% 7.1%
Number of domestic Full-line Stores 824 808
Number of domestic off-the-mall stores 2,607 2,308
Total 3,431 3,116
</TABLE>
Due to holiday buying patterns, merchandise sales are traditionally higher
in the fourth quarter than other quarterly periods and a disproportionate
share of operating income is typically earned in the fourth quarter. This
business seasonality results in performance for the second quarter and the
first half of 1997 which is not necessarily indicative of performance for the
balance of the year.
<PAGE>
-10-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE- AND SIX-MONTH PERIODS ENDED JUNE 28, 1997 AND JUNE 29, 1996
Domestic Operations
For the second quarter, the Company posted a 2.3% comparable store sales
increase which came on top of a 9.4% comparable store sales increase in 1996.
Full-line Stores revenues increased 2.9% over second quarter 1996.
Apparel revenues gained 5.1% during the second quarter reflecting the
positive response to Full-line Store renovations, broader assortments
and quality brands. Women's ready to wear, especially sportswear, as
well as footwear and fine jewelry posted strong sales increases and
achieved comparable store sales gains in the low teen range.
Hardlines revenues, comprised of Home Electronics, Home Appliances, and
Home Improvement merchandise sales, increased 2.2% for the second quarter
with strong gains in Home Electronics partially offset by decreased Home
Improvement sales. Hardlines comparable store sales were flat with second
quarter 1996.
For the six-month period, Full-line store sales grew 4.6% over 1996 as
Apparel achieved a 10.3% increase and Hardlines gained 1.9%.
Off-the-mall store revenues made up of Home Stores and Auto Stores,
increased 18.5% for the second quarter, which came on top of a 17.2% gain in
1996.
Home Stores revenues significantly increased over 1996 primarily
resulting from sales by the newly acquired Orchard Supply Hardware
Stores. Hardware and Sears Dealer stores had substantial revenue
increases from a year ago benefiting from 246 net new store openings and
also achieved comparable store sales increases in the mid-single digits.
HomeLife furniture stores revenues increased by mid-single digits, but
comparable stores sales fell slightly from 1996.
.Auto Stores, consisting of the Sears Tire Group and Parts Group,
experienced revenue declines in the low single digits from the same
period a year ago as comparable store sales were down from prior year.
During the first quarter Sears Tire Group announced plans to convert its
Tire America and NTW stores into a single format, "National Tire and
Battery" (NTB) as part of the continued expansion of automotive off-the-
mall concepts.
Off-the-mall store revenues increased 19.1% for the six-month period as
compared to 1996 and benefited largely from the expansion of the Home Stores.
Service and other revenues, which are generated primarily by the Home
Services and Direct Response Marketing businesses, were up 6.8% in the second
quarter and 6.0% in the first six months of 1997 versus the 1996 comparable
period. The increase was primarily due to strong revenue gains by Home
Services on improved service contract revenue for product repair and
installed home improvement sales.
The domestic credit card receivables portfolio contributes significantly
to domestic operations' profitability. The key components that determine
profitability of the portfolio (before administrative expenses and income
taxes) are credit revenues (gross revenues less the funding cost on
securitized receivables), interest expense and the provision for
uncollectible accounts.
On January 1, 1997 the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," which changed the accounting for securitized receivables.
Implementation of SFAS No. 125 increased 1997 net income by $35 million and
$74 million for the three- and six-month periods ended June 28, 1997,
respectively.
<PAGE>
-11-
<TABLE>
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE- AND SIX-MONTH PERIODS ENDED JUNE 28, 1997 AND JUNE 29, 1996
<CAPTION>
Key Domestic Credit Information
Balances At
June 28, June 29, Dec. 28,
(millions) 1997 1996 1996
<S> <C> <C> <C>
Gross credit card receivables $ 26,494 $ 23,994 $ 26,731
Receivable balances sold (6,123) (4,970) (6,330)
Owned credit card receivables $ 20,371 $ 19,024 $ 20,401
Gross credit card receivables delinquent
sixty days or more 5.93% 4.61% 5.43%
Allowance for uncollectible accounts as a
percentage of owned credit card receivables 3.83% 3.96% 3.63%
<CAPTION>
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Gross credit revenues $ 1,211 $ 1,080 $ 2,441 $ 2,157
Funding costs on securitized receivables (105) (84) (214) (162)
Net credit revenues $ 1,106 $ 996 $ 2,227 $ 1,995
Net credit charge-offs to average gross
credit card receivables 5.81% 4.08% 5.48% 3.87%
</TABLE>
The 11.0% and 11.6% growth in gross domestic credit revenues for the three-
and six-month periods, respectively, reflected higher owned receivable
balances resulting from strong merchandise sales partially offset by the
effects of SFAS No. 125. The Sears Card continues to have the dominant
market share of credit retail sales generated in both the Full-line Stores and
off-the-mall stores. Adoption of SFAS No. 125 reduced 1997 gross credit
revenues by $61 million and $111 million for the three- and six-month periods
ended June 28, 1997, respectively, as the servicing costs and provision for
uncollectible accounts related to securitized receivables are now presented
as a reduction of credit revenues.
Gross margin as a percentage of domestic merchandise sales and services for
the second quarter was 26.7% versus 26.4% in the comparable prior year period.
The domestic gross margin rate benefited from the continued shift in sales to
higher margin apparel merchandise, improved logistics costs and savings from
merchandise sourcing initiatives offset by competitive pricing pressure. In
addition, Home Services and Direct Response Marketing experienced improved
gross margin rates. For the six-month period, 1997 domestic gross margin
rose 30 basis points to 25.8%.
Selling and administrative expense as a percentage of revenues for
domestic operations improved to 20.4% in the second quarter of 1997 from 21.3%
in the comparable prior year period. Second quarter 1997 selling and
administrative expense was reduced by $30 million as servicing costs for
securitized receivables are no longer included in selling and administrative
expense but instead are charged against credit revenues in accordance with
SFAS No. 125. An additional 70 basis point decrease resulted from solid
revenue performance coupled with continued emphasis on controlling expenses
and leveraging the fixed cost base. For the six-month period, the selling
and administrative rate for domestic operations improved 80 basis points to
20.8%. SFAS No. 125 reduced selling and administrative expense by $61
million for the 1997 six-month period.
Domestic operations depreciation and amortization expense was $187 million
in the second quarter and $352 million for the six-month period, an increase
of $33 million and $56 million, respectively, from the comparable 1996
periods. The increase reflects the continuation of the Company's store
remodeling program and the off-the-mall store expansion.
<PAGE>
-12-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE- AND SIX-MONTH PERIODS ENDED JUNE 28, 1997 AND JUNE 29, 1996
The allowance for uncollectible accounts for owned domestic credit card
receivables was $781 million and $753 million at June 28, 1997 and June 29,
1996, respectively. The domestic provision for uncollectible accounts was
$308 million in the second quarter and $577 million for the six-month period
as compared to $254 million and $481 million in the prior year periods. The
1997 provision for uncollectible accounts was reduced by $89 million and $171
million for the three- and six-month periods ended June 28, 1997,
respectively, due to the implementation of SFAS No. 125 which requires that
estimated charge-offs on sold receivables be included in the determination of
the gain or loss on the sale of receivables. Excluding the impact of SFAS No.
125, the provision would have increased 55.8% and 55.4% for the three- and
six-month periods, respectively. The increase is primarily attributable to
the 56.8% rise in net charge-offs for the first half of 1997 as compared to
1996 due to the continuing industry-wide trend of increased delinquencies and
bankruptcies and the growth in domestic credit card receivables.
Since the Company uses securitizations of credit card receivables as a
significant funding source, total domestic funding costs include interest
expense and the funding cost of securitized receivables. Total domestic
funding costs were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
(millions) 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Interest expense $ 316 $ 288 $ 627 $ 595
Funding costs on securitized receivables (1) 105 84 214 162
Total funding costs $ 421 $ 372 $ 841 $ 757
<FN>
(1) Funding costs on securitized receivables represent the interest paid on
securitized receivables and are presented as a reduction of credit
revenues in the statements of income.
</FN>
</TABLE>
Total domestic funding costs as a percentage of revenues increased from
4.5% in 1996 to 4.7% in the second quarter of 1997 and also increased for
the six-month period from 4.8% in 1996 to 5.0% in 1997. The increase in
total domestic funding costs reflects higher funding requirements due to a
larger receivable portfolio and the redemption of the Preferred Shares in
the fourth quarter of 1996.
During the second quarter, the Company reached comprehensive agreements
with debtor class action plaintiffs and Attorneys General in all fifty
states relating to certain reaffirmation agreements with the Company's
bankrupt credit-card holders that were not filed during the period January 1,
1979 through April 1, 1997. Under these agreements, the Company will use its
best efforts to identify all debtors with unfiled reaffirmation agreements
during the period and remit to them all amounts paid pursuant to such
agreements plus interest at 10% and write-off any remaining balances related
to unfiled reaffirmation agreements. In addition, the Company will provide a
fund of $25 million to be distributed to the debtors participating in the
settlement.
In the second quarter, the Company recorded a pretax charge of $475 million
($320 million after-tax) for the estimated cost of the settlement of this
matter, including related other expenses. Such an estimate is based on
assumptions as to the ultimate outcome of future events and uncertainties.
Actual results could differ from the estimate. See Note 7 for further
discussion. Management expects that this matter will have an adverse impact
on credit card charge-offs and the provision for uncollectible accounts in
subsequent periods.
Other income increased $116 million in the second quarter of 1997 from the
prior year period primarily due to the sale of the Company's interest in
Advantis to IBM for a pretax gain of $150 million.
<PAGE>
-13-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE- AND SIX-MONTH PERIODS ENDED JUNE 28, 1997 AND JUNE 29, 1996
International Operations
International operations in the second quarter of 1997 only included the
results of the Company's interest in Sears Canada as a result of the first
quarter sale of the Company's controlling interest in Sears Mexico.
International operations posted second quarter income of $4 million compared
with a loss of $14 million in 1996. For the first half of 1997, international
operations had a loss of $41 million compared with a loss of $28 million in
the first half of 1996. Excluding the loss on the sale of the Company's
controlling interest in Sears Mexico, international operations would have
posted a loss of $5 million in the first half of 1997.
International revenues for the second quarter of 1997 increased 1.3% from
the same period a year ago despite the fact that the segment no longer
includes revenues from Sears Mexico due to the aforementioned sale. Sears
Canada revenues in the second quarter were up 15.2% on strong retail store
and catalog sales performance. For the six-month period, international
revenues were $1.5 billion, up 4.3% from prior year.
Gross margins as a percentage of merchandise sales and services increased
to 26.8% in the second quarter from 23.7% in 1996. Sears Canada gross margin
rates improved substantially in 1997 reflecting reduced logistics costs and
lower markdown rates. For the six-month period, gross margins from
international operations increased 320 basis points to 25.2%.
Selling and administrative expense as a percentage of total revenues
decreased to 23.1% in 1997 from 24.9% in the second quarter of 1996. Sears
Canada selling and administrative rate improved 260 basis points in
the second quarter of 1997 to 23.1% versus 1996 due to cost containment
initiatives coupled with revenue growth and a favorable comparison to
prior year which included a restructuring charge of $10 million (before
minority interest). For the six-month period, the selling and administrative
expense as a percentage of revenues from international operations decreased
80 basis points to 23.1%.
Financial Condition
As of June 28, 1997, domestic merchandise inventories on the first-in,
first-out (FIFO) basis were $5.30 billion, compared with $4.74 billion at
June 29, 1996 and $4.96 billion at December 28, 1996. The increase in the
inventory levels reflects the additional inventory to support higher volume
sales and the growth in new stores, both Full-line and off-the-mall.
Cash flows from operating activities consist primarily of net income
adjusted for certain noncash expense items including depreciation,
reaffirmation charges, and the provision for uncollectible accounts, as well
as changes in receivables, inventories and deferred taxes.
Net cash used in the Company's operating activities totaled $119 million
for the first six months of 1997 compared to net cash provided of $227 million
for the same period in 1996. The change in operating net cash was primarily
due to a higher increase in owned retail customer receivables in 1997 as
compared to 1996 and a smaller decrease in operating liabilities.
<PAGE>
-14-
ITEM 2. - SEARS, ROEBUCK AND CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE-AND SIX-MONTH PERIODS ENDED JUNE 28, 1997 AND JUNE 29, 1996
Net cash used in investing activities totaled $188 million for the first
six months of 1997 compared to $505 million in 1996. The decrease in net
cash used resulted from cash provided by the dispositions of the Company's
interest in Advantis and the sale of the Company's controlling interest in
Sears Mexico partially offset by cash used for the acquisition of All
America, MaxServ and Florida Builders Appliances in the first quarter. As
part of its growth strategy, the Company may continue to pursue selective
strategic acquisitions. Cash used for property and equipment related to
the Company's Full-line stores remodeling programs and expansion of its
store base was $461 million in the first six months of 1997 as compared to
$550 million in 1996.
Net cash used in financing activities totaled $105 million for the first
six months of 1997 as compared to cash provided of $186 million in 1996.
The decrease in net cash provided by financing activities resulted from a
reduction in net borrowings partially attributable to the net proceeds
received from the sales of businesses.
<PAGE>
-15-
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On June 3, 1997, the Company entered into a settlement of the
consolidated class action lawsuits filed in the United States
Bankruptcy and District Courts for the District of Massachusetts
by certain current and former credit card holders of the Company
who had declared personal bankruptcy (the "Settlement"). These
lawsuits alleged that the Company had violated the United States
Bankruptcy Code and consumer protection laws in various states
through activities related to certain debt reaffirmation agreements.
During the second quarter of 1997, the Company also reached an
agreement in principle with Attorneys General in all fifty states
and signed a consent decree with the Federal Trade Commission
relating to these matters. A civil and criminal investigation of
these matters is ongoing.
The terms of the Settlement, which must still be jointly approved by
the United States Bankruptcy and District Courts for the District of
Massachusetts, require, among other things, the Company to pay the
debtors the amounts collected pursuant to reaffirmation agreements
that were not filed with the bankruptcy courts, including finance
charges, plus 10% interest, and to undergo a review of its credit
bankruptcy reaffirmation procedures. In addition, outstanding
balances relating to unfiled debt reaffirmation agreements will be
written off. The Company will also establish a $25 million fund to
be distributed to the debtors participating in the Settlement. A
joint fairness hearing on the Settlement has been set for October 28,
1997. The agreement in principle reached with the States' Attorneys
General requires, among other things, the Company to establish funds
aggregating $40 million to be shared among the states and used in
part for consumer education.
The Company recorded a pretax charge of $475 million ($320 million on
an after-tax basis) in the second quarter for the estimated cost of
the matters referred to above, including other related expenses. This
estimate is based on management's assumptions as to the ultimate
outcome of future events and uncertainties. Actual results could
differ from this estimate and there can be no assurance that
additional costs will not be incurred.
On May 14, 1997 and June 11, 1997, several stockholders filed actions
on behalf of the Company against its directors and certain of its
officers in the Supreme Court of the State of New York for the
Counties of New York and Westchester, alleging breach of fiduciary
duty for failing to prevent the improper handling of certain of the
Company's debt reaffirmation agreements. The complaints seek
unspecified damages and attorneys' fees and expenses. The various
plaintiffs have agreed to consolidate their complaints and to file an
amended and consolidated complaint in the Supreme Court of the State
of New York for the County of New York. The Company intends to
vigorously defend these allegations.
On June 23, 1997, several stockholders of the Company, purporting to
represent a class, filed a consolidated and amended complaint against
the Company and one of its officers in the United States District
Court for the Northern District of Illinois, alleging violations of
the Securities Exchange Act of 1934 for failure to disclose the
bankruptcy collection practices described above in periodic filings
with the Securities and Exchange Commission prior to April 10, 1997.
The complaint seeks unspecified damages and attorneys' fees and
expenses. The Company has filed a motion to dismiss this case.
The Company is subject to various other legal and governmental
proceedings pending against the Company, many involving routine
litigation incidental to the businesses. Other matters contain
allegations which are nonroutine and involve compensatory, punitive
or antitrust treble damage claims in very large amounts, as well as
other types of relief. The consequences of these matters are not
presently determinable but, in the opinion of management of the
Company after consulting with legal counsel, the ultimate liability
in excess of reserves currently recorded is not expected to have a
material effect on annual results of operations, financial position,
liquidity or capital resources of the Company.
<PAGE>
-16-
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
On May 8, 1997, the Company held its annual meeting of shareholders
at The Art Institute of Chicago in Chicago, Illinois.
1) Hall Adams, Jr., Alston D. Correll, Jr., Richard C. Notebaert and
Patrick G. Ryan were elected to Class C of the Board for three
year terms expiring at the 2000 annual meting of shareholders.
Hugh B. Price was elected to Class A of the Board for a term
expiring at the 1998 annual meeting of shareholders. The
shareholders approved the recommendation of the Audit Committee
that Deloitte & Touche LLP be appointed auditors for 1997 and
adopted and approved a Sears Employee Stock Purchase Plan. One
shareholder proposal was voted on and defeated. The vote on
these matters was as follows:
Directors
Name For Withheld
Hall Adams, Jr. 336,617,282 4,840,605
Alston D. Correll, Jr. 336,617,282 4,834,642
Richard C. Notebaert 336,617,282 7,136,869
Patrick G. Ryan 336,617,282 4,911,501
Hugh B. Price 336,617,282 5,377,043
2) Approval of appointment of Deloitte & Touche LLP as auditors
for 1997.
For Against Abstain
338,574,781 987,342 1,725,519
3) Sears Employee Stock Purchase Plan.
For Against Abstain Broker Non-Votes
325,165,751 14,023,098 2,097,449 1,344
Shareholder Proposals
4) De-classifying the Board of Directors.
For Against Abstain Broker Non-Votes
144,172,259 152,532,992 5,489,749 39,092,642
<PAGE>
-17-
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
An Exhibit Index has been filed as part of this Report on Page E-1.
(b) Reports on Form 8-K.
Current Reports on Form 8-K dated April 10, June 3, June 5 and June
11, 1997.
<PAGE>
-18-
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Sears, Roebuck and Co.
(Registrant)
July 24, 1997 By /s/ James A. Blanda
James A. Blanda
Vice President and Controller
(Principal Accounting
Officer and duly authorized
Officer of Registrant)
<PAGE>
E-1
EXHIBIT INDEX
SEARS, ROEBUCK AND CO.
THREE MONTH PERIOD ENDED JUNE 28, 1997
Exhibit No.
3.1 Restated Certificate of Incorporation as in effect on May 13, 1996
(incorporated by reference to Exhibit 3(a) to Registrant's
Registration Statement No. 33-8141).
3.2 By-laws, as amended and restated on May 8, 1997.
4 Registrant hereby agrees to furnish the Commission, upon request,
with the instruments defining the rights of holders of each issue
of long-term debt of the Registrant and its consolidated
subsidiaries.
10.1 Amendment No. Two, effective April 1, 1997, to The Savings and
Profit Sharing Fund of Sears Employees.
10.2 Sears Executive Retirement Plan Arrangements (SERPA), as amended,
effective March 24, 1997.
10.3 Supplemental Retirement Income Plan (SRIP), as amended, effective
March 24, 1997.
10.4 Consent Order with Federal Trade Commission (incorporated by
reference to Registrant's Form 8-K dated June 5, 1997, File
No. 1-416).
10.5 Stipulation and Agreement of Settlement, dated June 12, 1997,
as amended.
12(a) Computation of ratio of income to fixed charges for Sears,
Roebuck and Co. and consolidated subsidiaries for each of the
five years ended December 28, 1996, and for the six- and twelve-
month periods ended June 28, 1997.
12(b) Computation of ratio of income to combined fixed charges and
preferred share dividends for Sears, Roebuck and Co. and
consolidated subsidiaries for each of the five years ended
December 28, 1996, and for the six- and twelve-month periods ended
June 28, 1997.
15 Acknowledgment of awareness from Deloitte & Touche LLP, dated
July 24, 1997, concerning unaudited interim financial information.
27 Financial Data Schedule.
Exhibit 3.2
Sears, Roebuck and Co.
By-Laws
As Amended and Restated
May 8, 1997
and
Restated Certificate of Incorporation
As Amended to
May 13, 1996
Incorporated
New York
1906
By-Laws
of
Sears, Roebuck and Co.
as amended to
May 8, 1997
Article I
MEETINGS OF SHAREHOLDERS
Section 1.Place of Meetings. All meetings of the shareholders
shall be held at such place within or without the State of New
York as shall be fixed by the Board of Directors from time to
time.
Section 2.Annual Meetings. The annual meeting of the
shareholders for the election of directors and for the
transaction of such other business as may properly be brought
before the meeting shall be held at such time as is specified in
the notice of the meeting on either the second Wednesday in May
of each year or on such other date as may be fixed by the Board
of Directors prior to the giving of the notice of such meeting.
The Board of Directors acting by resolution may postpone and
reschedule any previously scheduled annual meeting of
shareholders.
Nominations of persons for election to the Board of Directors
of the Company and the proposal of business to be considered by
the shareholders may be made at an annual meeting of shareholders
(a) pursuant to the Company's notice of meeting, (b) by or at the
direction of the Board of Directors or (c) by any shareholder of
the Company who was a shareholder of record at the time of giving
of notice provided for in this By-Law, who is entitled to vote at
the meeting and who complied with the notice procedures set forth
in this By-Law.
For nominations or other business to be properly brought
before an annual meeting by a shareholder pursuant to clause (c)
of the foregoing paragraph of this By-Law, the shareholder must
have given timely notice thereof in writing to the Secretary of
the Company. To be timely, a shareholder's notice shall be
delivered to the Secretary at the principal executive offices of
the Company not less than 60 days nor more than 90 days prior to
the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual
meeting is advanced by more than 30 days or delayed by more than
60 days from such anniversary date, notice by the shareholder to
be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual
meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. Such
shareholder's notice shall set forth (a) as to each person whom
the shareholder proposes to nominate for election or reelection
as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act") (including such person's
written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (b) as to any
other business that the shareholder proposes to bring before the
meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such
business of such shareholder and the beneficial owner, if any,
on whose behalf the proposal is made; (c) as to the shareholder
giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and
address of such shareholder, as they appear on the Company's
books, and of such beneficial owner and (ii) the class and
number of shares of the Company which are owned beneficially and
of record by such shareholder and such beneficial owner.
Notwithstanding anything in the second sentence of the
preceding paragraph to the contrary, in the event that the number
of directors to be elected to the Board of Directors of the
Company is increased and there is no public announcement naming
all of the nominees for Director or specifying the size of the
increased Board of Directors made by the Company at least 70 days
prior to the first anniversary of the preceding year's annual
meeting, a shareholder's notice required by this By-Law shall
also be considered timely, but only with respect to nominees for
any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of
the Company not later than the close of business on the 10th day
following the day on which such public announcement is first made
by the Company.
Only such persons who are nominated in accordance with the
procedures set forth in these By-Laws shall be eligible to serve
as directors and only such business shall be conducted at an
annual meeting of shareholders as shall have been brought before
the meeting in accordance with the procedures set forth in this
By-Law. The chairman of the meeting shall have the power and
duty to determine whether a nomination or any business proposed
to be brought before the meeting was made in accordance with the
procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to
declare that such defective proposal shall be disregarded.
For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or
in a document publicly filed by the Company with the Securities
and Exchange Commission pursuant to Sections 13, 14 or 15(d) of
the Exchange Act.
Notwithstanding the foregoing provisions of this By-Law, a
shareholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this By-Law. Nothing in this
By-Law shall be deemed to affect any rights (i) of shareholders
to request inclusion of proposals in the Company's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (ii)
of the holders of any series of Preferred Stock to elect
directors under specified circumstances.
Section 3.Special Meetings. Special meetings of the
shareholders for any purpose or purposes shall be called to be
held at any time upon the request of the Chairman of the Board of
Directors, the President or a majority of the members of the
Board of Directors or of the Executive Committee then in office.
Business transacted at all special meetings shall be confined to
the specific purpose or purposes of the persons authorized to
request such special meeting as set forth in this Section 3 and
only such purpose or purposes shall be set forth in the notice of
such meeting. The Board of Directors acting by resolution may
postpone and reschedule any previously scheduled special meeting
of shareholders.
Nominations of persons for election to the Board of Directors
may be made at a special meeting of shareholders at which
directors are to be elected (a) pursuant to the Company's notice
of meeting (b) by or at the direction of the Board of Directors
or (c) by any shareholder of the Company who is a shareholder of
record at the time of giving of notice provided for in this By-
Law, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this By-Law.
Nominations by shareholders of persons for election to the Board
of Directors may be made at such a special meeting of
shareholders if the shareholder's notice required by the third
paragraph of Section 2 of Article I of these By-Laws shall be
delivered to the Secretary at the principal executive offices of
the Company not earlier than the 90th day prior to such special
meeting and not later than the close of business on the later of
the 60th day prior to such special meeting or the 10th day
following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
Only such persons who are nominated in accordance with the
procedures set forth in these By-Laws shall be eligible to serve
as directors and only such business shall be conducted at a
special meeting of shareholders as shall have been brought before
the meeting in accordance with the procedures set forth in this
By-Law. The chairman of the meeting shall have the power and
duty to determine whether a nomination or any business proposed
to be brought before the meeting was made in accordance with the
procedures set forth in this By-Law and, if any proposed
nomination or business is not in compliance with this By-Law, to
declare that such defective proposal shall be disregarded.
Notwithstanding the foregoing provisions of this By-Law, a
shareholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this By-Law.
Section 4.Notice of Meetings. Written notice of the time,
place, and purpose or purposes of each annual and special meeting
of shareholders shall be signed by the Secretary and served by
mail upon each shareholder of record entitled to vote at such
meeting not less than ten nor more than fifty days before the
date of the meeting. Notice of an annual or special meeting of
shareholders shall be deemed to be served when deposited in the
United States mail, postage prepaid, addressed to each
shareholder at his address as it appears on the stock records of
the Company or at such other address as he may have filed with
the Secretary of the Company for such purpose.
Section 5.Quorum. At any meeting of the shareholders, the
holders of record of one-third of the total number of shares of
the Company entitled to vote, present in person or represented by
proxy, shall constitute a quorum for the purpose of transacting
business.
Section 6.Organization and Adjournment. The Chairman of the
Board of Directors or in the Chairman's absence, the President,
or, if both of such officers are absent, an officer designated by
the Executive Committee, shall act as chairman of the meeting.
The Secretary, or in the Secretary's absence an Assistant
Secretary, or if neither the Secretary nor any Assistant
Secretary be present, any person designated by the chairman of
the meeting, shall act as secretary of the meeting. Any annual
or special meeting of shareholders may be adjourned by the
chairman of the meeting or pursuant to resolution of the Board of
Directors without notice other than by announcement at the
meeting. At any adjourned meeting at which a quorum is present,
any business may be transacted that might have been transacted at
the meeting as originally convened.
Section 7.Voting. At each meeting of the shareholders, each
holder of shares entitled to vote at such meeting shall be
entitled to vote in person or by proxy appointed by an instrument
in writing signed by such shareholder or by the shareholder's
duly authorized attorney and, except as provided in the
Certificate of Incorporation of the Company with respect to
cumulative voting, shall have one vote for each share standing in
the shareholder's name on the books of the Company upon each
matter submitted to a vote at the meeting. The vote upon the
election of directors shall be by ballot. If a quorum is present
at any meeting of shareholders, the vote of the holders of a
majority of the shares cast by the holders of shares entitled to
vote on the matter shall be sufficient for the transaction of any
business, except that directors shall be elected by a plurality
of shares cast by the holders of shares entitled to vote in the
election, unless, in either case, otherwise provided by law or by
the Certificate of Incorporation.
Section 8.Inspectors of Election. Prior to each meeting of
shareholders, the Board of Directors shall appoint three
Inspectors, who shall not be directors or officers of the Company
or candidates for the office of director. Such Inspectors shall
count and report to the meeting the votes cast on all matters
submitted to a vote at such meeting. In the case of failure of
the Board of Directors to make such appointments, or in the case
of failure of any Inspector so appointed to act, the chairman of
the meeting may, and at the request of a shareholder entitled to
vote thereat, shall, make such appointments or fill such
vacancies. Each Inspector shall be entitled to a reasonable
compensation from the Company for his services. The Inspectors
appointed to act at any meeting of the shareholders, before
entering upon the discharge of their duties, shall be sworn
faithfully to execute the duties of Inspectors at such meeting
with strict impartiality and according to the best of their
ability, and the oath so taken shall be subscribed by them.
Article II
BOARD OF DIRECTORS
Section 1.Number, Qualification and Term of Office. The
business of the Company shall be managed under the direction of a
Board of Directors, each of whom shall be at least 18 years of
age. The number of directors of the Company shall be fixed and
may from time to time be increased or decreased by the
affirmative vote of a majority of the entire Board of Directors,
but in no event shall the number of directors be less than 7 or
more than 20.
Section 2.Vacancies. Any vacancies on the Board of Directors
may be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a
quorum of the Board of Directors. No decrease in the number of
directors constituting the Board of Directors shall shorten the
term of any incumbent director.
Section 3.Resignations. Any director may resign at any time
by giving written notice to the Chairman of the Board of
Directors, or to the President, or to the Secretary of the
Company. Such resignation shall take effect on the date of
receipt of such notice unless a later effective date is specified
therein. The acceptance of such resignation by the Board of
Directors shall not be necessary to make it effective.
Section 4.Place of Meetings. The Board of Directors may hold
its meetings at such place or places, within or without the State
of New York, as the Board of Directors may from time to time
determine or as may be specified in the notice of any meeting.
Section 5.Annual Meetings. A meeting of the Board of
Directors to be known as the annual meeting of the Board of
Directors shall be held following the meeting of the shareholders
at which such Board of Directors is elected, at such place as
shall be fixed by the Board of Directors, for the purpose of
electing the officers of the Company and the committees of the
Board of Directors, and of transacting such other business as may
properly come before the meeting. It shall not be necessary to
give notice of this meeting.
Section 6.Other Meetings. Meetings of the Board of Directors
shall be held on such dates as from time to time may be
determined by the Board of Directors or whenever called upon the
direction of the Chairman of the Board of Directors or of the
President or by the Secretary upon the written request of one-
third of the directors in office, which request shall state the
date, place and purpose of such meeting.
Section 7.Notice of Meetings. Written, telephonic,
telegraphic or facsimile transmission notice of each meeting
except the annual meeting shall be given by the Secretary to each
director, by personal delivery, by telephone, or by regular or
express mail, or telegram or facsimile transmission addressed to
the director at his or her usual business address, or to the
address where the director is known to be, at least three days
(excluding Saturdays, Sundays, and holidays) prior to the meeting
in case of notice by regular mail and at least three hours prior
to the meeting in case of notice by personal delivery, express
mail, telephone, telegram, or facsimile transmission. All
notices which are given by regular mail shall be deemed to have
been given when deposited in the United States mail, postage
prepaid. Any director may waive notice of any meeting before or
after the meeting, and the attendance of a director at any
meeting, except for the sole purpose of protesting the lack of
notice thereof, shall constitute a waiver of notice of such
meeting. Any and all business may be transacted at any meeting
which need not be restricted to the purpose thereof specified in
the notice or waiver of notice of such meeting, if one is
specified.
Section 8.Organization, Quorum, Written Consents and Meetings
by Telephone or Similar Equipment. Unless the Board of Directors
shall by resolution otherwise provide, the Chairman of the Board
of Directors, or in the Chairman's absence, the President, or, if
both of such officers are absent, a director chosen by a majority
of the directors present, shall act as chairman at meetings of
the Board of Directors; and the Secretary, or in the Secretary's
absence an Assistant Secretary, or in the absence of an Assistant
Secretary, such person as may be designated by the chairman of
the meeting, shall act as secretary at such meetings.
A majority of the directors in office at the time (but not
less than one-third of the entire Board of Directors) shall
constitute a quorum necessary for the transaction of business,
and, except as otherwise provided in these By-Laws, the action of
a majority of the directors present at any meeting at which a
quorum is present shall be the act of the Board of Directors. If
at any meeting of the Board of Directors a quorum is not present,
a majority of the directors present may adjourn the meeting from
time to time.
Any action required or permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting
if all members of the Board of Directors or the committee consent
in writing to the adoption of a resolution authorizing the
action. The resolution and the written consent thereto by the
members of the Board of Directors or committee shall be filed
with the minutes of the proceedings of the Board of Directors or
committee.
Any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of such Board of
Directors or committee by means of a conference telephone or
similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time.
Participation by such means shall constitute presence in person
at a meeting.
Section 9.Compensation. Each director not an officer of the
Company, or of any subsidiary or affiliated company, may receive
such compensation for his or her services as a director and as a
committee member as shall be fixed from time to time by
resolution of the Board of Directors and shall be reimbursed for
expenses of attendance at meetings of the Board of Directors and
of any committee of which he or she is a member.
Article III
COMMITTEES
Section 1.Creation and Organization. The Board of Directors,
at its annual meeting, or any adjournment thereof, shall, or at
any other meeting may, elect from among its members, by the vote
of a majority of the entire Board of Directors, an Audit
Committee, a Compensation Committee, an Executive Committee, a
Nominating Committee and a Public Issues Committee, which shall
be the standing committees of the Board of Directors, and such
other committees as shall be determined by the Board of
Directors. The Board of Directors also shall designate the
chairman of each such committee.
The Secretary of the Company shall act as secretary of each
committee meeting, or in the Secretary's absence, an Assistant
Secretary shall act as secretary thereof, or in the absence of an
Assistant Secretary, any person as may be designated by the
chairman of the committee shall act as secretary of the meeting
and keep the minutes of such meeting.
The Board of Directors, by the vote of a majority of the
entire Board of Directors, may remove the chairman or any member
of any committee, and may fill from among the directors vacancies
in any committee caused by the death, resignation, or removal of
any person elected thereto.
The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
Each committee may determine its own rules of procedure,
consistent with these By-Laws. Meetings of any committee may be
called upon direction of the Chairman of the Board of Directors,
the President, or the chairman of the committee. Notice of each
meeting shall be given to each member of the committee, by
personal delivery, telephone, telegram, facsimile transmission,
or regular or express mail addressed to the member at his or her
usual business address, or to the address where the member is
known to be, at least three days (excluding Saturdays, Sundays,
and holidays) prior to the meeting in case of notice by regular
mail, and at least three hours prior to the meeting in case of
notice by personal delivery, express mail, telephone, telegram,
or facsimile transmission. All notices which are given by
regular mail shall be deemed to have been given when deposited in
the United States mail, postage prepaid. Notice of meetings of
any committee may be waived by any member of the committee before
or after the meeting. At meetings of each committee, the
presence of a majority of such committee shall be necessary to
constitute a quorum for the transaction of business, and, if a
quorum is present at any meeting, the action taken by a majority
of the members present shall be the act of the committee. Each
committee shall keep a record of its acts and proceedings, and
all action shall be reported to the Board of Directors at the
next meeting of the Board of Directors following such action.
Each committee shall annually consider whether amendments to the
section of Article III of these By-Laws relating to the
composition and function of such committee appear to be in the
best interests of the Company. Each committee shall report on
such recommendations to the Nominating Committee annually, no
later than December. The Nominating Committee shall report on
such recommendations to the Board of Directors at its first
regular meeting each year.
Section 2.Executive Committee. The Executive Committee shall
consist of the Chairman of the Board of Directors and of such
number of other directors, a majority of whom shall not be
officers or employees of the Company or its affiliates, not less
than four, as shall from time to time be prescribed by the Board
of Directors.
The Executive Committee, unless otherwise provided by
resolution of the Board of Directors, shall between meetings of
the Board of Directors have all the powers of the Board of
Directors and may perform all of the duties thereof, except that
the Executive Committee shall have no authority as to the
following matters: (i) submission to shareholders of any action
that requires shareholders' authorization under the New York
Business Corporation Law; (ii) compensation of directors; (iii)
amendment or repeal of these By-Laws or the adoption of new By-
Laws; (iv) amendment or repeal of any resolution of the Board of
Directors that by its terms may not be so amended or repealed;
(v) action in respect of dividends to shareholders; (vi) election
of officers, directors or members of committees of the Board of
Directors. Any action taken by the Executive Committee shall be
subject to revision or alteration by the Board of Directors,
provided that rights or acts of third parties vested or taken in
reliance on such action prior to their receipt of written notice
of any such revision or alteration shall not be adversely
affected by such revision or alteration.
Section 3.Audit Committee. The Audit Committee shall consist
of such number of directors, who shall not be officers or
employees of the Company or any of its affiliates, not less than
three, as shall from time to time be prescribed by the Board of
Directors.
The Audit Committee shall review, with management, the
Company's independent public accountants and its internal
auditors, upon completion of the audit, the annual financial
statements of the Company, the independent public accountants'
report thereon, the other relevant financial information to be
included in the Company's Annual Report on Form 10-K and its
annual report to shareholders. After such review, the Committee
shall report thereon to the Board of Directors.
The Audit Committee shall:(1) review recommendations made by
the Company's independent public accountants and internal
auditors to the Audit Committee or the Board of Directors with
respect to the accounting methods and the system of internal
control used by the Company, and shall advise the Board of
Directors with respect thereto; (2) examine and make
recommendations to the Board of Directors with respect to the
scope of audits conducted by the Company's independent public
accountants and internal auditors; (3) review reports from the
Company's independent public accountants and internal auditors
concerning compliance by management with governmental laws and
regulations and with the Company's policies relating to ethics,
conflicts of interest, perquisites and use of corporate assets.
The Audit Committee shall meet with the Company's independent
public accountants and/or internal auditors without management
present whenever the Audit Committee shall deem it appropriate or
the independent public accountants and/or internal auditors
request such a meeting. The Committee shall review with the
General Counsel of the Company the status of legal matters that
may have a material impact on the Company's financial statements.
The Audit Committee shall each year make a recommendation,
based on a review of qualifications, to the Board of Directors
for the appointment of independent public accountants to audit
the financial statements of the Company and to perform such other
duties as the Board of Directors may from time to time prescribe.
As part of such review of qualifications, the Audit Committee
shall consider management's plans for engaging the independent
public accountants for management advisory services to determine
whether such services could impair the public accountants'
independence.
The Audit Committee shall have the power to conduct or
authorize special projects or investigations which the Committee
considers necessary to discharge its duties and responsibilities.
It shall have the power to retain independent outside counsel,
accountants or others to assist it in the conduct of any
investigations and may utilize the Company's General Counsel and
internal auditors for such purpose.
Section 4.Compensation Committee. The Compensation Committee
shall consist of such number of directors, who shall not be
officers or employees of the Company or any of its affiliates,
not less than three, as shall from time to time be prescribed by
the Board of Directors. As authorized by the Board of Directors,
the Compensation Committee shall make recommendations to the
Board of Directors with respect to the compensation of directors
and the administration of the salaries, bonuses, and other
compensation to be paid to the officers of the Company, including
the terms and conditions of their employment, shall review the
compensation of the Chief Executive Officer, and shall administer
all stock option and other benefit plans (unless otherwise
specified in or pursuant to plan documents or resolutions of the
Board of Directors) affecting officers' direct and indirect
remuneration.
The Compensation Committee shall review the design, funding
and investment policies of the employee benefit plans of the
Company and its subsidiaries, as appropriate. The Committee
shall, on its own initiative or upon referral from the Board of
Directors, investigate, analyze and consider the current and
future financial practices of such benefit plans and report and
make such recommendations to the Board of Directors as deemed
appropriate.
Section 5.Nominating Committee. The Nominating Committee
shall consist of such number of directors, who shall not be
officers or employees of the Company or any of its affiliates,
not less than three, as shall from time to time be prescribed by
the Board of Directors.
The Nominating Committee shall review and recommend to the
Board of Directors prior to the annual shareholders' meeting each
year: (a) the appropriate size and composition of the Board of
Directors; (b) a proxy statement and form of proxy; (c) policies
and practices on shareholder voting; (d) plans for the annual
shareholders' meeting; and (e) nominees: (i) for election to the
Board of Directors for whom the Company should solicit proxies;
(ii) to serve as proxies in connection with the annual
shareholders' meeting; (iii) for election to all committees of
the Board of Directors; and (iv) for election as executive
officers of the Company.
The Nominating Committee shall annually assess the performance
of the Board, evaluate the performance of the Chairman and Chief
Executive Officer of the Company, and review the management
organization of the Company and succession plans for the
Chairman and Chief Executive Officer of the Company, including
consultation with the Chairman of the Board of Directors
regarding persons considered qualified to fill any vacancy that
may occur in the position of Chairman and Chief Executive
Officer. In the event of any such vacancy, the Nominating
Committee shall recommend to the Board of Directors a nominee to
fill such vacancy.
Section 6.Public Issues Committee. The Public Issues
Committee shall consist of such number of directors, not less
than three, as shall from time to time be prescribed by the Board
of Directors. A majority of the members shall not be officers or
employees of the Company or any of its affiliates.
The Public Issues Committee shall concern itself with current
problems and future trends in respect to public issues that may
affect the Company and shall review and discuss such issues with
the appropriate representatives of management of the Company and
provide guidance as to the Company's policies and positions with
respect thereto.<PAGE>
Article IV
OFFICERS
Section 1.Officers. The Board of Directors shall, at its
annual meeting, and may at any other meeting, or any adjournment
thereof, elect from among its members a Chairman of the Board of
Directors and a President. The Board of Directors may also elect
at such meeting one or more Vice Chairmen and one or more Vice
Presidents, who may have special designations, and may elect at
such meeting a Treasurer, a Controller and a Secretary, who also
may have special designations.
The Board of Directors may elect or appoint such other
officers and agents as it shall deem necessary, or as the
business of the Company may require, each of whom shall hold
office for such period, have such authority and perform such
duties as the Board of Directors may prescribe from time to time.
Any two or more offices, except the offices of Chairman of the
Board of Directors and Secretary, the offices of President and
Secretary and the offices of Chief Financial Officer (regardless
of title) and Controller, may be held by the same person, but no
officer shall execute, acknowledge or verify any instrument in
more than one capacity.
Section 2.Term of Office. Each officer elected by the Board
of Directors shall hold office until the annual meeting of the
Board of Directors following the next annual meeting of
shareholders and until his or her successor is elected, or until
such earlier date as shall be prescribed by the Board of
Directors at the time of his or her election. Any officer may be
removed at any time, with or without cause, by the vote of a
majority of the members of the Board of Directors.
Section 3.Vacancies. A vacancy in any office caused by the
death, resignation, retirement, or removal of the person elected
thereto, or by any other cause, may be filled for the unexpired
portion of the term by election of the Board of Directors at any
meeting. In case of the absence or disability, or refusal to act
of any officer of the Company, or for any other reason that the
Board of Directors shall deem sufficient, the Board of Directors
may delegate, for the time being, the powers and duties, or any
of them, of such officer to any other officer or to any director,
consistent with the limitations in Section 1.
Section 4.The Chairman of the Board of Directors. The
Chairman of the Board of Directors shall be the chief executive
officer of the Company and shall have general direction over the
affairs of the Company, subject to the control and direction of
the Board of Directors. The Chairman shall, when present,
preside as chairman at all meetings of the shareholders and of
the Board of Directors. The Chairman may call meetings of the
shareholders and of the Board of Directors and of the committees
whenever he or she deems it necessary. The Chairman shall, in
the absence or incapacity of the President, perform all duties
and functions and exercise all the powers of the President. The
Chairman shall have such other powers and perform such other
duties as from time to time may be prescribed by the Board of
Directors.
Section 5.The President. The President shall have general
direction over the day-to-day business of the Company, subject to
the control and direction of the Chairman of the Board of
Directors. The President shall keep the Chairman of the Board of
Directors fully informed concerning the activities of the Company
under his supervision. The President shall, in the absence or
incapacity of the Chairman of the Board of Directors, perform all
duties and functions and exercise all the powers of the Chairman
of the Board of Directors. In the absence of the Chairman of the
Board of Directors, the President shall preside at meetings of
the shareholders and of the Board of Directors. The President
shall have such other powers and perform such other duties as are
incident to the office of President and as from time to time may
be prescribed by the Board of Directors.
Section 6.Vice Chairmen and Vice Presidents. Each Vice
Chairman and each Vice President shall have such powers and
perform such duties as from time to time may be assigned to him
or her by the Board of Directors or be delegated to him or her by
the Chairman of the Board of Directors or by the President. The
Board of Directors may assign to any Vice Chairman or Vice
President general supervision and charge over any territorial or
functional division of the business and affairs of the Company.
In the absence or incapacity of the Chairman of the Board of
Directors and the President, the powers, duties, and functions of
the President shall be temporarily performed and exercised by
such one of the Vice Chairmen or Vice Presidents as shall be
designated by the Board of Directors or, if not designated by the
Board of Directors, by the Executive Committee or, if not
designated by the Executive Committee, by the President.
Section 7.Chief Financial Officer. The Chief Financial
Officer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of
the properties and business transactions of the Company,
including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings, and
shares. The books of account shall at all reasonable times be
open to inspection by any director.
The Chief Financial Officer shall deposit all money and other
valuables in the name and to the credit of the Company with such
depositaries as may be designated by the Board of Directors. He
or she shall disburse the funds of the Company as may be ordered
by the Board of Directors, shall render to the Board of
Directors, the Chairman of the Board of Directors, or the
President, whenever they request it, an account of all of his or
her transactions as Chief Financial Officer and of the financial
condition of the Company, and shall have such other powers and
perform such other duties as may be prescribed by the Board of
Directors, the Chairman of the Board of Directors, the President
or these By-Laws.
Section 8.Controller. The Controller shall have general
charge, control, and supervision over the accounting and auditing
affairs of the Company. The Controller or such persons as the
Controller shall designate shall have responsibility for the
custody and safekeeping of all permanent records and papers of
the Company. The Controller shall have responsibility for the
preparation and maintenance of the books of account and of the
accounting records and papers of the Company; shall supervise the
preparation of all financial statements and reports on the
operation and condition of the business; shall have
responsibility for the establishment of financial procedures,
records, and forms used by the Company; shall have responsibility
for the filing of all financial reports and returns, except tax
returns, required by law; shall render to the Chairman of the
Board of Directors, the President, or the Board of Directors,
whenever they may require, an account of the Controller's
transactions; and in general shall have such other powers and
perform such other duties as are incident to the office of
Controller and as from time to time may be prescribed by the
Board of Directors, the Chairman of the Board of Directors, or
the President.
Section 9.Secretary. The Secretary shall attend and keep the
minutes of meetings of the shareholders, of the Board of
Directors, and of all committees of the Company in books of the
Company provided for that purpose; may sign with the Chairman of
the Board of Directors, the President, any Vice Chairman or any
Vice President, or the Manager of any Department, in the name of
the Company, contracts and other instruments authorized by the
Board of Directors or by the Executive Committee, and in proper
cases shall affix the corporate seal thereto; shall see that
notices are given and corporate records and reports are properly
kept and filed by the Company as required by these By-Laws or as
required by law; and in general shall have such other powers and
perform such other duties as are incident to the office of
Secretary and as from time to time may be prescribed by the Board
of Directors, the Chairman of the Board of Directors, or the
President.
Section 10.Compensation. The salaries and other compensation
of all officers elected by the Board of Directors shall be fixed
from time to time by or under the direction of the Board of
Directors.
Article V
INDEMNIFICATION OF DIRECTORS AND
OFFICERS
Section 1.Indemnification. Any person (hereinafter called an
"Indemnitee") made, or threatened to be made, a party to, or who
is otherwise involved in, any action, suit or proceeding whether
civil, criminal, administrative or investigative, by reason of
the fact that such Indemnitee, or his or her testator or
intestate, is or was a director or officer of the Company, or,
while a director or officer of the Company and at the request of
the Company, is or was serving another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise
in any capacity, shall be indemnified by the Company to the full
extent permitted by applicable law, against judgments, fines,
amounts paid in settlement and all expenses, including attorneys'
fees, actually incurred as a result of such action, suit or
proceeding, or any appeal therein.
Without limitation of the foregoing, the Company shall be
deemed to have requested an Indemnitee to serve an employee
benefit plan where the performance by such person of his or her
duties to the Company also imposes duties on, or otherwise
involves services by, such person to the plan or participants or
beneficiaries of the plan. Excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to
applicable law shall be considered fines.
Section 2.Partial Indemnity. If an Indemnitee is entitled
under any provision of this Article V to indemnification by the
Company for some or a portion of the amounts indemnified against,
but not for the total amount thereof, the Company shall
nevertheless indemnify such Indemnitee for the portion thereof to
which such Indemnitee is entitled.
Section 3.Advancement of Expenses. Except as prohibited by
applicable law, the Company shall, from time to time, reimburse
or advance to any Indemnitee the funds necessary for payment of
expenses incurred in connection with any action, suit or
proceeding referred to in Section 1, upon receipt of a written
undertaking by or on behalf of such Indemnitee to repay such
amounts if and to the extent that such repayment is required
pursuant to applicable law.
Section 4.Corporate Action; Judicial Review. Upon receipt of
a request to be indemnified, or for the reimbursement or
advancement of expenses, the Company shall promptly proceed in
good faith to take all actions necessary to a determination of
whether or not the Indemnitee is entitled to such payment
pursuant to this Article V. If such a request is not paid in
full by the Company within thirty days after receipt of a written
claim therefor, the Indemnitee may at any time thereafter bring
suit against the Company to recover the unpaid amount of the
claim and, if successful in whole or in part, the Indemnitee also
shall be entitled to be reimbursed by the Company for the
expenses actually incurred, including attorneys' fees, of
prosecuting such claim. Neither a determination that such
payments are improper under the circumstances, nor the failure of
the Company (including its Board of Directors, Independent
Counsel (as hereinafter defined) or shareholders) to have made a
determination, prior to the commencement of such action, that
such payments are proper under the circumstances, shall be a
defense to the action or shall create a presumption that the
Indemnitee is not entitled to the payment requested.
Notwithstanding any other provision of this Article V, in any
action hereunder by the Indemnitee against the Company to secure
indemnification or reimbursement or advancement of expenses, to
the extent permitted by applicable law, the Company shall bear
the burden of proof that the Indemnitee is not entitled to such
payments.
Section 5.Contract Right. The right to indemnification and to
the reimbursement or advancement of expenses pursuant to this
Article V (a) is a contract right provided in consideration of
services to the Company, with respect to which an Indemnitee may
bring suit as if the provisions of this Article V were set forth
in a separate written contract between the Company and such
Indemnitee, (b) is intended to be retroactive and shall, to the
extent permitted by applicable law, be available with respect to
events occurring prior to the adoption hereof, and (c) shall
continue to exist after any future rescission or restrictive
modification hereof with respect to any alleged cause of action
that accrues, or any other incident or matter that occurs, prior
to such rescission or modification. It is the intent of the
Company to irrevocably establish hereby the right of Indemnitees
to all indemnification that is not prohibited by applicable law.
Section 6.Change in Control. If there has been a Change in
Control of the Company (as hereinafter defined) within five years
prior to any request for indemnification or reimbursement or
advancement of expenses pursuant to this Article V, then with
respect to all matters thereafter arising concerning the rights
of Indemnitees to payments pursuant to this Article V or under
any other agreement not inconsistent with this Article V now or
hereafter in effect, the Company shall seek legal advice as
specified below only from Independent Counsel (as hereinafter
defined) selected by the Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld). Such
Independent Counsel shall determine whether and to what extent
the Indemnitee would be permitted to be indemnified under
applicable law, which determination shall include an opinion as
to whether any requisite standard of conduct under applicable law
has been met, and shall render a written opinion to the Company
and the Indemnitee to such effect. To the extent permitted by
applicable law, the Company shall be required by this Section 6
to authorize indemnification to the extent such opinion of
Independent Counsel indicates that indemnification is permitted
under applicable law; provided, however, that nothing in this
Section 6 shall be deemed to abrogate the duties of any director
of the Company to participate in any determination required to be
made under applicable law as to whether such payments shall be
made. The Company agrees to pay the reasonable fees of such
Independent Counsel and to indemnify such counsel fully against
any and all expenses, claims, liabilities and damages arising out
of or relating to this Article V or the engagement of such
Independent Counsel pursuant hereto.
A "Change in Control of the Company" shall be deemed to have
occurred if (a) any "person" (as such term is used in Section
13(d) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner (as defined in Rule 13d-3 under such Act),
directly or indirectly, of securities of the Company representing
25% or more of the combined voting power of the Company's then
outstanding voting shares, or (b) during any period of two
consecutive years, individuals who at the beginning of such
period constitute the Board of Directors of the Company cease for
any reason to constitute at least a majority thereof unless the
election of each director who was not a director at the beginning
of the period was approved by a vote of a least 75% of the
directors then still in office who were directors at the
beginning of the period.
"Independent Counsel" shall refer to an attorney-at-law who at
the time of his or her selection shall not have otherwise
performed services for the Company or the Indemnitee within the
previous five years. Independent Counsel shall not be any person
who, under the standards of professional conduct to which he or
she is legally subject, would have a conflict of interest in
representing either the Company or the Indemnitee in connection
with the determination of the Indemnitee's rights under this
Article V; nor shall Independent Counsel be any person who has
been sanctioned or censured for ethical violations of such
standards of professional conduct.
Section 7.Period of Limitations. To the extent such
limitation is permitted by applicable law, no legal action shall
be brought and no cause of action shall be asserted by or in the
right of the Company or any affiliate of the Company against an
Indemnitee, Indemnitee's spouse, heirs, testators, intestates,
executors, administrators or personal or legal representatives
after the expiration of three years from the date of accrual of
such cause of action, and any claim or cause of action of the
Company or any affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action
within such three year period; provided, however, that if any
shorter period of limitations is otherwise applicable to any such
cause of action, such shorter period shall govern.
Section 8.Non-exclusivity. The rights of Indemnitees under
the foregoing provisions of this Article V shall be in addition
to any other rights such persons may have under a resolution of
the shareholders of the Company, a resolution of its directors,
the Certificate of Incorporation of the Company as amended or
restated from time to time, the New York Business Corporation
Law, the common law, any insurance policy, any agreement or
otherwise. In addition to the foregoing provisions of this
Article V, indemnification and reimbursement and advancement of
expenses may be authorized pursuant to this Article V by a
resolution of the shareholders of the Company, a resolution of
its directors or an agreement providing for such indemnification.
The Company shall not be liable under this Article V to make any
payment to an Indemnitee to the extent that such person has
otherwise actually received payment of the amounts otherwise
indemnifiable hereunder.
Section 9.Applicable Law. Any Indemnitee entitled to
indemnification or to the reimbursement or advancement of
expenses as a matter of right pursuant to this Article V may
elect, to the extent permitted by law, to have the right of
indemnification (or reimbursement or advancement of expenses)
interpreted on the basis of the applicable law in effect at the
time of the occurrence of the event or events giving rise to the
action, suit or proceeding, or on the basis of the applicable law
in effect at the time indemnification (or reimbursement or
advancement of expenses) is sought.
Article VI
STOCK CERTIFICATES AND TRANSFER OF STOCK
Section 1.Certificates of Stock. Certificates representing
shares of the Company shall be in such form, consistent with law,
as shall be approved by the Board of Directors. They shall be
signed by the Chairman of the Board of Directors or President or
a Vice Chairman or a Vice President, and by the Secretary or
Treasurer or by an Assistant Secretary or Assistant Treasurer,
and shall be sealed with the corporate seal of the Company. Such
seal may be an engraved or printed facsimile, and the signature
of such officers of the Company, or any of them, may be printed
facsimiles if such certificates are countersigned by a Transfer
Agent or registered by a Registrar other than the Company itself
or an employee thereof. In case any officer who shall have
signed any such certificate, or whose facsimile signature shall
have been used thereon, shall cease to be such officer before
such certificate shall have been issued by the Company, such
certificate may be issued by the Company with the same effect as
if such officer had not ceased to be such at the date of the
issuance of such certificate. The signature of the Transfer
Agent and Registrar on a certificate representing shares of the
Company may also be a printed facsimile when the same entity acts
in the dual capacity.
Section 2.Transfer of Certificated Stock. Certificated shares
of the Company shall be transferred on the books of the Company
only upon surrender of the certificate or certificates therefor
to the Treasurer of the Company, or to any authorized Transfer
Agent, properly endorsed or accompanied by proper assignments
duly executed by the registered holder thereof in person or by
his or her attorney duly authorized in writing; except that with
respect to certificates alleged to have been lost, stolen, or
destroyed, a new certificate may be issued without cancellation
of the original certificate, but only upon production of such
evidence of the loss, theft, or destruction of the original
certificate, and upon delivery to the Company of a bond of
indemnity in such amount and upon such terms as the Board of
Directors, in its discretion, may require. Until so transferred
on the books of the Company, the Company shall deem and treat the
registered holder of each certificate for shares as the owner of
such shares for all purposes.
Section 3.Transfer Agent and Registrar; Regulations. The
Company shall maintain one or more transfer offices or agencies,
each under control of a Transfer Agent, where the shares of the
Company may be transferable, and also one or more registry
offices or agencies, each under control of a Registrar, where
such shares may be registered, and no certificate for shares of
the Company shall be valid unless countersigned by such Transfer
Agent and registered by such Registrar. The Board of Directors
may make such additional rules and regulations as it may deem
expedient concerning the issue, transfer, and registration of
certificates for shares of the Company.
Section 4.Record Date of Shareholders. The Board of Directors
may from time to time fix in advance a date, not more than fifty
nor less than ten days preceding the date of any meeting of
shareholders, and not more than fifty days prior to the date for
the payment of any dividend, or the date for the allotment of any
rights, or the date when any change or conversion or exchange of
shares shall become effective, or the date for any other action
by the shareholders, as a record for the determination of the
shareholders entitled to notice of, and to vote at, any such
meeting and any adjournment thereof, or entitled to receive
payment of any such dividend, or to any such allotment of rights,
or to exercise the rights in respect of any such change,
conversion, or exchange of shares, or to take any other action,
and only such shareholders as shall be shareholders of record on
the date so fixed shall be entitled to such notice of, and to
vote at, such meeting and any adjournment thereof, or to receive
payment of such dividend, or to receive such allotment of rights,
or to exercise such rights, or to take such other action, as the
case may be, notwithstanding any transfer of any shares on the
books of the Company after any such record date so fixed.
Section 5.Uncertificated Shares. The Board of Directors may
in its discretion authorize the issuance of shares which are not
represented by certificates and provide for the registration and
transfer thereof on the books and records of the Company or any
Transfer Agent or Registrar so designated.
Section 6.Shareholder Records. The names and addresses of the
persons to whom shares are issued, and the number of shares and
the dates of issue and any transfer thereof, whether in
certificated or uncertificated form, shall be entered on records
kept for that purpose. The stock transfer records and the blank
stock certificates shall be kept by the Transfer Agent, or by the
Treasurer, or such other officer as shall be designated by the
Board of Directors for that purpose. Every certificate
surrendered for transfer or exchange shall be cancelled.
Article VII
FISCAL YEAR
The fiscal year of the Company shall begin on January 1 in
1994, and thereafter shall begin on the day after the Saturday
closest to December 31 in each year, and shall end on the
Saturday closest to December 31 in 1994 and each year thereafter.
Article VIII
SEAL
The corporate seal of the Company shall be circular in form
and shall contain the name of the Company and the words "New
York," "1906," and "Seal." The Secretary shall have custody of
the seal, and a duplicate of the seal may be kept and used by any
Assistant Secretary.
Article IX
AMENDMENTS
These By-Laws may be amended or repealed by the vote of a
majority of the directors present at any meeting of the Board of
Directors at which a quorum is present or by the vote of the
holders of the shares of the Company at the time entitled to vote
in the election of directors at any meeting of the shareholders
at which a quorum is present.
Exhibit 10.1
Amendment Number Two to
The Savings and Profit Sharing Fund of Sears Employees
Restated as of August 14, 1996
RESOLVED, that The Savings and Profit Sharing Fund of Sears
Employees ("the Plan"), restated as of August 14, 1996, is hereby
amended in the following particulars, effective as of April 1,
1997:
1. By adding the following at the end of subsection 1.1(b)
of the Plan:
"For purposes of the Plan, as appropriate, DWDC will also
mean Morgan Stanley, Dean Witter, Discover & Co."
2. By deleting the words "appointed by" in the second
sentence of subsection 1.3, and replacing it with the words
"which shall be."
3. By deleting the last sentence in both subsection 2.2 and
subsection 2.3 and adding the following at the end of both
subsection 2.2 and subsection 2.3 of the Plan:
"Notwithstanding any other provision of the Plan, the term
"employee" shall not include any individual for any period
during which such individual's services are performed
pursuant to the terms of a contract, either with such
individual himself or with a leasing organization or agency,
that purports to treat the individual as either an
independent contractor or an employee of such agency or
leasing organization, even if such individual is later
determined (by judicial action or otherwise) to have been a
common law employee of an employer rather than an
independent contractor or an employee of such agency or
leasing organization."
4. By adding the following at the end of subsection 2.4 of
the Plan:
"Notwithstanding the foregoing, for purposes of determining
their eligibility to participate in the Fund, employees of
Sears Termite & Pest Control Inc. ("STPCI") shall have all
of their service with STPCI counted as continuous service,
including any period of service prior to the date STPCI
became a member of the Sears controlled group."
5. By deleting the words "him" or "his" or "he" in
subsection 8.5, and replacing the deleted "him" or "he" with the
words "the Plan Administrator," and replacing the deleted "his"
with the word "its."
FURTHER RESOLVED, that STPCI is designated as a
participating employer in the Plan, as of June 1, 1997, with such
participation being subject to the approval by the Board of
Directors of STPCI.
/s/ Arthur C. Martinez
_________________________
Arthur C. Martinez
/s/ Alan J. Lacy
_________________________
Alan J. Lacy
/s/ Anthony J. Rucci
_________________________
Anthony J. Rucci
/s/ Michael D. Levin
_________________________
Michael D. Levin
Dated: June 1, 1997
Exhibit 10.2
Amendment to the Sears Executive
Retirement Plan Arrangements
The plan entitled the "Sears Executive Retirement Plan
Arrangements" is hereby amended, effective as of March 24, 1997,
by substituting the following for paragraph 3.2 thereof:
"3.2 Payment of Benefits. The benefit payable to or on
account of a participant under the Plan shall be payable at the
time and under the same terms and conditions as described from
time to time in SRIP. Notwithstanding the foregoing, in the
event that a participant dies prior to the commencement of
benefits from the Plan under circumstances where a lump sum death
benefit would be payable to his spouse or to a designated
beneficiary other than the spouse, such participant may elect to
have such lump sum payment paid instead to a trust. Any such
election must be in writing in a form approved by the Pension
Plan Administrator and must contain the written consent of the
person to whom he is married at the time of his death, and must
also apply to SRIP. A valid election under this paragraph shall
have the effect of changing the recipient of the lump sum payment
that would otherwise have been payable to the participant's
spouse or designated beneficiary on account of his death, but not
the method of calculating the amount of such payment. The
Pension Plan Administrator may require additional documentation,
such as a copy of the current trust instrument, without which any
election under this paragraph shall be invalid. A participant
may revoke any such election and may make a new election prior to
his death."
/s/ Arthur C. Martinez
Arthur C. Martinez
/s/ Alan J. Lacy
Alan J. Lacy
/s/ Anthony J. Rucci
Anthony J. Rucci
/s/ Michael D. Levin
Michael D. Levin
Exhibit 10.3
Amendment to the Supplemental
Retirement Income Plan
The Supplemental Retirement Income Plan is hereby amended,
effective as of March 25, 1997, by deleting the words "who is
also" in the fifth sentence of paragraph six, and replacing the
deleted words with "under the Supplemental Retirement Income Plan
or."
/s/ Arthur C. Martinez
Arthur C. Martinez
/s/ Alan J. Lacy
Alan J. Lacy
/s/ Anthony J. Rucci
Anthony J. Rucci
/s/ Michael D. Levin
Michael D. Levin
Amendment to the Supplemental
Retirement Income Plan
The Supplemental Retirement Income Plan is hereby amended,
effective as of March 24, 1997, by adding the following to the
end of the sixth paragraph thereof:
"Notwithstanding the foregoing, in the event that a
participant who is also a participant under the Sears Executive
Retirement Plan Arrangements dies prior to the commencement of
benefits from the Sears Pension Plan under circumstances where a
lump sum death benefit would be payable to his spouse or to a
designated beneficiary other than the spouse from this plan, such
participant may elect to have such lump sum payment paid instead
to a trust. Any such election must be in writing in a form
approved by the Pension Plan Administrator and must contain the
written consent of the person to whom he is married at the time
of his death and must also apply to any death benefit payable
under the Sears Executive Retirement Plan Arrangements. A valid
election under the preceding two sentences shall have the effect
of changing the recipient of the lump sum payment that would
otherwise have been payable to a participant's spouse or
designated beneficiary on account of his death from this plan,
but not the method of calculating the amount of such payment.
The Pension Plan Administrator may require additional
documentation, such as a copy of the current trust instrument,
without which any election of a trust as beneficiary shall be
invalid. A participant may revoke any such election and may make
a new election prior to his death."
/s/ Arthur C. Martinez
Arthur C. Martinez
/s/ Alan J. Lacy
Alan J. Lacy
/s/ Anthony J. Rucci
Anthony J. Rucci
/s/ Michael D. Levin
Michael D. Levin
<PAGE>
<TABLE>
EXHIBIT 12(a)
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
Twelve Six
Months Months
Ended Ended
Jun. 28, Jun. 28, Year Ended
1997 1997
(millions, except ratios) (unaudited) (unaudited) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest and amortization of debt discount
and expense on all indebtedness $1,372 $693 $1,365 $1,373 $1,279 $1,318 $1,389
Add interest element implicit in rentals 154 74 121 119 114 105 165
1,526 767 1,486 1,492 1,393 1,423 1,554
Interest capitalized 4 2 5 4 1 3 23
Total fixed charges $1,530 $769 $1,491 $1,496 $1,394 $1,426 $1,577
Income (loss)
Income (loss) from continuing operations $1,145 $299 $1,271 $1,025 $857 $625 ($1,812)
Deduct undistributed net income (loss)
of unconsolidated companies 3 3 8 9 (7) 6 (4)
1,142 296 1,263 1,016 864 619 ( 1,808)
Add
Fixed charges (excluding interest capitalized) 1,526 767 1,486 1,492 1,393 1,423 1,554
Income taxes (benefit) 858 308 834 703 614 329 ( 1,039)
Income (loss) before fixed charges and
income taxes $3,526 $1,371 $3,583 $3,211 $2,871 $2,371 ($1,293)
Ratio of income to fixed charges 2.31 1.78 2.40 2.15 2.06 1.66 (A)
<FN>
(A) As a result of the loss for the year ended December 31, 1992, earnings did not cover
fixed charges by $2,870 million.
</FN>
</TABLE>
<PAGE>
<TABLE>
EXHIBIT 12(b)
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
<CAPTION>
Twelve
Months
Ended
Jun. 28, Year Ended
1997
(millions, except ratios) (unaudited) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges
Interest and amortization of debt discount
and expense on all indebtedness $1,372 $1,365 $1,373 $1,279 $1,318 $1,389
Add interest element implicit in rentals 154 121 119 114 105 165
1,526 1,486 1,492 1,393 1,423 1,554
Preferred dividend factor 18 41 89 234 209 120
Interest capitalized 4 5 4 1 3 23
Total fixed charges $1,548 $1,532 $1,585 $1,628 $1,635 $1,697
Income (loss)
Income (loss) from continuing operations $1,145 $1,271 $1,025 $857 $625 ($1,812)
Deduct undistributed net income (loss)
of unconsolidated companies 3 8 9 (7) 6 (4)
1,142 1,263 1,016 864 619 ( 1,808)
Add
Fixed charges (excluding interest capitalized
and preferred dividend factor) 1,526 1,486 1,492 1,393 1,423 1,554
Income taxes (benefit) 858 834 703 614 329 ( 1,039)
Income (loss) before fixed charges and
income taxes $3,526 $3,583 $3,211 $2,871 $2,371 ($1,293)
Ratio of income to combined fixed charges
and preferred share dividends 2.28 2.34 2.03 1.76 1.45 (A)
<FN>
In 1996, all the 8.88% Preferred Shares, First Series were redeemed and therefore in 1997 the Company made no
other preferred share dividend payments.
(A) As a result of the loss for the year ended December 31, 1992, earnings did not cover fixed charges by
$2,990 million.
</FN>
</TABLE>
<PAGE>
EXHIBIT 15
To the Shareholders and Board of Directors
of Sears, Roebuck and Co.
We have made a review, in accordance with standards established
by the American Institute of Certified Public Accountants, of
the unaudited interim financial information of Sears, Roebuck
and Co. for the three-month and six-month periods ended June 28,
1997 and June 29, 1996, as indicated in our report dated July
24, 1997; because we did not perform an audit, we expressed no
opinion on that information.
We are aware that our report referred to above, which is
included in your Quarterly Report on Form 10-Q for the
three-month period ended June 28, 1997, is incorporated by
reference in Registration Statement Nos. 2-64879, 2-80037,
33-18081, 33-23793, 33-41485, 33-43459, 33-45479, 33-55825,
33-58139, 33-58851, 33-64345, 333-8141 of Sears, Roebuck and
Co.; Registration Statement Nos. 33-64215 and 333-9817 of Sears,
Roebuck and Co. and Sears Roebuck Acceptance Corp.; Registration
Statement Nos. 33-57205 and 333-11973 of Sears, Roebuck and Co.
and the Savings and Profit Sharing Fund of Sears Employees;
Registration Statement No. 33-44671 of Sears, Roebuck and Co.
and Sears DC Corp.; and Registration Statement Nos. 33-64775 and
333-18591 of Sears, Roebuck and Co. and Sears, Roebuck and Co.
Deferred Compensation Plan.
We are also aware that the aforementioned report, pursuant to
Rule 436(c) under the Securities Act of 1933, is not considered
a part of the Registration Statement prepared or certified by an
accountant or a report prepared or certified by an accountant
within the meaning of Sections 7 and 11 of that Act.
Deloitte & Touche LLP
Chicago, Illinois
July 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND CASH
FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JUN-28-1997
<CASH> 247
<SECURITIES> 0
<RECEIVABLES> 22,247
<ALLOWANCES> 822
<INVENTORY> 4,954
<CURRENT-ASSETS> 28,279
<PP&E> 10,526
<DEPRECIATION> 4,637
<TOTAL-ASSETS> 36,016
<CURRENT-LIABILITIES> 14,125
<BONDS> 12,661
0
0
<COMMON> 323
<OTHER-SE> 4,815
<TOTAL-LIABILITY-AND-EQUITY> 36,016
<SALES> 16,122
<TOTAL-REVENUES> 18,493
<CGS> 11,977
<TOTAL-COSTS> 11,977
<OTHER-EXPENSES> 3,890
<LOSS-PROVISION> 597
<INTEREST-EXPENSE> 693
<INCOME-PRETAX> 607
<INCOME-TAX> 308
<INCOME-CONTINUING> 299
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 299
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.00<F1>
<FN>
<F1>Not applicable
</FN>
</TABLE>
Exhibit 10.5
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
____________________________________
)
DOUGLAS O. BRIOSO, et al. )
Plaintiffs, )
) Adversary Proceeding
v. ) No. 97-1222-CJK
)
SEARS, ROEBUCK AND CO. and )
WESTERN AUTO SUPPLY )
COMPANY, )
Defendants. )
)
)
ANTONIO CALDAS, )
Plaintiff, )
)
v. )
)
SEARS, ROEBUCK AND CO., )
Defendant. )
_______________________________________ )
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
_______________________________________
)
DAVID CONLEY, et al., )
Plaintiffs, )
)
v. Civil No. 97-11149 PBS
)
SEARS, ROEBUCK AND CO., )
WESTERN AUTO SUPPLY )
COMPANY and JOHN DOES 1-10, )
Defendants. )
_______________________________________ )
AMENDED STIPULATION AND AGREEMENT OF
COMPROMISE AND SETTLEMENT
This Amended Stipulation and Agreement of Compromise and Settlement
(the "Stipulation" or "Settlement") is entered into between the plaintiffs in
the above-captioned consolidated adversary proceedings (the "Bankruptcy Court
Action") and civil action (the "District Court Action") (collectively, the
"Actions") now pending in the United States Bankruptcy Court for the District
of Massachusetts (the "Bankruptcy Court") and the United States District
Court for the District of Massachusetts (the "District Court"), respectively,
and Sears, Roebuck and Co. ("Sears"), subject to the approval of the
Bankruptcy Court and the District Court as provided for below:
WHEREAS:
A. The Bankruptcy Court Action was commenced in the Bankruptcy
Court on March 31, 1997, with the filing of the Brioso adversary proceeding
on behalf of a nationwide class of bankruptcy debtors who had entered into
reaffirmation agreements with Sears that were not filed with the appropriate
bankruptcy court as required by the U.S. Bankruptcy Code. The Caldas
adversary proceeding was subsequently consolidated with Brioso. The
complaints in the Bankruptcy Court Action, including as subsequently amended,
alleged that Sears, pursuant to a regular policy and practice, obtained
reaffirmation (or similar) agreements from individual debtors, by which the
debtors agreed to repay all or part of their pre-petition indebtedness to
Sears, and did not file such agreements with the bankruptcy court in which
the debtors' Chapter 7 proceedings were pending, as required by the
Bankruptcy Code. (The Bankruptcy Court Action also named Western Auto Supply
Company ("Western Auto"), a subsidiary of Sears, as a defendant based on
substantially the same allegations.) The complaints further alleged that
Sears, acting pursuant to its written policies and procedures, deceived
bankruptcy debtors by claiming or implying that such agreements would be
filed with bankruptcy courts, that the agreements had legal effect as
enforceable agreements, and that monies were due which were not in fact owed,
and by threatening actions that Sears either did not intend to take or was
not legally permitted to take.
B. The Bankruptcy Court Action further alleged that Sears policy
and practice in soliciting bankruptcy debtors to execute reaffirmation
agreements subject to the Bankruptcy Code without complying with the
provisions of the Code, in collecting monies pursuant to such agreements, and
by otherwise enforcing or attempting to enforce such agreements, abused the
process of the bankruptcy courts by violating Bankruptcy Code provisions
governing post-petition reaffirmation of debt, 11 U.S.C. 524, the automatic
stay provision of the Bankruptcy Code, 11 U.S.C. 362, and the discharge
injunction granted under 11 U.S.C. 524; constituted unfair and deceptive acts
and practices in violation of the Massachusetts Consumer Protection Act
(Mass. G.L. ch. 93A); and violated the state unfair and deceptive practices
law of each state in which Sears has engaged in such practice.
C. The Bankruptcy Court Action alleged that plaintiffs and class
members have been damaged by Sears conduct in that they have paid monies to
Sears under illegal and unenforceable agreements, and have unwittingly
deprived themselves of the protection of the Bankruptcy Code. For relief,
the complaints prayed, among other things, for judgment declaring Sears
conduct unlawful, ordering Sears to refund to debtors all payments made under
such agreements, and assessing exemplary or punitive damages against Sears
for its alleged willful violations of the Bankruptcy Code, as well as double
or treble damages.
D. The District Court Action was commenced on May 20, 1997 by
plaintiffs in that Action through the filing of a complaint in the District
Court, wherein there was previously pending an action entitled United States
of America v. Sears, Roebuck and Co., Civil No. 97-10839-JLT (the "United
States Action"). The United States Action was commenced against Sears on
April 17, 1997 by the United States acting through the United States Attorney
for the District of Massachusetts, and alleged, like the Bankruptcy Court
Action, that Sears induced individuals who filed for protection under the
Bankruptcy Code to enter into reaffirmation agreements and that Sears failed
to file all such agreements with the appropriate bankruptcy court. The
complaint in the United States Action further alleged that Sears obtained
unenforceable reaffirmation agreements by misrepresenting to debtors that the
agreements would be binding on them and collected debts through the U.S.
mails by virtue of reaffirmation agreements known by Sears to be
unenforceable, in violation of 18 U.S.C. 1341 and 1345. For relief, the
complaint sought, among other things, an injunction against Sears ordering it
to cease its practice and to file all reaffirmation agreements henceforth
obtained with the appropriate bankruptcy court prior to entry of the debtor's
order of discharge; an order requiring Sears to conduct a nationwide audit to
identify each and every debtor from whom it obtained a reaffirmation
agreement that was not filed with the bankruptcy court; an order that Sears
impose a moratorium on billing and collecting from each debtor so identified;
an order that Sears pay damages in the form of restitution to each debtor so
identified; and an order that Sears pay penalties in an unspecified amount to
the United States of America.
E. Plaintiffs commenced the District Court Action in the
District Court since the United States Action, which was previously pending
in that Court, arose out of the same subject matter as the Bankruptcy Court
Action and in the belief that their filing of the District Court Action would
facilitate their ability to further protect the interests of the class. In
addition, the broader jurisdiction of the District Court enabled the
plaintiffs' complaint in the District Court Action to assert additional
claims arising out of Sears (and Western Auto's) failure to file all
reaffirmation agreements with the appropriate bankruptcy court, over which
claims the Bankruptcy Court could not exercise jurisdiction. In addition to
the claims alleged in the Bankruptcy Court Action, the District Court Action
alleged, on behalf of a nationwide class of debtors, that defendants' conduct
constituted a violation of the federal Racketeer Influenced and Corrupt
Organizations Act, 18 U.S.C. Sec. 1961 et seq. ("RICO"), and of the federal
Truth in Lending Act, 15 U.S.C. Sec. 1601 et seq. For relief, the District
Court Action prayed, among other things, for judgment declaring defendants'
conduct unlawful, ordering defendants to refund to debtors all payments made
under the allegedly illegal and unenforceable reaffirmation agreements, and
assessing exemplary or punitive damages as well as double or treble damages.
F. The issues raised by the Bankruptcy Court Action and the
District Court Action first came to the attention of the senior management of
Sears on Friday, March 28, 1997. Sears represents that prior to March 28,
1997, no member of Sears senior management or of its board of directors knew
that Sears had failed to file reaffirmation agreements with the appropriate
bankruptcy courts in violation of the Bankruptcy Code or that Sears had
sought to collect upon agreements that had not been so filed or upon
reaffirmation agreements that had been filed but were subsequently
disapproved or rejected by the bankruptcy courts or rescinded by the debtor.
On that date, Sears senior management directed that an immediate audit be
commenced in an effort to ascertain the scope and nature of the manner in
which reaffirmation agreements had been handled by Sears, including the
failure to file with the appropriate bankruptcy court. On Monday, March 31,
1997, Sears senior management directed that all reaffirmation agreements
henceforth be filed with the appropriate bankruptcy court.
G. On April 9, 1997, Sears publicly acknowledged that the
company had exercised flawed legal judgment and execution in failing to file
all reaffirmation agreements with the appropriate bankruptcy court. In that
connection, Sears also indicated that it would compensate bankruptcy debtors
nationwide whose debt reaffirmations were not filed as required by the
Bankruptcy Code during the period 1992 to date.
H. Sears thereafter expressed its desire to effect a global
resolution of the reaffirmation agreement matter and discussions were
commenced with counsel for plaintiffs. Sears discussions have also included
the Attorney Generals of the United States; the United States Attorney for
the District of Massachusetts, who commenced the United States Action; the
Office of the United States Trustee for the District of Massachusetts; and
the Boston Regional Office and the Consumer Protection Bureau of the United
States Federal Trade Commission.
I. On April 14, 1997, the Bankruptcy Court entered an Order in
a related proceeding initiated by the Bankruptcy Court's own Order to Show
Cause Why Compensatory And Punitive Damages Should Not Be Imposed On Sears,
Roebuck and Co. for Wilful Violation Of The Discharge Order and Of 11 U.S.C.
302(a) (filed on April 9, 1997 in In re Travis Amalfitano and others, Case
No. 95-15260-CJK). The Bankruptcy Court's April 14, 1997 order, which was
issued following a hearing in that Court held on April 11, 1997, ordered on
the consent of Sears: (1) that Sears retain the services of Professor
Lawrence P. King, the Charles Seligson Professor of Law at New York
University School of Law and of counsel to the law firm of Wachtell, Lipton,
Rosen & Katz (one of the firm's representing Sears in the Actions), to
perform a legal review of Sears policies and procedures with regard to
reaffirmation agreements and that Sears adopt Professor King's
recommendations to assure future compliance with the requirements of Sec. 524
of the U.S. Bankruptcy Code; and (2) that no later than April 16, 1997 at
5:00 p.m., Sears cease sending billing statements and assessing interest
charges to the approximately 2,700 debtors identified in that proceeding as
having had reaffirmation agreements with Sears that were not filed with the
bankruptcy court.
J. By Order dated April 16, 1997, the Bankruptcy Court, on Sears
consent and noting that the plaintiffs and Sears had expressed a genuine
interest in achieving an equitable, appropriate, national resolution of the
issues raised in the Bankruptcy Court Action, conditionally certified a
nationwide class for settlement purposes only. The Order appointed the
plaintiffs in the Bankruptcy Court Action as class representatives and
plaintiffs' counsel (Grant & Roddy, Edelman & Combs, and The Law Office of
Claude LeFebvre) as class counsel.
K. On April 21, 1997, the District Court entered a Stipulated
Order by which Sears, without making any admissions relating to the
allegations in the United States Action and in furtherance of its stated
desire to cooperate with all parties to achieve an appropriate resolution of
the reaffirmation matter, assented to a preliminary injunction. The
Stipulated Order provided in summary: (1) that Sears henceforth file all
reaffirmation agreements with the appropriate bankruptcy court on or before
the date of the debtor's order of discharge; (2) that Sears complete its
then-ongoing national review to identify those debtors who filed Chapter 7
petitions in bankruptcy and from whom Sears obtained a reaffirmation
agreement that was not filed with the appropriate bankruptcy court from
January 1, 1992 to date; (3) that, specifically, Sears identify those debtors
in three stages (by May 9, 1997 -- those debtors from August 1996 to the
present; by June 3, 1997 -- those debtors from July 1994 through July 1996;
and by August 15, 1997 -- those debtors from January 1, 1992 through June
1994); (4) that Sears provide the United States Attorney's Office with status
reports every two weeks, beginning on May 1, 1997, regarding the
identification process and the names and addresses of the debtors so
identified; (5) that Sears cease all collection activities upon completion of
the identification of the individuals in the groups set forth above; and (6)
that Sears calculate the amounts charged and collected from the debtors as
identified, inclusive of interest, finance and other charges relating to each
such debtor's obligations to Sears as of the filing of the debtor's
bankruptcy petition.
L. Class counsel have sought and obtained substantial formal and
informal discovery from Sears. That discovery has included production of
documents, depositions of Sears employees, and interviews of Sears employees.
In addition, class counsel have conducted their own investigation into Sears
practices and procedures by contacting members of the class and various
debtors' counsel in other jurisdictions, and have engaged in extensive
discussions with counsel for Sears with regard to Sears prior practices and
procedures, its current practices and procedures, and other issues relevant
to the Actions.
M. Class counsel, furthermore, have consulted and shared
information and analyses regarding the Actions and this proposed Settlement
with the Office of the United States Trustee of the District of
Massachusetts, the United States Attorney's Office for the District of
Massachusetts, and the Office of the Massachusetts Attorney General; and
representatives of such governmental authorities have participated in
settlement discussions with Sears that facilitated the agreement to the
Settlement.
N. The Attorneys General of the United States support the
Settlement and believe that it provides a fair, reasonable and adequate
resolution of the claims of the nationwide class of debtors being settled.1
In addition, the Federal Trade Commission has approved, subject to a
statutory notice and comment period, and Sears has consented to an Agreement
Containing Consent Order which provides, among other things, that the FTC
will not institute action under Section 19 of the Federal Trade Commission
Act if consumers receive full redress; such requirement is satisfied under
the terms of the Settlement, so long as the amount paid in restitution is at
least $100 million (this amount could be adjusted upward or downward by not
more than 25 percent based on Sears on-going nationwide review to identify
eligible debtors).
1. These approvals are supported by the staffs of each office and are
subject to final approval. The state Attorneys General group previously
included 39 states and is anticipated to include 50 states.
O. Based on their review and analysis of the relevant facts and legal
principles, class counsel believe that the terms and conditions of the
Settlement are fair, reasonable and adequate, and beneficial to and in the
best interests of plaintiffs and the proposed Settlement Class (as defined
below). Class counsel have determined to execute this Stipulation and urge
approval by the Bankruptcy Court and the District Court of the Settlement
after considering the substantial damages that the Settlement Class will
receive pursuant to the Settlement; the fact that the Settlement provides for
members of the Settlement Class to receive such payments in the most
expeditious and efficient manner practicable, and thus much sooner than would
be possible were the claims asserted to be litigated through trial and appeal
even if such claims were to be found to be meritorious in all respects; the
fact that the Settlement provides for significant monetary benefits to the
Settlement Class beyond the restitution damages paid with respect to unfiled
(and otherwise unenforceable) reaffirmation agreements, including the amounts
to be distributed out of a $25 million fund being created by Sears, the
elimination of finance charges on post-petition purchases, Sears agreement
not to act upon its security interest in goods sold to members of the
Settlement Class prior to their bankruptcy filing, the payment of interest by
Sears, and Sears commitment to continue to extend credit to members of the
Settlement Class provided for herein; the provision of the Settlement that
obliges Sears, at its sole expense, to identify members of the Settlement
Class from January 1, 1992 to date and to provide the benefits of the
Settlement to such persons without their having to take any affirmative steps
(including provisions that require Sears to bear the onus of incomplete and
unavailable information by treating reaffirmation agreements for which there
is no direct evidence of their having been filed with the bankruptcy court as
having not been filed); the fact that the Settlement provides for payments to
members of the Settlement Class who executed reaffirmation agreements before
January 1, 1992 notwithstanding that such claims could be held barred by
applicable statutes of limitations and/or the doctrine of laches; the
defenses available to Sears for claims under state law that seek to go beyond
the unenforceability of unfiled reaffirmation agreements under the U.S.
Bankruptcy Code, including the possibility that any state law claims would be
deemed to be preempted by the Bankruptcy Code; the defenses available to
Sears for claims under the Bankruptcy Code, including whether persons whose
reaffirmation agreements were not filed could obtain recoveries for violation
of the discharge injunction; the defenses available to Sears for claims under
RICO, including defenses based on the 18 U.S.C. 1962(c) requirement of
establishing a RICO "enterprise" distinct from the defendant, Sears; the
defenses available to Sears with respect to the availability and amount of
any punitive relief; Sears consent to the certification of a nationwide class
of debtors; the provisions of the Settlement regarding Sears future practices
and policies with regard to reaffirmation agreements and the ability to
enforce such provisions by the Bankruptcy Court and the District Court that
the Settlement provides; and the fact that the Settlement allows members of
the Settlement Class to exclude themselves from the Settlement Class should
they so desire and thereby not be precluded by the Settlement from
individually seeking to pursue the claims alleged in the Actions or any other
claims relating to the conduct of Sears at issue in the Actions.
P. Sears has agreed to the Settlement consistent with its
acknowledgment that the company previously had exercised flawed legal
judgment and execution in failing to file reaffirmation agreements. Sears
considers it desirable that the Actions be settled on a global nationwide
basis in order to achieve what it believes is a fair, responsible, and final
resolution of the claims being settled.
In light of the foregoing, the parties propose to settle the Actions
in accordance with the terms, provisions and conditions of this Stipulation
as set forth below.
NOW, THEREFORE, IT IS STIPULATED AND AGREED, subject to approval by
the Courts as provided hereinbelow pursuant to Rule 23 of the Federal Rules
of Civil Procedure (and, in the case of the Bankruptcy Court Action,
Bankruptcy Rule of Procedure 7023), by and between Sears (and Western Auto),
and the plaintiffs for themselves and for the Settlement Class (defined
below), that all claims, rights and causes of action, damages, losses and
demands of any nature whatsoever, state or federal, including but not limited
to claims arising under the U.S. Bankruptcy Code, the Federal Rules of
Bankruptcy Procedure, or any state or federal law regarding consumer or
debtor fraud or unfair or deceptive trade practices, or otherwise (and
including but not limited to whether for compensatory damages, consequential
damages, restitution, punitive damages, contempt, sanctions, penalties,
injunctive relief, declaratory relief, or otherwise), whether known or
unknown, that are, could have been or might in the future be asserted by any
of the plaintiffs or any member of the Settlement Class, whether directly,
representatively or in any other capacity, against Sears, Western Auto or any
of their present and former officers, directors, shareholders, employees,
accountants, representatives, attorneys, subsidiaries, affiliated companies,
divisions, successors, heirs, agents and assigns (the "Released Persons"), in
connection with or that arise out of Sears (or Western Auto) obtaining of a
reaffirmation agreement from a member of the Settlement Class, the nonfiling
(or untimely filing) of any such agreement with the appropriate bankruptcy
court, the solicitation or billing of or collecting under or any steps to
enforce any such unfiled agreement (or any filed reaffirmation agreement that
was subsequently disapproved or rejected by the bankruptcy court (or that was
not approved by such court where approval was required for the enforceability
of such agreement) or that was subsequently rescinded by the debtor), or any
communications, representations or omissions by or on behalf of Sears (or
Western Auto) with respect to any of the foregoing, or any acts, facts,
transactions or occurrences, alleged or otherwise asserted or that could have
been asserted in either of the Actions (all of which are hereinafter referred
to as the "Settled Claims"), shall be compromised, settled, released and
discharged with prejudice, upon and subject to the following terms and
conditions:
1.1. Settlement Class. For settlement purposes only, the Actions
shall proceed on behalf of a class (the "Settlement Class") defined as all
individuals (a) who filed a petition for relief under the Bankruptcy Code;
(b) who listed Sears as a creditor, against whom Sears filed a claim, or who
owed a debt or alleged debt to Sears; (c) who, subsequent to the filing of
the bankruptcy petition, executed an agreement with Sears purporting to
reaffirm such debt or alleged debt or to redeem the applicable property, or
which agreement is otherwise subject to the provisions of 11 U.S.C. 524(c)
(collectively referred to herein as "reaffirmation agreements"); and (d) such
agreement either was not filed with the appropriate bankruptcy court in
accordance with 11 U.S.C. 524(c)(3) prior to the order of discharge, or was
filed with the bankruptcy court and was either (i) disapproved or rejected by
the bankruptcy court or not approved by such court when necessary to the
enforceability of such agreement, or (ii) rescinded by the debtor.
1.2. The Settlement Class is thus defined on a nationwide basis,
not limited to individuals whose petitions under the Bankruptcy Code were
filed in any particular jurisdiction or region.
1.3. Reaffirmation agreements referred to herein include all
agreements, whether written or oral; whether entered into during the pendency
of the debtor's bankruptcy proceeding or following the issuance of the
debtor's discharge by the bankruptcy court; and whether such agreements did
or did not provide for the continued extension of credit to the debtor by
Sears.
1.4. Excluded from the Settlement Class shall be any individuals
who validly request exclusion in accordance with the procedures set forth in
paragraph 17 of this Stipulation.
1.5. References to "Sears" in this paragraph (and paragraph 2)
include Sears subsidiary, Western Auto.
2. Filing of all reaffirmation agreements. Sears and its
agents, servants, employees, attorneys and all persons acting in concert and
participation with them, shall henceforth file all reaffirmation agreements
obtained from debtors pursuant to 524(c) and (d) of the U.S. Bankruptcy Code
(11 U.S.C.) with the appropriate U.S. Bankruptcy Court on or before the date
that the debtor's order of discharge is entered, provided that the
reaffirmation agreement is received by Sears not less than five business days
prior to the date that the debtor's order of discharge is entered.
3.1. Identification of members of the Settlement Class from
January 1, 1992 to date. Sears shall complete its ongoing national review to
identify those persons who, from January 1, 1992 to April 1, 1997 (the date
of the written directive that henceforth all reaffirmation agreements be
filed as required by the Bankruptcy Code), filed Chapter 7 petitions in
bankruptcy and from whom Sears obtained a reaffirmation agreement that was
not properly filed with the appropriate bankruptcy court (or that was filed
but later rescinded by the debtor or disapproved or rejected by the
Bankruptcy Court, or not approved by the court where approval was required
for the enforceability of the agreement) ("Identified Class Members").
3.2. Specifically, under the identification process, Sears has
identified members of the Settlement Class who filed for bankruptcy during
the period from August 1996 to the present, and during the period from July
1994 through July 1996. By August 15, 1997, Sears will identify members of
the Settlement Class who filed for bankruptcy during the period from January
1, 1992, through June 1994.
3.3. The time periods and methodologies set forth in paragraph 3.2
above reflect Sears best current belief as to its ability to make such
identifications and it is understood that Sears, in undertaking the tasks set
forth in this paragraph 3, will use its best efforts to identify all
individuals and to do so within the stated time periods.
3.4. Sears will provide class counsel a status report every two
weeks, in conjunction with its reports to the U.S. Attorney's Office in
accordance with the Stipulated Order in the United States Action, setting
forth its efforts to date in identifying such individuals, and providing the
names and last known addresses of each debtor so identified.
3.5. If after the dates specified above, Sears determines based
upon further review of available data that a debtor previously identified as
belonging to one of the above groups should not be so included or identifies
a debtor who should have been included in one of the above groups that was
not so included, Sears shall promptly delete or add such debtor as
appropriate and notify class counsel in its next status report of such
deletions or additions (and the reasons therefor).
3.6. In the identification process, Sears shall include in the
Settlement Class all debtors who filed for bankruptcy from January 1, 1992 to
April 1, 1997 whose Sears account records indicate the existence of a
reaffirmation agreement (e.g., payment activity after bankruptcy indicator
removed from the account; account codes indicating reaffirmation) even if no
original, copy or other evidence of the existence of such an agreement is
located, absent contrary direct evidence that the reaffirmation agreement was
filed with the bankruptcy court and not thereafter disapproved, rejected or
rescinded.
3.7.1. In the event that Sears is unable to determine from evidence
available to it whether a debtor's reaffirmation agreement was filed, Sears
shall assume that the reaffirmation agreement was not filed and therefore
shall include such debtor in the Settlement Class.
3.7.2. In the process of identifying members of the Settlement Class
from January 1, 1992 to April 1, 1997, Sears shall not treat as filed any
reaffirmation agreement unless it has a physical copy that is stamped with a
court stamp reflecting its pre-discharge filing or if a review of either the
actual court records or an electronic docket search conducted via PACER (or
similar database) reflects its pre-discharge filing and does not indicate its
disapproval or rejection by the Court. Sears may rely on PACER for
indications that a reaffirmation agreement was filed (and whether it was
subsequently disapproved or rejected by the court). Sears shall maintain
either an electronic or paper copy of such report(s) until the Settlement
becomes final. In the event that a reaffirmation agreement filed after an
order of discharge in a case was nonetheless accepted by the court, it shall
be treated by Sears as an unfiled reaffirmation (and therefore in the
Settlement Class).
3.8. The identification process has been and shall continue to be
conducted by Sears at its sole expense. The identification process will
require Sears to access and utilize information for each of the approximately
110 million active credit card accounts it maintained during the period
January 1, 1992 to April 1, 1997. Sears estimates that, for this period, it
obtained reaffirmation agreements in approximately 510,000 cases, with a
total dollar volume of reaffirmed debt (filed and unfiled) of approximately
$412 million. Sears estimates that the identification process (exclusive of
the costs of its own internal personnel) will cost Sears in excess of
$10 million, including the costs of outside vendors of bankruptcy filing and
related information being purchased by Sears.
3.9. The identification process conducted by Sears will be
assisted in by Sears Internal Audit and Deloitte & Touche LLP. Both Sears
Internal Audit and Deloitte & Touche LLP will participate in the testing of
data collection activities and findings from corporate records and will
assist Sears in managing the collection and analysis of data provided by
outside vendors. They will also review data-matching results for the debtor
identification process and review the application of payment methodologies
set forth in this Stipulation. Deloitte & Touche LLP shall periodically
report to class counsel as requested on these subjects.
4.1. Moratorium on billing. Within two business days after
identification of a debtor as an Identified Class Member, Sears has
implemented and shall continue to implement steps to cease all collection
activities on that individual's Sears account, including instructing any
collection agency to which the account of an Identified Class Member has been
referred to cease all collection activities and return the account to Sears.
4.2. As to such accounts, Sears shall suspend all billing,
including for both reaffirmed indebtedness and post-petition purchases, and
suspend the accrual of any finance charges. In addition, any available "open
to buy" credit for such accounts shall be maintained as available. Sears
shall notify Identified Class Members in writing of any such activities
relating to their accounts.
4.3. Following the calculation of the new balance of an individual
account pursuant to paragraph 5, Sears may recommence the billing and
collection of that account. No finance or other charges shall be made on
account of the moratorium on billing hereunder. Sears shall notify
Identified Class Members in writing of any such activities relating to their
accounts.
5.1. Payments to Identified Class Members. Sears shall remit to
Identified Class Members, as damages, all amounts paid by them to Sears with
respect to reaffirmed debt, with interest, as follows:
5.1.1. The amount of reaffirmed indebtedness for the account of each
Identified Class Member shall be treated as a nullity and reset to $0. All
post-petition payments shall be deemed to have been made first on account of
reaffirmed indebtedness (including all finance charges, late fee charges,
returned check charges or other similar charges with respect thereto)
(collectively, "finance charges"), and, to that extent, shall be payable back
to such member, with interest as provided below, and the balance of the
account shall be reset to reflect only the remaining balance on post-petition
purchases.
5.1.2. If such person made no post-petition purchases, the balance
of his or her account shall be reset to $0. If the person made post-petition
purchases, all finance charges attributable to such purchases shall be
eliminated and the new balance of such person's account shall equal the
amount of such post-petition purchases (as defined in paragraph 5.2.1).
5.1.3. If a person made post-petition payments in excess of the
amount of reaffirmed debt plus finance charges on account of such reaffirmed
debt, the amount payable to such person shall equal the sum of reaffirmed
debt and finance charges on account of reaffirmed debt, and such excess shall
reduce such person's new account balance calculated in accordance with
paragraph 5.1.2. In no case shall the amount of such person's new account
balance due exceed the balance of the account prior to giving effect to this
Settlement. (If such would occur but for the preceding sentence, the amount
by which the balance due is reduced as a result of the preceding sentence
shall reduce the amount payable under paragraph 5.1.1.)
5.2. In performing the calculation, the following definitions and
practices shall be followed:
5.2.1. Post-petition purchases shall consist of all purchases of
merchandise, services or insurance (excluding CAPP (Credit Account Protection
Plan) insurance) made on or after the date of the Identified Class Member's
bankruptcy filing net of all returns, cancellations and adjustments on such
purchases.
5.2.2. Post-petition payments shall consist of all payments (whether
on account of finance changes or otherwise) received by Sears on or after the
date of the Identified Class Member's bankruptcy filing.
5.2.3. The amount of finance charges on account of reaffirmed
indebtedness shall be calculated on the basis of the highest rate charged on
outstanding balances on or after the date of the Identified Class Member's
bankruptcy filing, and any post-petition payments will be deemed first to
apply to finance charges on account of reaffirmed amounts outstanding and
then to principal with respect to such amounts.
5.2.4. The calculation has (and is intended to have) the effect of
returning (with interest) finance charges previously assessed on reaffirmed
indebtedness, and of removing finance charges previously assessed on post-
petition purchases.
5.2.5. The interest payable under paragraph 5.1.1 shall be
calculated as follows: All post-petition payments shall be recognized as if
received by Sears on the first day of the billing cycle during which the
payments were actually received. If an individual payment was received on
account of reaffirmed indebtedness and is therefore payable in accordance
with paragraph 5.1.1, monthly interest at the annual rate of 10% shall be
added to the amount of such individual payment to calculate the total amount
payable under paragraph 5.1.1. Interest shall be calculated through the end
of the most recently completed billing cycle prior to the date on which
payment to the member of the Settlement Class is mailed.
5.3. The calculation of the compensation damages to Identified
Class Members shall be made as of the date of the next billing cycle of each
Identified Class Member (or, at Sears option, 30 days) following the date
that the Settlement becomes final (or, at Sears option, following approval of
the Settlement by the District Court).
5.4. Any amounts payable to an Identified Class Member shall be
paid by a Sears check mailed by first class mail to such person's last known
address. No part of such amounts may be paid in any other form (such as a
gift certificate or coupon even if so requested by a member of the Settlement
Class).
5.5. The damages to Identified Class Members shall be provided as
soon as practicable following the Settlement becoming final (or, at Sears
option, upon approval of the Settlement by the District Court).
5.6. Once the calculation of the new balance of an Identified
Class Member under this paragraph 5 has been properly made by Sears, Sears
shall be entitled to resume the billing and collecting of such account in the
ordinary course, and any activity in or with respect to such account after
such time shall for all purposes be unaffected by the Settlement.
5.7. Sears calculation of the compensation under this paragraph
5 (as well as paragraph 6 below) shall be overseen by the accounting firm of
Deloitte & Touche LLP. Deloitte & Touche LLP shall be retained for this
purpose by Sears at Sears sole expense, and shall periodically report to
class counsel on the calculation process as requested.
5.8. The parties shall also retain a nationally recognized firm
to act as Settlement Administrator, at Sears expense. The parties shall
agree on the choice of the Settlement Administrator within 30 days of the
execution of this Stipulation (and such choice shall be subject to reasonable
approval by the Attorneys General of the United States who support the
Settlement); absent such agreement, the parties shall submit their respective
proposals to the Court, whose decision shall be final. The Settlement
Administrator shall review the calculation of the amounts payable under
paragraphs 5, 6 and 7 and shall perform the other tasks assigned to it in
this Stipulation and the exhibits hereto.
5.9. In addition to the compensation described above, Sears shall
pay each of the named plaintiffs $2,500 for serving in the capacity of a
representative of the plaintiff class, subject to approval of the Courts.
6.1. Payments to members of the Settlement Class other than
Identified Class Members. Members of the Settlement Class other than
Identified Class Members, including individuals who executed reaffirmation
agreements with Sears prior to January 1, 1992 that were not filed with the
bankruptcy court (or if filed, were thereafter disapproved, rejected or
rescinded, or not approved where approval was required for enforceability),
shall be eligible for compensation damages on the same basis as Identified
Class Members, as follows:
6.2. Because Sears is unable as a practical matter to identify
such persons from either its own records or records available from other
sources, and does not have complete purchase and payment data for the pre-
1992 period, members of the Settlement Class other than Identified Class
Members may seek such compensation damages by filing a Proof of Claim in the
form annexed as Exhibit A hereto. The Proof of Claim, to be valid, must
comply with the requirements set forth in the Proof of Claim. Proofs of
Claim will be processed by the Settlement Administrator in accordance with
guidelines to be submitted by the parties to the Courts.
6.3. If the person filing a Proof of Claim is able to supply
acceptable documentary information in the form of account statements (or
other documentary evidence acceptable to the Settlement Administrator as)
reflecting the record of his or her post-petition purchases from and cash
payments to Sears, such person's Claim shall be calculated on the same basis
as Identified Class Members' set forth in paragraph 5.
6.4. If such person does not supply such documentation, Sears
shall use its reasonable best efforts to ascertain the record of such
person's post-petition purchases from and cash payments to Sears; and if such
information is obtained, such person's Claim shall be calculated on the same
basis as Identified Class Members' set forth in paragraph 5.
6.5.1. If the Settlement Class member does not supply the
information and Sears is not able using its reasonable best efforts to
produce the information necessary to calculate the person's Claim on the same
basis as Identified Class Members set forth in paragraph 5, the total amount
payable to such person under paragraphs 5 and 6 shall be calculated to
represent the same percentage of that person's reaffirmed indebtedness (which
must be established by documentary evidence) as the average percentage of
reaffirmed indebtedness that Sears provides as compensation damages to
Identified Class Members under paragraph 5. If the Settlement Class member
cannot prove the amount of reaffirmed indebtedness in accordance with the
guidelines to be submitted by the parties to the Courts, the total amount
payable to such member nevertheless shall be calculated to represent the same
percentage of that member's pre-petition indebtedness to Sears that was
discharged by a bankruptcy court (which, together with some post-petition
payment activity, must be established by documentary evidence as provided in
the guidelines) as the average percentage of pre-petition indebtedness that
Sears provides as compensation damages to Identified Class Members under
paragraph 5. The average percentages to be used in calculating compensation
damages under this paragraph shall be calculated by Sears as soon as
practicable following the completion of the calculation of the compensation
damages to be provided by Sears to Identified Class Members under
paragraph 5.
6.5.2. If a person filing a Proof of Claim is able to supply
documentary information acceptable to the Settlement Administrator
substantiating his or her entitlement under the basis provided for Identified
Class Members to an amount greater than would result were such person's Claim
to be calculated under paragraph 6.5.1, such person's Claim shall be
calculated to be such greater amount.
7. $25 Million additional fund provided to Settlement Class
Members. In addition to the amount payable to Settlement Class members under
paragraphs 5 and 6, Sears shall provide a fund of $25 million to be
distributed to the members of the Settlement Class entitled to receive
payments under paragraphs 5 and 6, as follows: Each such member shall
receive the same share of the $25 million fund as such member's pro rata
share of the total amount payable by Sears to all Settlement Class members
under paragraphs 5 and 6 (such amounts shall not include interest calculated
under paragraph 5.3.5).
8. Cy pres fund for consumer education. In the event that the
total amounts payable by Sears as compensation to members of the Settlement
Class who executed reaffirmation agreements with Sears after January 1, 1992
ultimately aggregate less than $100 million (separate and apart from the
$25 million payable under paragraph 7), that difference shall not be retained
by Sears but rather shall be paid by Sears into a cy pres fund to be devoted
to consumer credit education (including personal bankruptcy education,
consumer finance and debt collection issues and debtor counsel education).
The cy pres fund shall be disbursed as directed by the Attorneys General of
the United States (who support the Settlement).
9.1 Treatment of members of the Settlement Class who are deceased
or cannot be located. Where a member of the Settlement Class is deceased,
Sears will, upon receipt of proper notification and documentation, make the
payment to such member's heirs or estate.
9.2 If a payment sent by Sears to a member of the Settlement
Class in accordance with paragraphs 5, 6 or 7 is returned with a forwarding
address provided by the Postal Service, Sears will cause it to be remailed to
the address or addresses provided. If a mailing is returned without a
forwarding address provided by the Postal Service, or is otherwise designated
by the Postal Service as being an invalid address, Sears shall take
reasonable steps (including skip-tracing) to locate the affected class
member. If the cost of such effort does not exceed the amount due to such
member by more than $25, then no such steps need be taken. Amounts that
cannot be paid to a member of the Class due to such an uneconomic tracing
expense or failure of such tracing to return a valid address shall be
directed to the Attorney General of the state of the last known address of
such member, as determined by the Settlement Administrator, to be applied by
the Attorney General for consumer protection purposes, or for other purposes
as required by law.
9.3. If a class member's check is not cashed within six months,
it shall be null and void (the checks may be stamped or printed with a legend
to that effect) and Sears shall have no further obligation to make payment to
such member. Amounts not paid due to failure of a member of the class to
cash such a check shall be directed to the Attorney General of the state of
the last known address of such member, as determined by the Settlement
Administrator, to be applied by the Attorney General for consumer protection
purposes, or for other purposes as required by law.
9.4. In the event that a check payable to a class member remains
outstanding for any reason described in this paragraph 9, then the
recipient's right to receive the amount payable shall terminate, and be
deemed to be assigned to the Attorneys General of the United States to be
applied as directed above, and Sears shall not have any obligation whatsoever
to any person or State with respect to such amounts.
10.1. Continuation of extension of credit by Sears; credit reports.
Sears shall continue to extend credit to members of the Settlement Class who
at the time of the calculation described in paragraph 5 have an "open to buy"
extension of credit, notwithstanding the voiding of reaffirmed debt amounts
previously owed by such persons, it being understood that Sears shall treat
its relationship with such persons on the same basis as its relationship with
its credit customers generally, including with respect to the maintenance and
adjustment of "open to buy" levels, fees, charges and all other matters.
10.2. Sears shall undertake to determine if it has made any
negative reports to credit bureaus or similar organizations on account of
nonpayments by members of the Settlement Class (whether Identified Class
Members or other class members who file Proofs of Claim as provided for in
the Settlement) based on reaffirmed indebtedness, and will advise such
bureaus or organizations to correct such reports. Sears will also notify
such members in writing of its communications with such organizations.
11. Waiver of Sears security interest. With respect to all
members of the Settlement Class, Sears shall not seek to recover any of the
goods sold by it in which Sears claimed a security interest prior to such
person's bankruptcy filing, and shall in all respects treat such security
interest as waived.
12. Revision of Sears policies and procedures. Class counsel
will review the revision of Sears policies and procedures regarding
reaffirmation agreements already implemented and to be implemented by Sears
pursuant to the recommendations of Professor King, and shall consult with
Professor King as to such matters.
13. Western Auto. Members of the Settlement Class who executed
reaffirmation agreements with Western Auto will be entitled to compensation
on the same terms as other members of the Settlement Class who are not
Identified Class Members.
14. Full settlement. The obligations of Sears under this
Stipulation shall be in full settlement, compromise, release and discharge of
the Settled Claims and each of them. Upon approval of the Settlement
provided for in this Stipulation by the District Court, Sears, the Released
Persons or any of them shall have no other or further liability or obligation
to any member of the Settlement Class in any court or forum (state or
federal) with respect to the Settled Claims, except as expressly provided
herein.
15. Motion for entry of initial Order. As soon as practicable
after this Stipulation has been executed, the parties shall jointly move the
Bankruptcy Court and the District Court for approval of the Settlement. The
parties shall apply jointly in each court for an order, in the forms annexed
hereto as Exhibit B (the "Order"), providing, among other things (the
provisions of subparagraph (d) being included only in the Order to be applied
for in the District Court):
(a) that for purposes of settlement only, the Actions shall be
maintained and proceed as a class action, pursuant to Rules 23(a) and (b)(3)
of the Federal Rules of Civil Procedure, on behalf of the Settlement Class;
(b) that (i) the Notice of Pendency of Class Actions, Class
Action Determination, Proposed Settlement of Class Actions, Settlement
Hearings, and Right to Appear, in the form annexed hereto as Exhibit C (the
"Notice"); (ii) the Summary Notice of Class Action Determination, Proposed
Settlement of Class Actions and Settlement Hearing in the form annexed hereto
as Exhibit D (the "Summary Notice"), and the Notice Insert to be inserted in
Sears billing statements in the form annexed hereto as Exhibit E (the "Notice
Insert"); and the Western Auto Notice Insert to be inserted in Western Auto
billing statements in the form annexed hereto as Exhibit F (the "Western Auto
Notice Insert"), are approved by the Court; and that the mailing of the
Notice in the manner and form set forth in the Order, the publication of the
Summary Notice in the manner and form set forth in the Order, the insertion
of the Notice Insert in Sears statements mailed to its credit customers for
a full billing cycle, and the insertion of the Western Auto Notice Insert in
Western Auto statements mailed to its credit customers for a full billing
cycle, meet the requirements of Rule 23 of the Federal Rules of Civil
Procedure and due process, constitute the best notice practicable under the
circumstances, and shall constitute due and sufficient notice to all persons
entitled thereto;
(c) that a hearing or hearings (the "Settlement Hearing") shall
be held before the Bankruptcy Court and the District Court, at the respective
time and date to be set by the Courts, to determine whether the proposed
Settlement of the Actions on the terms and conditions set forth in the
Stipulation is fair, reasonable and adequate and should be approved by the
Courts, and whether a judgment should be entered, and to consider such other
matters as may properly come before the Court in connection with the
Settlement Hearing; and
(d) that, pending decision by the Courts on whether to approve
the Settlement, each member of the Settlement Class is barred and enjoined
from instituting or prosecuting any action in state or other federal court
against Sears, Western Auto or any of their present or former officers,
directors, shareholders, employees, accountants, attorneys, representatives,
subsidiaries, affiliated companies, divisions, successors, heirs, agents and
assigns, which assert claims that are Settled Claims that would be released
and discharged upon approval of the Settlement.
16. Order and Final Judgment. If the Settlement (including any
modification thereto made with the consent of the parties as provided for
herein), shall be approved by the Courts following a hearing, the parties
shall jointly request the Courts each to enter an Order and Final Judgment
("Final Order"), among other things:
(a) approving the Settlement as fair, reasonable and adequate and
directing consummation of the Settlement in accordance with its terms and
provisions;
(b) dismissing the Bankruptcy Court Action and the District Court
Action as to Sears and Western Auto with prejudice as against all plaintiffs
and all members of the Settlement Class, without costs except as hereinafter
provided, such dismissal to be subject only to compliance by the parties with
the terms and conditions of the Stipulation and any order of the Courts with
reference to the Stipulation;
(c) permanently barring and enjoining the institution or
prosecution by plaintiffs or any member of the Settlement Class, either
directly or in any other capacity, of any action asserting claims that are
Settled Claims;
(d) releasing and discharging, on behalf of the Settlement Class
and the plaintiffs, the Released Persons from all Settled Claims;
(e) reserving continuing and exclusive jurisdiction over
implementation of the Settlement, and over enforcement, construction and
interpretation of this Stipulation; and
(f) awarding attorneys' fees and expenses to class counsel, or
reserving jurisdiction with respect thereto.
17.1. Requests for exclusion from the Settlement Class. Requests
for Exclusion from the Settlement Class shall list the name, address and
social security number or taxpayer identification number of the person
seeking exclusion.
17.2. If a Request for Exclusion does not include all of the
foregoing information, it shall not be a valid Request for Exclusion and the
person filing such an invalid Request for Exclusion shall be a member of the
Settlement Class. In addition, members of the Settlement Class requesting
exclusion shall be requested to provide the court and year of such person's
bankruptcy filing, Sears account number and the amount of indebtedness to
Sears that the person reaffirmed, albeit the failure to provide such
information shall not effect the validity of the Request for Exclusion. All
persons who properly file Requests for Exclusion from the Settlement Class
shall not be members of the Settlement Class and shall have no rights with
respect to the Settlement.
17.3. Each potential Settlement Class member who does not submit
a properly completed Request for Exclusion no later than twenty (20) days
prior to the Settlement Hearing shall be included in the Settlement Class.
For purposes of determining timeliness, a Request for Exclusion shall be
deemed to have been submitted when posted, if a postmark is indicated on the
envelope and it is mailed, postage prepaid and addressed in accordance with
the instructions in the Notice or, otherwise, when received. Requests for
Exclusion shall be submitted by mailing to the P.O. Box address referred to
in the Notice.
18. Definition of finality. The approval by the Courts of the
Settlement proposed by the Stipulation shall be considered final, and the
Settlement shall be considered final (and Sears obligations hereunder shall
arise) for purposes of this Stipulation, either (a) upon the entry by the
Courts of the Final Order and when the applicable period for the appeal of
such Final Orders shall each have expired without an appeal having been
filed; or (b) if an appeal is taken, upon entry of an order affirming the
Final Order and when the applicable period for the appeal of such affirmance
of the Final Order shall have expired without an appeal having been filed, or
upon entry of any stipulation dismissing any such appeal with no right of
further prosecution of the appeal; or (c) if an appeal is taken from any
decision affirming the Final Order, upon entry of an order in such appeal
finally affirming the Final Order without right of further appeal or upon
entry of any stipulation dismissing any such appeal with no right of further
prosecution of the appeal. None of the obligations of Sears pursuant to the
Settlement shall become effective until the Settlement becomes final.
Notwithstanding the above, Sears shall have the option to declare the
Settlement effective and final upon approval by the District Court (whether
or not then approved by the Bankruptcy Court) or upon such approval having
been finally affirmed on appeal or no appeal therefrom having been taken
within the applicable time period limiting the taking of such an appeal.
19.1. Class counsel application for attorneys' fees and expenses.
Provided that judicial approval of the Settlement has been obtained, class
counsel intend to jointly apply for court approval of an award of attorneys'
fees, plus reimbursement of expenses (including experts' fees). As an
additional benefit to the Settlement Class, any attorneys' fees and expenses
awarded to class counsel shall be paid by Sears and shall not diminish the
benefits of the Settlement to the class. Class counsel's application for
attorneys' fees and expenses may be made, at the option of class counsel, at
or subsequent to the Settlement Hearing. Any attorneys' fees and expenses so
awarded to class counsel shall not be payable unless and until the Final
Order shall become final. Any attorneys' fees and expenses awarded to class
counsel shall be paid as the Court may direct within ten business days after
the Settlement becomes final.
19.2. Sears will pay the costs of all notices and settlement
administration. Plaintiffs and their counsel shall have no responsibility
for any such costs regardless of whether the Settlement is consummated.
Except as provided in this Stipulation, Sears shall bear no other expenses,
costs, damages or fees incurred by any plaintiffs, by any member of the
Settlement Class, or by any of their attorneys, experts, advisors, agents or
representatives.
20. Sears options to withdraw from the Settlement. Sears shall
have the option to withdraw from the Settlement no later than three days
before the Settlement Hearing in the event that valid Requests for Exclusion
are received from persons who together number in excess of that number of
which plaintiffs and Sears have agreed upon or whose aggregate reaffirmed
indebtedness exceeds the amount that plaintiffs and Sears have agreed upon
(which number and amount shall be kept confidential by the parties). In
addition, Sears shall have the option to withdraw from the Settlement no
later than three days before the Settlement Hearing if (a) any action
asserting Settled Claims is allowed to be prosecuted notwithstanding the
Settlement and the Orders provided for herein, or (b) Sears determines in
good faith that the Settlement would not be effective to finally conclude all
of the Settled Claims intended to be finally concluded by the Settlement.
Sears shall also have the option to withdraw from the Settlement if the
Settlement has not become final by December 31, 1997. In the event that
Sears exercises such option to withdraw, a written notice of such withdrawal
and the grounds therefor shall be promptly delivered to all signatories to
this Stipulation. As a result of any such withdrawal, this Stipulation, the
Settlement proposed herein (including any modification thereto made with the
consent of the parties as provided for herein) and any action taken or to be
taken in connection therewith shall be terminated and shall become void and
have no further force and effect except for the obligation of Sears to pay
for any expense incurred in connection with the Notice and administration of
the Settlement.
21. Effect of Settlement not being final. In the event that the
Settlement as provided for in this Stipulation does not become final, or does
not become effective for any reason other than the failure of any settling
party to perform such party's obligations hereunder, then (except as the lack
of the Settlement becoming final because of any appeal may be waived by
Sears) the Stipulation shall become null and void and of no further force and
effect, and all negotiations, proceedings, and statements relating thereto
shall be without prejudice as to the rights of any and all parties hereto and
their respective predecessors and successors, and all parties and their
respective predecessors and successors shall be restored to their respective
positions existing at the date of the Stipulation.
22. No admissions. This Stipulation and all negotiations,
statements and proceedings in connection therewith shall not in any event be
construed as, or deemed to be evidence of, an admission or concession on the
part of Sears of any liability of or wrongdoing by it, and shall not be
offered or received in evidence in any action or proceeding, or used in any
way as an admission, concession or evidence of any liability or wrongdoing of
any nature on the part of Sears, and shall not be construed as, or deemed to
be evidence of, an admission or concession that the plaintiffs or any member
of the Settlement Class have suffered any damage; and shall not be construed
as, or deemed to be evidence of, an admission or concession on the part of
the plaintiffs or any member of the Settlement Class that any of their claims
asserted in the Actions are without merit or that damages recoverable in the
Actions do not exceed the aggregate of the amounts payable pursuant to this
Stipulation.
23. Due authority of attorneys. Each of the attorneys executing
this Stipulation on behalf of one or more parties hereto warrants and
represents that he or she has been duly authorized and empowered to execute
this Stipulation on behalf of each such respective party.
24. Periodic Reports of Settlement Administrator. The Settlement
Administrator shall submit to the Courts, quarterly reports concerning the
implementation of this Stipulation (with the first such report due three
months following this Stipulation becoming final) and a final report upon the
full and complete implementation of this Stipulation.
25. Entire agreement. This Stipulation, including all Exhibits
annexed hereto, constitutes the entire agreement among the parties with
regard to the subject matter thereof. This Stipulation may not be modified
or amended except in writing signed by all signatories hereto or their
successors in interest.
26. Successors. This Stipulation upon becoming operative shall
be binding upon and inure to the benefit of the settling parties hereto
(including the Settlement Class) and their respective heirs, executors,
administrators, successors and assigns and upon any corporation, partnership
or other entity into or with which any settling party hereto may merge or
consolidate.
27. Counterparts. This Stipulation may be executed in any number
of actual or telecopied counterparts and by the different settling parties
hereto on separate counterparts, each of which when so executed and delivered
shall be an original. The executed signature page(s) from each actual or
telecopied counterpart may be joined together and attached to one such
original and shall constitute one and the same instrument.
28. Waivers. The waiver by any party of any breach of this
Stipulation shall not be deemed or construed as a waiver of any other breach,
whether prior, subsequent, or contemporaneous, of this Stipulation.
29. Governing law. This Stipulation shall be construed and
enforced in accordance with the internal laws of the Commonwealth of
Massachusetts.
30. Retention of jurisdiction. The administration and
consummation of the Settlement as provided herein shall be under the
authority of the Bankruptcy Court and the District Court.
31. Additional discovery. Plaintiffs' obligations under this
Stipulation are subject to plaintiffs' taking additional discovery (to which
plaintiffs and Sears have agreed) within the next 30 days relating to the
subject matter of the Actions. Plaintiffs shall have the option to withdraw
from the Settlement in the event that they conclude in good faith, based upon
such additional discovery, that the Settlement is not fair, reasonable and
adequate, and beneficial to and in the best interests of the Settlement
Class. In that event, the provisions of the last sentence of paragraph 20
shall apply.
Dated: June 12, 1997
/S/John Roddy
_________________________________________
John Roddy
Frederic D. Grant, Jr.
GRANT & RODDY
44 School Street
Boston, MA 02108
(617) 248-8700
/S/Daniel A. Edelman
_________________________________________
Daniel A. Edelman
James O. Latturner
Cathleen M. Combs
EDELMAN & COMBS
135 South LaSalle Street
Suite 2040
Chicago, IL 60603
(312) 739-4200
/S/Christopher M. LeFebvre
_________________________________________
Christopher M. LeFebvre
LAW OFFICES OF CLAUDE LEFEBVRE
Two Dexter Street
Pawtucket, RI 02860
(401) 728-6060
Plaintiffs' Class Counsel
/S/Mark N. Polebaum
_________________________________________
Mark N. Polebaum
Stephen H. Oleskey
Paul P. Daley
HALE AND DORR LLP
60 State Street
Boston, MA 02109
(617) 526-6000
/S/Theodore N. Mirvis
_________________________________________
Theodore N. Mirvis
John F. Savarese
WACHTELL, LIPTON, ROSEN & KATZ
51 West 52nd Street
New York, NY 10019
(212) 403-1000
Attorneys for Defendants
Sears, Roebuck and Co. and
Western Auto Supply Company
Exhibit A
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
__________________________________________
)
In Re: )
DOUGLAS O. BRIOSO, )
Debtor. ) Chapter 7
) Case No. 97-11503-CJK
__________________________________________ )
)
DOUGLAS O. BRIOSO and )
EILEEN F. REYNOLDS, )
Plaintiffs, )
) Adversary Proceeding
v. ) No. 97-1222-CJK
)
SEARS, ROEBUCK AND CO. and )
WESTERN AUTO SUPPLY COMPANY, )
Defendants. )
)
__________________________________________ )
)
In Re: )
ANTONIA CALDAS, )
Debtor. ) Chapter 7
) Case No. 96-18925-CJK
__________________________________________ )
)
ANTONIA CALDAS, )
Plaintiff, )
v. ) Adversary Proceeding
) No. 97-1229-CJK
SEARS, ROEBUCK AND CO., )
Defendant. )
)
__________________________________________ )
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
__________________________________________
)
DAVID CONLEY, et al., )
Plaintiffs, )
v. ) Civil No. 97-1149-PBS
)
SEARS, ROEBUCK AND CO., )
WESTERN AUTO SUPPLY COMPANY )
and JOHN DOES 1-10, )
Defendants. )
)
__________________________________________ )
PROOF OF CLAIM
This Proof of Claim relates to the proposed Settlement, subject to Court
approval, of a nationwide class action on behalf of individual bankruptcy
debtors who entered into reaffirmation agreements with Sears, Roebuck and
Co. or its subsidiary, Western Auto Supply Company, which were not filed
with the bankruptcy courts (or were filed but subsequently disapproved by
those courts or rescinded by the debtor, or were not Court-approved where
approval was required for enforceability of the agreement).
A description of the Settlement, its background, the Settlement Class, and
additional information is contained in the printed Notice of Pendency of
Class Actions, Class Action Determination, Proposed Settlement of Class
Actions, Settlement Hearings, Right to Request Exclusion, and Right to
Appear (the "Notice"), which is enclosed with this Proof of Claim.
IF YOU FILED YOUR BANKRUPTCY PETITION BEFORE JANUARY 1, 1992 AND THEREAFTER
ENTERED INTO A REAFFIRMATION AGREEMENT WITH SEARS, YOU MUST FILE THIS PROOF
OF CLAIM IN ORDER TO BE ELIGIBLE TO PARTICIPATE IN THE SETTLEMENT. IN
ADDITION, IF YOU FILED YOUR BANKRUPTCY PETITION AFTER JANUARY 1, 1992 BUT
HAVE NOT RECEIVED A COPY OF THE NOTICE IN THE MAIL PRIOR TO RECEIVING THIS
PROOF OF CLAIM, IT IS ADVISABLE FOR YOU TO FILE THIS PROOF OF CLAIM.
ALL MEMBERS OF THE SETTLEMENT CLASS WHO ENTERED INTO REAFFIRMATION
AGREEMENTS WITH WESTERN AUTO MUST FILE THIS PROOF OF CLAIM IN ORDER TO BE
ELIGIBLE TO PARTICIPATE IN THE SETTLEMENT.
IF YOU RECEIVED A COPY OF THE NOTICE IN THE MAIL PRIOR TO RECEIVING THIS
PROOF OF CLAIM, YOU NEED NOT FILE THIS PROOF OF CLAIM TO BE ELIGIBLE TO
PARTICIPATE IN THE PROPOSED SETTLEMENT.
You may obtain assistance in filling out this Proof of Claim by calling the
Settlement Administrator at 1-800-___-____(toll free). If you have any
questions as to whether or not you need to file this Proof of Claim, or
whether or not you are a member of the Settlement Class, or regarding the
proposed Settlement, you may call the Settlement Administrator for
assistance.
PLEASE DO NOT CALL OR WRITE TO THE COURTS FOR INFORMATION.
INSTRUCTIONS
THIS PROOF OF CLAIM MUST BE COMPLETED, SIGNED AND MAILED BY PRE-PAID, FIRST
CLASS MAIL, NO LATER THAN ________, 1997 [20 days before the earliest
settlement hearing] TO THE FOLLOWING ADDRESS:
SEARS INDIVIDUAL BANKRUPTCY DEBTOR LITIGATION
P.O. Box ___
Boston, Massachusetts _______
FAILURE TO SUBMIT YOUR CLAIM, FULLY COMPLETED AS SET OUT BELOW, BY ______,
1997 WILL SUBJECT YOUR CLAIM TO REJECTION AND PRECLUDE YOUR RECEIVING THE
BENEFITS OF THE SETTLEMENT. DO NOT MAIL OR DELIVER YOUR CLAIM TO THE
COURT, TO SEARS OR WESTERN AUTO, OR TO ANY OF THE PARTIES OR THEIR COUNSEL,
AS DOING SO WILL NOT BE DEEMED PROPER SUBMISSION OF THE CLAIM.
If you are a member of the Settlement Class, even if you fail to submit
this Proof of Claim in proper form, you will be bound by the Court's Final
Order and Judgment in this matter and will be forever barred from asserting
any claim against Sears or Western Auto or any related party that is being
settled unless you have properly requested exclusion from the class.
Please consult the Notice for additional information.
The telephone number referred to above has been established as part of the
settlement process, and is being handled by the Settlement Administrator
provided for under the terms of the Settlement, at Sears sole expense.
There will be no cost or obligation to you in calling that number.
STATEMENT OF CLAIM
TO COMPLETE THIS PROOF OF CLAIM, PLEASE READ THE FOLLOWING, FILL IN THE
INFORMATION REQUESTED AND ATTACH THE DOCUMENTS REQUESTED, AND SIGN BELOW
WHERE INDICATED (HAVING YOUR SIGNATURE NOTARIZED, AS INDICATED BELOW).
I. I did ___, I did not ___ [check one] file for personal
bankruptcy in a U.S. bankruptcy court.
II. I did ___, I did not ___ [check one] thereafter enter into
a reaffirmation agreement with Sears ____, Western Auto ____ [check one]
which provided for my payment to it of indebtedness owed by me to it prior
to my bankruptcy filing.
Note: If you entered into reaffirmation agreements with both Sears and
Western Auto, you should file a separate Proof of Claim for each.
I. Identification of Claimant.
__ __ __ __ __ __ __ __ __ __ __ __ __ __
Name __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
Street No. __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
and Address __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __ __
City _ _ _ _ _ _ _ _ _ _ State _ _ Zip Code _ _ _ _ _-_ _ _ _
Country __ __ __ __ __ __ __ __ __ Telephone (_ _ _) _ _ _-_ _ _ _
Number
Social Security _ _ _ - _ _ - _ _ _ _
Number or
Taxpayer _ _ - _ _ _ _ _ _ _
Identification
Number
Note: If your address was different at the time of your bankruptcy
filing or reaffirmation agreement, please provide that information:
Street No. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
and Address _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
City _ _ _ _ _ _ _ _ _ _ State _ _ Zip Code _ _ _ _ _-_ _ _ _
Country _ _ _ _ _ _ _ _ _ _ _ _
I. Information regarding bankruptcy filing and reaffirmation
agreement.
Year of your bankruptcy filing: _ _ _ _
Court in which your bankruptcy petition was filed:
______________________________
Amount you owed Sears (or Western
Auto) before your bankruptcy filing: $_ _ _ _ . _ _
Sears Account Number: _ _ _ _ _ _ _ _ _ _ _ _ _ _
Date of your reaffirmation agreement
(Month/Day/Year): _ _ - _ _ - _ _
Amount of reaffirmed
indebtedness: $_ _ _ _ . _ _
Amount of payments you made
to Sears (or Western Auto)
after your bankruptcy filing: $_ _ _ _ . _ _
Note: If you do not know the exact amounts requested, you may estimate the
amounts if you have a basis for doing so.
If you entered into a reaffirmation agreement, Sears may endeavor to check
available records to ascertain if the agreement was properly filed with the
bankruptcy court and enforceable. If your reaffirmation agreement was
properly filed and enforceable, then you are not a member of the Settlement
Class and are not eligible to participate in the Settlement.
Documents requested; review by Settlement Administrator.
Please attach a copy of the order of discharge in your bankruptcy case or,
if you do not have a copy of that order, copies of other filings from that
case. Please also attach a copy of your reaffirmation agreement or, if you
do not have a copy of that agreement, any other documents that evidence the
amount of reaffirmed debt. (If you do not have copies of these documents,
copies may be obtainable by you from the bankruptcy court, or from the
attorney who represented you in your bankruptcy filing if you were
represented by an attorney.)
Please also enclose any documents you have that evidence the amounts you
paid to Sears (or Western Auto), and the costs of any goods or services you
purchased from Sears (or Western Auto), after entering into the
reaffirmation agreement (such as copies of account statements you received
after your bankruptcy filing or your cancelled checks).
The Settlement Administrator will process all timely Proofs of Claims
pursuant to guidelines submitted to the Court. In order to facilitate the
processing of your Claim, you should submit all the documents requested if
they are available to you. If Sears has a documentary or other basis to
dispute your Claim, it will present that evidence to the Settlement
Administrator. The Settlement Administrator will decide whether to accept,
reject or modify your Claim. The Settlement Administrator may request
additional information, documents or verifications from you in certain
circumstances as a condition to processing your Claim. The Settlement
provides that, in order to process a Proof of Claim, the Settlement
Administrator must have documentary evidence of your having filed for
bankruptcy under Chapter 7 and of either the amount of reaffirmed
indebtedness to Sears (or Western Auto) or the amount of pre-petition
indebtedness to Sears (or Western Auto) discharged by the bankruptcy court
and post-petition payment activity in your account. You will be notified
in the event that your Claim is rejected or modified by the Settlement
Administrator.
By submitting this Proof of Claim, I state that I believe
in good faith that I am a member of the Settlement Class as defined in the
Notice; that I have read and understood the contents of the Notice; that I
have not filed a Request for Exclusion, seeking to be excluded from the
Settlement Class; and that I believe that I am entitled to, and that I
elect to, participate in the proposed Settlement described in the Notice.
I agree and understand that if the proposed Settlement is
approved by the Court and becomes effective, all claims, demands or causes
of action against Sears, Western Auto, and certain other persons which have
been or could have been asserted relating to the subject matter of the
litigation will be satisfied, discharged and extinguished forever in
accordance with the Release being provided on behalf of members of the
Settlement Class in the Stipulation of Settlement and by the terms of the
Final Order and Judgment.
My signature hereto constitutes a full and complete
release by me, and by my heirs, executors, administrators, successors,
affiliates and assigns, of Sears or Western Auto and their present and
former officers, directors, shareholders, employees, accountants,
representatives, attorneys, subsidiaries, affiliated companies, divisions,
successors, heirs, agents and assigns, in connection with or that arise out
of their obtaining of a reaffirmation agreement, the non-filing (or
untimely filing) of any such agreement with the appropriate bankruptcy
court, the solicitation or billing of or collecting under or any steps to
enforce any such unfiled agreement (or any filed reaffirmation agreement
that was subsequently disapproved or rejected by the bankruptcy court (or
that was not approved by such court where approval was required for
enforceability of such agreement) or that was subsequently rescinded by the
debtor), or any communications, representations or omissions by or on
behalf of Sears or Western Auto with respect to any of the foregoing, or
any acts, facts, transactions or occurrences, alleged or otherwise asserted
or that could have been asserted in the litigation that is being settled
(all of which are referred in the Settlement as the "Settled Claims").
Taxpayer Identification Number
Request for Taxpayer Identification Number: Enter your taxpayer
identification number below. For most individuals, this is your Social
Security number. The Internal Revenue Service requires such taxpayer
identification number. If you fail to furnish the correct taxpayer
identification, 20% of the interest portion of your share of the Settlement
will be withheld and/or your claim will be rejected.
_ _ _ - _ _ - _ _ _ _
Note: A Copy of the I.R.S. Guidelines or certification of Taxpayer
Identification Number on Substitute Form W-9 and a description of payees
subject to or exempt from the backup withholding requirements are included
as part of the Notice accompanying this Proof of Claim form.
Certification
UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT ALL OF THE
INFORMATION PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
I certify that I am NOT subject to backup withholding under the
provisions of Section 3406(a)(1)(c) of the Internal Revenue Code.
Note: If you have been notified by the Internal Revenue Service that you
are subject to backup withholding, please strike out the language that you
are not subject to backup withholding in the certification above.
Signature of Claimant:
Date:
(Signature)
Sworn to before me this
___ day of _________, 1997
_________________________
Notary Public
#_______________________
Note: As noted above, this Proof of Claim must be submitted no later than
__________, 1997. A properly completed Proof of Claim shall be deemed to
have been submitted when posted, if received subsequent to ____________,
1997 and if a postmark is indicated on the envelope dated such date or
earlier and it is mailed first class, postage prepaid, and addressed in
accordance with the above instructions. In all other cases a properly
completed Proof of Claim shall be deemed to have been submitted when
actually received.
If you wish to be assured that your Proof of Claim is actually
received, you should send it by Certified Mail, Return Receipt Requested.
Certified Mail may, however, require more time for delivery than first
class mail. No acknowledgment will be made as to the receipt of Proof of
Claim forms. You should be aware that it will take a significant amount of
time to process fully all of the Proofs of Claim and to administer the
Settlement. This work will be completed as promptly as time permits, given
the need to fully investigate and calculate each Proof of Claim.
Exhibit B(1)
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
HEARING ORDER
__________________________________________
)
DOUGLAS O. BRIOSO, et al. )
Plaintiffs, )
) Adversary Proceeding
v. ) No. 97-1222-CJK
)
SEARS, ROEBUCK AND CO. and )
WESTERN AUTO SUPPLY COMPANY, )
Defendants. )
)
__________________________________________ )
)
ANTONIO CALDAS, )
Plaintiff, )
)
v. )
)
SEARS, ROEBUCK AND CO., )
Defendant. )
______________________________________________ )
The parties to the above-captioned consolidated actions (the
"Action"), having made application pursuant to Rule 7023 of the Federal
Rules of Bankruptcy Procedure, Rule 23 of the Federal Rules of Civil
Procedure and 105 of the U.S. Bankruptcy Code, for an order approving the
proposed settlement of the Action in accordance with a Stipulation and
Agreement of Compromise and Settlement filed with the Court (the
"Settlement" or the "Stipulation"), which sets forth the terms and
conditions for the proposed settlement of the Action and for the dismissal
of the Action with prejudice upon the terms and conditions set forth in the
Stipulation; and the Court having read and considered the Stipulation and
accompanying documents; and all parties having consented to the entry of
this Order:
NOW, THEREFORE, IT IS HEREBY ORDERED THAT:
1. The Action shall, for the purposes of the Settlement only,
be maintained and proceed as a class action with the named plaintiffs in
the Action as class representatives and their counsel as class counsel,
pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil
Procedures, on behalf of the following class (the "Settlement Class") as
set forth in the Stipulation:
all individuals (a) who filed a petition for relief under the
Bankruptcy Code; (b) who listed Sears, Roebuck and Co. ("Sears")
as a creditor, against whom Sears filed a claim, or who owed a
debt or alleged debt to Sears; (c) who, subsequent to the filing
of the bankruptcy petition, executed an agreement with Sears
purporting to reaffirm such debt or alleged debt or to redeem the
applicable property, or which agreement is otherwise subject to
the provisions of 11 U.S.C. 524(c) (collectively defined in the
Stipulation as a reaffirmation agreement); and (d) such agreement
either was not filed with the appropriate bankruptcy court in
accordance with 11 U.S.C. 524(c)(3) prior to the order of
discharge, or was filed with the bankruptcy court and was either
(i) disapproved or rejected by the bankruptcy court (or not
approved by such court when necessary to the enforceability of
such agreement), or (ii) rescinded by the debtor.
(As set forth in the Stipulation, references to "Sears" in such definition
includes Sears subsidiary, Western Auto Supply Company ("Western Auto")).
The Court determines, for purposes of the Settlement only, that the
requirements of Rules 23(a) and 23(b)(3) of the Federal Rules of Civil
Procedure are satisfied.
2. A hearing (the "Settlement Hearing") shall be held before
the Court on October 28, 1997, at 10 a.m. at the Courthouse, Federal Office
Building, 10 Causeway Street, Boston, Massachusetts 02222: (a) to determine
whether the proposed Settlement of the Action on the terms and conditions
provided for in the Stipulation is fair, reasonable and adequate and should
be approved by the Court, and whether a judgment as provided in the
Stipulation should be entered thereon; and (b) to consider such other
matters as may properly come before the Court in connection with the
Settlement Hearing. The Court may adjourn the Settlement Hearing, or any
adjournment thereof, without further notice to members of the Settlement
Class other than by announcement at the Hearing or any adjournment thereof.
3. The Court approves, in form, the Notice of Pendency of
Class Actions, Class Action Determination, Proposed Settlement of Class
Actions, Settlement Hearings, Right to Request Exclusion and Right to
Appear (the "Notice"), attached as Exhibit C to the Stipulation; the
Summary Notice of Class Action Determination, Proposed Settlement of Class
Actions and Settlement Hearing (the "Summary Notice"), attached as Exhibit
D to the Stipulation; the Notice Insert to be inserted in Sears statements
to customers, attached as Exhibit E to the Stipulation (the "Notice
Insert"); the Notice Insert to be inserted in the statements to customers
of Western Auto, attached as Exhibit F to the Stipulation (the "Western
Auto Notice Insert"), and finds that the dissemination of the Notice, the
Summary Notice, the Notice Insert and the Western Auto Notice Insert in
substantially the manner and form set forth in paragraph 4 of this Order
meets the requirements of Rule 23 of the Federal Rules of Civil Procedure
and due process, is the best notice practicable under the circumstances,
and shall constitute due and sufficient notice to all persons entitled
thereto.
4. (a) Beginning 40 days following entry of this Order
(or, if later, the similar order being moved for in the District Court
Action, as defined in the Stipulation), Sears shall cause a copy of the
Notice to be mailed by first class mail to all persons who are identified
as members of the Settlement Class pursuant to the identification process
provided for in the Stipulation and in accordance with the Stipulated Order
entered on April 21, 1997 in United States of America v. Sears, Roebuck and
Co., Civil No. 97-10839-JLT (D. Mass.). Sears shall continue to make such
mailings as additional members of the Settlement Class are so identified,
as soon as practicable following such additional identifications, up
through 40 days prior to the date of the Settlement Hearing.
(b) The Summary Notice, substantially in the form
annexed to the Stipulation as Exhibit C, shall be published by Sears within
20 days of the first mailing of the Notice as follows: (i) twice within a
seven-day period in the national edition of USA Today; and (ii) twice
within a seven-day period in the following newspapers in the 24 major
metropolitan areas: Los Angeles Times, Washington Post, Chicago Tribune,
Boston Globe, New York Daily News, Philadelphia Inquirer, Minneapolis Star
Tribune, Newark Star Ledger, Houston Chronicle, San Francisco
Chronicle/Examiner, Phoenix Republic/Gazette, Saint Louis Post Dispatch,
Cleveland Plain Dealer, Miami Herald, Seattle Times/Post Intelligencer,
Baltimore Sun, Milwaukee Journal/Sentinel, San Diego Union Tribune, Denver
Post, Pittsburgh Post Gazette, Saint Petersburg Times, Atlanta
Journal/Constitution, Nashville Tennessean/Banner, and Dallas Morning News.
(c) The Notice Insert and the Western Auto Notice
Insert, substantially in the form annexed to the Stipulation as Exhibits E
and F, respectively, shall be inserted by Sears in Sears and Western Auto
statements being mailed to their respective credit customers for a full
billing cycle commencing as soon as practicable within 20 days of the first
mailing of the Notice.
(d) On or before October 14, 1997, at 4:00 p.m., Sears
shall file proof, by affidavit, of such publications and mailings.
5. Any member of the Settlement Class who has not requested
exclusion from the Settlement Class may appear at the Settlement Hearing
personally or by counsel, provided that an appearance is served and filed
as hereinafter provided, and show cause, if any, why the Settlement of the
Action should not be approved as fair, reasonable, and adequate, why
judgment should not be entered dismissing with prejudice and releasing all
claims of all plaintiffs and all members of the Settlement Class against
Sears and the other Released Persons (as provided for in the Stipulation),
or why the Court should not grant an allowance of reasonable fees and
expenses to plaintiffs' counsel (to be payable, as may be awarded by the
Court, by Sears and not in any respect to diminish the benefits to the
Settlement Class of the Settlement) for their services herein and actual
expenses incurred. However, unless the Court otherwise directs, no member
of the Settlement Class, or any person (excluding a party), shall be heard
or shall be entitled to contest the approval of the terms and conditions of
the Settlement or (if approved) the judgment to be entered thereon, or the
allowance of fees and expenses to plaintiffs' counsel, and no papers or
briefs submitted by any member of the Settlement Class or any other person
(excluding a party) shall be received and considered, except by order of
the Court for good cause shown, unless, no later than twenty (20) days
prior to the Settlement Hearing, the following documents are served and
filed in the manner provided below: (a) a notice of intention to appear;
(b) a detailed statement of such person's specific objections to any matter
before the Court; (c) proof of membership in the Settlement Class; and (d)
the grounds for such objections and any reasons why such person desires to
appear and to be heard, as well as all documents and writings which such
person desires this Court to consider. Such documents shall be served upon
the following counsel prior to filing such documents with the Court:
John Roddy
Frederic D. Grant, Jr.
GRANT & RODDY
44 School Street
Boston, MA 02108
On Behalf of All Plaintiffs
Mark N. Polebaum
Stephen H. Oleskey
Paul P. Daley
HALE AND DORR LLP
60 State Street
Boston, MA 02109
On Behalf of Defendants
Sears, Roebuck and Co. and
Western Auto Supply Company
Any person who fails to object in the manner provided herein shall be
deemed to have waived his or her objections and shall forever be barred
from making any such objections in this Action or in any other action or
proceeding.
6. All members of the Settlement Class have the option of
excluding themselves from the Settlement Class by mailing a timely and
valid Request for Exclusion postmarked not later than twenty (20) days
prior to the Settlement Hearing addressed to Sears Personal Bankruptcy
Debtor Class Litigation, P.O. Box ____, Boston, Massachusetts, _____ (which
P.O. Box shall be obtained by the parties). A Request for Exclusion must
set forth the following information with respect to the person requesting
exclusion: name; address; social security number or taxpayer identification
number. All Requests for Exclusion must be signed by or on behalf of the
person so requesting exclusion.
7. If a Request for Exclusion does not include all of the
foregoing information, it shall not be a valid Request for Exclusion and
the person filing an invalid Request for Exclusion shall be a member of the
Settlement Class. (In addition, members of the Settlement Class requesting
exclusion may be asked to provide the year of the individual's bankruptcy
filing; the bankruptcy court in which the filing was made; Sears Account
Number; and the amount of indebtedness to Sears that the individual
reaffirmed, although the failure to provide such information shall not
affect the validity of the Request for Exclusion.) All persons who
properly submit valid Requests for Exclusion from the Settlement Class
shall not be members of the Settlement Class and shall have no rights with
respect to the Settlement and no interest in the Settlement.
_________________________________
June __, 1997
Exhibit B(2)
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
______________________________________________
)
DAVID CONLEY, et. al., )
)
Plaintiffs, )
)
v. ) Civil No. 97-11149-PBS
)
SEARS, ROEBUCK AND CO., )
WESTERN AUTO SUPPLY COMPANY )
and JOHN DOES 1-10, )
)
Defendants. )
)
______________________________________________ )
HEARING ORDER
The parties to the above-captioned action (the "Action"), having
made application pursuant to Rule 23 of the Federal Rules of Civil
Procedure for an order approving the proposed settlement of the Action in
accordance with a Stipulation and Agreement of Compromise and Settlement
filed with the Court (the "Settlement" or the "Stipulation"), which, sets
forth the terms and conditions for the proposed settlement of the Action
and for the dismissal of the Action with prejudice upon the terms and
conditions set forth in the Stipulation; and the Court having read and
considered the Stipulation and accompanying documents; and all parties
having consented to the entry of this Order:
NOW, THEREFORE, IT IS HEREBY ORDERED THAT:
1. The Action shall, for the purposes of the Settlement only,
be maintained and proceed as a class action with the named plaintiffs in
the Action as class representatives and their counsel as class counsel,
pursuant to Rules 23(a) and 23(b)(3) of the Federal Rules of Civil
Procedures, on behalf of the following class (the "Settlement Class") as
set forth in the Stipulation:
all individuals (a) who filed a petition for relief under
the Bankruptcy Code; (b) who listed Sears, Roebuck and Co.
("Sears") as a creditor, against whom Sears filed a claim,
or who owed a debt or alleged debt to Sears; (c) who,
subsequent to the filing of the bankruptcy petition,
executed an agreement with Sears purporting to reaffirm
such debt or alleged debt or to redeem the applicable
property, or which agreement is otherwise subject to the
provisions of 11 U.S.C. 524(c) (collectively defined in
the Stipulation as a reaffirmation agreement); and (d)
such agreement either was not filed with the appropriate
bankruptcy court in accordance with 11 U.S.C. 524(c)(3)
prior to the order of discharge, or was filed with the
bankruptcy court and was either (i) disapproved or
rejected by the bankruptcy court (or not approved by such
court when necessary to the enforceability of such
agreement), or (ii) rescinded by the debtor.
(As set forth in the Stipulation, references to "Sears" in such definition
includes Sears subsidiary, Western Auto Supply Company ("Western Auto")).
The Court determines, for purposes of the Settlement only, that the
requirements of Rules 23(a) and 23(b)(3) of the Federal Rules of Civil
Procedure are satisfied.
2. A hearing (the "Settlement Hearing") shall be held before
the Court on ________________, 1997, at ________ __.m. at the John W.
McCormack P.O. and Courthouse, Boston, Massachusetts 02109: (a) to
determine whether the proposed Settlement of the Action on the terms and
conditions provided for in the Stipulation is fair, reasonable and adequate
and should be approved by the Court, and whether a judgment as provided in
the Stipulation should be entered thereon; and (b) to consider such other
matters as may properly come before the Court in connection with the
Settlement Hearing. The Court may adjourn the Settlement Hearing, or any
adjournment thereof, without further notice to members of the Settlement
Class other than by announcement at the Hearing or any adjournment thereof.
3. The Court approves, in form, the Notice of Pendency of
Class Actions, Class Action Determination, Proposed Settlement of Class
Actions, Settlement Hearings, Right to Request Exclusion and Right to
Appear (the "Notice"), attached as Exhibit C to the Stipulation; the
Summary Notice of Class Action Determination, Proposed Settlement of Class
Actions and Settlement Hearing (the "Summary Notice"), attached as Exhibit
D to the Stipulation; the Notice Insert to be inserted in Sears statements,
attached as Exhibit E to the Stipulation (the "Notice Insert"); and the
Notice Insert to be inserted in Western Auto statements, attached as
Exhibit F to the Stipulation (the "Western Auto Notice Insert"), and finds
that the dissemination of the Notice, the Summary Notice, the Notice Insert
and the Western Auto Notice Insert in substantially the manner and form set
forth in paragraph 4 of this Order meets the requirements of Rule 23 of the
Federal Rules of Civil Procedure and due process, is the best notice
practicable under the circumstances, and shall constitute due and
sufficient notice to all persons entitled thereto.
4. (a) Beginning 40 days following entry of this Order
(or, if later, the similar order being moved for in the Bankruptcy Court
Action, as defined in the Stipulation), Sears shall cause a copy of the
Notice, substantially in the form annexed to the Stipulation as Exhibit C,
to be mailed by first class mail to all persons who are identified as
members of the Settlement Class Pursuant to the identification process
provided for in the Stipulation and in accordance with the Stipulated Order
entered on April 21, 1997 in United States of America v. Sears, Roebuck and
Co., Civil No. 97-10839-JLT (D. Mass.). Sears shall continue to make such
mailings as additional members of the Settlement Class are so identified,
as soon as practicable following such additional identifications, up
through 40 days prior to the date of the Settlement Hearing.
(b) The Summary Notice, substantially in the form
annexed to the Stipulation as Exhibit D, shall be published by Sears within
20 days of the first mailing of the Notice as follows: (1) twice within a
seven-day period in the national editions of USA Today; and (ii) twice
within a seven-day period in the following newspapers in 24 major
metropolitan areas: Los Angeles Times, Washington Post, Chicago Tribune,
Boston Globe, New York Daily News, Philadelphia Inquirer, Minneapolis Star
Tribune, Newark Star Ledger, Houston Chronicle, San Francisco
Chronicle/Examiner, Phoenix Republic/Gazette, Saint Louis Post Dispatch,
Cleveland Plain Dealer, Miami Herald, Seattle Times/Post Intelligencer,
Baltimore Sun, Milwaukee Journal/Sentinel, San Diego Union Tribune, Denver
Post, Pittsburgh Post Gazette, Saint Petersburg Times, Atlanta
Journal/Constitution, Nashville Tennessean/Banner, and Dallas Morning News.
(c) The Notice Insert and the Western Auto Notice
Insert, substantially in the form annexed to the Stipulation as Exhibits E
and F, respectively, shall be inserted by Sears in Sears and Western Auto
statements being mailed to their respective credit customers for a full
billing cycle commencing as soon as practicable within 20 days of the first
mailing of the Notice.
(d) On or before October 14, 1997, at 4:00 p.m., Sears
shall file proof, by affidavit, of such publications and mailings.
5. Any member of the Settlement Class who has not requested
exclusion from the Settlement Class may appear at the Settlement Hearing
personally or by counsel, provided that an appearance is served and filed
as hereinafter provided, and show cause, if any, why the Settlement of the
Action should not be approved as fair, reasonable, and adequate, why
judgment should not be entered dismissing with prejudice and releasing all
claims of all plaintiffs and all members of the Settlement Class against
Sears and the other Released Persons (as provided for in the Stipulation),
or why the Court should not grant an allowance of reasonable fees and
expenses to plaintiffs' counsel (to be payable, as may be awarded by the
Court, by Sears and not in any respect to diminish the benefits to the
Settlement Class of the Settlement) for their services herein and actual
expenses incurred. However, unless the Court otherwise directs, no member
of the Settlement Class, or any person (excluding a party), shall be heard
or shall be entitled to contest the approval of the terms and conditions of
the Settlement or (if approved) the judgment to be entered thereon, or the
allowance of fees and expenses to plaintiffs' counsel, and no papers or
briefs submitted by any member of the Settlement Class or any other person
(excluding a party) shall be received and considered, except by order of
the Court for good cause shown, unless, no later than twenty (20) days
prior to the Settlement Hearing, the following documents are served and
filed in the manner provided below: (a) a notice of intention to appear;
(b) a detailed Statement of such person's specific objections to any matter
before the Court; (c) proof of membership in the Settlement Class; and (d)
the grounds for such objections and any reasons why such person desires to
appear and to be heard, as well as all documents and writings which such
person desires this Court to consider. Such documents shall be served upon
the following counsel prior to filing such documents with the Court:
John Roddy
Frederic D. Grant, Jr.
GRANT & RODDY
44 School Street
Boston, MA 02108
On Behalf of All Plaintiffs
Mark N. Polebaum
Stephen H. Oleskey
Paul P. Daley
HALE AND DORR LLP
60 State Street
Boston, MA 02109
On Behalf of Defendants
Sears, Roebuck and Co. and
Western Auto Supply Company
Any person who fails to object in the manner provided herein shall be
deemed to have waived his or her objections and shall forever be barred
from making any such objections in this Action or in any other action or
proceeding.
6. All members of the Settlement Class have the option of
excluding themselves from the Settlement Class by mailing a timely and
valid Request for Exclusion postmarked not later than twenty (20) days
prior to the Settlement Hearing addressed to Sears Personal Bankruptcy
Debtor Class Litigation, P.O. Box ______, Boston, Massachusetts, ______,
(which P.O. Box shall be obtained by the parties). A Request for Exclusion
must set forth the following information with respect to the person
requesting exclusion: name; address; social security number or taxpayer
identification number. All Requests for Exclusion must be signed by or on
behalf of the person so requesting exclusion.
7. If a Request for Exclusion does not include all of the
foregoing information, it shall not be a valid Request for Exclusion and
the person filing an invalid Request for Exclusion shall be a member of the
Settlement Class. (In addition, members of the Settlement Class requesting
exclusion may be asked to provide the year of the individual's bankruptcy
filing; the bankruptcy court in which the filing was made; Sears Account
Number; and the amount of indebtedness to Sears that the individual
reaffirmed, although the failure to provide such information shall not
affect the validity of the Request for Exclusion.) All persons who
properly submit valid Requests for Exclusion from the Settlement Class
shall not be members of the Settlement Class and shall have no rights with
respect to the Settlement and no interest in the Settlement.
8. Pending decision by the Court on whether to approve the
Settlement, each member of the Settlement Class is barred and enjoined from
instituting or prosecuting any action in state or other federal court
against Sears or Western Auto (or any of their present or former officers,
directors, shareholders, employees, accountants, attorneys,
representatives, subsidiaries, affiliated companies, divisions, successors,
heirs, agents, and assigns) which assert claims that are Settled Claims
that would be released and discharged upon approval of the Settlement.
June __, 1997
Exhibit C
UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
EASTERN DIVISION
NOTICE OF PENDENCY OF CLASS ACTIONS, CLASS
ACTION DETERMINATION, PROPOSED SETTLEMENT OF
CLASS ACTIONS, SETTLEMENT HEARINGS, RIGHT TO REQUEST
EXCLUSION, AND RIGHT TO APPEAR
______________________________________________
)
DOUGLAS O. BRIOSO, et al. )
Plaintiffs, )
) Adversary Proceeding
v. ) No. 97-1222-CJK
)
SEARS, ROEBUCK AND CO. and )
WESTERN AUTO SUPPLY )
COMPANY, )
Defendants. )
)
)
ANTONIO CALDAS, )
Plaintiff, )
)
v. )
)
SEARS, ROEBUCK AND CO., )
Defendant. )
______________________________________________ )
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
______________________________________________
)
DAVID CONLEY, et al., )
)
Plaintiffs, )
) Civil No. 97-11149-PBS
v. )
)
SEARS, ROEBUCK AND CO., )
WESTERN AUTO SUPPLY COMPANY )
and JOHN DOES 1-10, )
)
Defendants. )
______________________________________________ )
TO: ALL INDIVIDUALS WHO PREVIOUSLY FILED FOR PERSONAL BANKRUPTCY AND
ENTERED INTO REAFFIRMATION AGREEMENTS WITH SEARS, ROEBUCK AND CO.
OR ITS SUBSIDIARY, WESTERN AUTO SUPPLY COMPANY.
AS SET OUT BELOW (SEE PP. _____), OCTOBER 8, 1997 AT 4:00 P.M. IS
THE DEADLINE FOR SUBMITTING PROOFS OF CLAIM, OR FOR EXERCISING YOUR RIGHT
TO APPEAR OR REQUESTING EXCLUSION FROM THE SETTLEMENT CLASS.
This Notice is given pursuant to Rule 23 of the Federal Rules of
Civil Procedure and Orders (the "Hearing Orders") entered by the United
States Bankruptcy Court for the District of Massachusetts, Eastern
Division, and the United States District Court for the District of
Massachusetts (the "Courts"). The purpose of this Notice is to inform you
of these pending lawsuits (the "Actions"), to advise you of a proposed
settlement of the Actions (the "Settlement"), and of your rights, if you
are a member of the class covered by the proposed Settlement (defined below
as the "Settlement Class"), among other things, to receive monetary
benefits in the Settlement if it is approved by the Courts, to exclude
yourself from the proposed Settlement, or to object to the proposed
Settlement; and to give you notice of Court hearings to be held on October
28, 1997, at 10 a.m., in the U.S. Bankruptcy Court, Federal Office
Building, 10 Causeway Street, Boston, Massachusetts 02222, and on
___________, 1997, at __.m. in the U.S. District Court, J. W. McCormack
P.O. and Courthouse, Boston, Massachusetts 02109, to determine whether the
proposed Settlement, on a national class-wide basis, should be approved by
the Courts as fair, reasonable and adequate and to consider such other
matters as may properly come before the Courts in connection with the
hearings.
NO OPINIONS EXPRESSED BY
THE COURTS AS TO THE MERITS
This Notice is not an expression by any court as to the merits of
the claims or defenses of the parties in the Actions. This Notice was
prepared by the parties to the Actions, who are joining in urging the
Courts to approve the proposed Settlement, and is being disseminated
pursuant to the Hearing Orders entered by the Courts.
DEFINITION OF SETTLEMENT CLASS
The proposed Settlement is on behalf of the following class of
persons: all individuals (a) who filed a petition for relief under the U.S.
Bankruptcy Code; (b) who listed Sears, Roebuck and Co. ("Sears") or its
subsidiary, Western Auto Supply Company ("Western Auto") as a creditor,
against whom Sears (or Western Auto) filed a claim, or who owed a debt or
alleged debt to Sears (or Western Auto); (c) who, subsequent to the filing
of the bankruptcy petition, executed an agreement with Sears (or Western
Auto) purporting to reaffirm such debt or alleged debt or to redeem the
applicable property, or which agreement is otherwise subject to the
provisions of 11 U.S.C. 524(c) (collectively referred to herein as
"reaffirmation agreements"); and (d) such agreement either was not filed
with the appropriate bankruptcy court in accordance with 11 U.S.C.
524(c)(3) prior to the order of discharge, or was filed with the bankruptcy
court and was either (i) disapproved or rejected by the bankruptcy court or
not approved by such court when necessary to the enforceability of such
agreement, or (ii) rescinded by the debtor.
This group of individuals is referred to as the "Settlement
Class." The Settlement Class is thus defined on a nationwide basis, not
limited to individuals whose petitions under the Bankruptcy Code were filed
in any particular jurisdiction or region. A reaffirmation agreement is an
agreement by which an individual who has filed for personal bankruptcy
under the U.S. Bankruptcy Code agrees nonetheless to repay, in whole or in
part, indebtedness to a creditor (such as Sears) that the individual debtor
incurred before his or her bankruptcy. Reaffirmation agreements referred
to herein include all agreements, whether written or oral; whether entered
into during the pendency of the debtor's bankruptcy proceeding or following
the issuance of the debtor's discharge by the bankruptcy court; and whether
such agreements did or did not provide for the continued extension of
credit to the debtor by Sears.
As part of the settlement process, the parties to the Actions have
stipulated that the Actions shall proceed on behalf of the Settlement Class
for settlement purposes only, and the Courts' Hearing Orders so provide.
IF YOU PREVIOUSLY FILED FOR PERSONAL BANKRUPTCY AND ENTERED INTO A
REAFFIRMATION AGREEMENT WITH SEARS OR WESTERN AUTO, YOU MAY BE
WITHIN THE SETTLEMENT CLASS COVERED BY THE PROPOSED SETTLEMENT
WHICH WILL AFFECT YOUR RIGHTS, AND THIS NOTICE ACCORDINGLY APPLIES
TO YOU.
YOU SHOULD READ THIS NOTICE CAREFULLY. IF YOU HAVE ANY QUESTIONS
AS TO WHETHER YOU ARE A MEMBER OF THE SETTLEMENT CLASS, OR REGARDING THE
PROPOSED SETTLEMENT OR THIS NOTICE, YOU MAY CALL THE SETTLEMENT
ADMINISTRATOR AT 1-800-___-____ (TOLL- FREE). THE SETTLEMENT ADMINISTRATOR
CAN ALSO ADVISE YOU WHETHER OR NOT YOU NEED TO SUBMIT A SEPARATE "PROOF OF
CLAIM" IN ORDER TO PARTICIPATE IN THE BENEFIT OF THE SETTLEMENT (AS FURTHER
EXPLAINED BELOW, THAT STEP WILL BE NECESSARY FOR ALL SETTLEMENT CLASS
MEMBERS WHO FILED FOR BANKRUPTCY BEFORE JANUARY 1, 1992 AND FOR SOME
SETTLEMENT CLASS MEMBERS WHO FILED FOR BANKRUPTCY AFTER JANUARY 1, 1992).
PLEASE DO NOT CONTACT THE COURTS FOR INFORMATION.
IMPORTANT NOTE: IF YOU RECEIVED THIS COPY OF THE NOTICE
IN THE MAIL WITHOUT YOUR REQUESTING IT, THEN YOU HAVE BEEN IDENTIFIED BY
SEARS AS A MEMBER OF THE SETTLEMENT CLASS AND YOU DO NOT NEED TO DO
ANYTHING TO PARTICIPATE IN THE BENEFITS OF THE SETTLEMENT.
IF YOUR BANKRUPTCY FILING WAS BEFORE JANUARY 1, 1992 (OR IF YOU
DID NOT RECEIVE THIS NOTICE WITHOUT REQUESTING IT), YOU WILL NEED TO SUBMIT
A "PROOF OF CLAIM" IN ORDER TO PARTICIPATE IN THE BENEFITS OF THE
SETTLEMENT. THE "PROOF OF CLAIM" FORM MAY BE INCLUDED WITH THIS NOTICE; IF
IT IS NOT, YOU MAY OBTAIN A COPY OF THE FORM BY CONTACTING THE SETTLEMENT
ADMINISTRATOR AT 1-800-___-____. THE DEADLINE FOR SUBMITTING PROOFS OF
CLAIM IS OCTOBER 8, 1997.
IF YOU ARE IN DOUBT AS TO WHETHER YOU NEED TO FILE A PROOF OF
CLAIM FORM, PLEASE CONTACT THE SETTLEMENT ADMINISTRATOR.
BACKGROUND AND DESCRIPTION OF THE ACTION
The following is a summary description of the facts and procedural
history of the Actions and the Settlement. It is followed by a description
of the terms and conditions of the Settlement, including the reasons of the
parties for the Settlement; additional information concerning the Court
hearings and your right to request exclusion from the Settlement Class or
to appear (including to object to the Settlement); and information on how
you can obtain additional information and related documents should you so
desire.
The Settlement has been reached between the parties in the two
Actions: the above-captioned consolidated adversary proceedings now
pending in the U.S. Bankruptcy Court (the "Bankruptcy Court Action"), and
the above-captioned civil action now pending in the U.S. District Court
(the "District Court Action").
The Bankruptcy Court Action was commenced on March 31, 1997, with
the filing of the Brioso adversary proceeding on behalf of a nationwide
class of bankruptcy debtors who had entered into reaffirmation agreements
with Sears that were not filed with the appropriate bankruptcy court as
required by the U.S. Bankruptcy Code. The Caldas adversary proceeding was
subsequently consolidated with Brioso. The complaints in the Bankruptcy
Court Action, including as subsequently amended, alleged that Sears,
pursuant to a regular policy and practice, obtained reaffirmation (or
similar) agreements from individual debtors, by which the debtors agreed to
repay all or part of their pre-petition indebtedness to Sears, and did not
file such agreements with the bankruptcy court in which the debtors'
Chapter 7 proceeding was pending, as required by the Bankruptcy Code. (The
Bankruptcy Court Action also named Western Auto, a subsidiary of Sears, as
a defendant based on substantially the same allegations.) The complaints
further alleged that pursuant to Sears written policies and procedures,
Sears deceived bankruptcy debtors by claiming or implying that such
agreement would be filed with bankruptcy courts, that the agreements had
legal effect as enforceable agreements, and that monies were due which were
not in fact owed, and by threatening actions that Sears either did not
intend to take or was not legally permitted to take.
The Bankruptcy Court Action further alleged that Sears policy and
practice in soliciting bankruptcy debtors to execute reaffirmation,
redemption or other agreements subject to the Bankruptcy Code without
complying with the provisions of the Code, in collecting monies pursuant to
such agreements, and by otherwise enforcing or attempting to enforce such
agreements, abused the process of the bankruptcy courts by violating
Bankruptcy Code provisions governing post-petition reaffirmation of debt,
11 U.S.C. 524, the automatic stay provision of the Bankruptcy Code, 11
U.S.C. 362, and the discharge injunction granted under 11 U.S.C. 524;
constituted unfair and deceptive acts and practices in violation of the
Massachusetts Consumer Protection Act (Mass. G.L. ch. 93A); and violated
the state unfair and deceptive practices law of each state in which Sears
has engaged in such practice. For relief, the complaints prayed, among
other things, for judgment declaring Sears conduct unlawful, ordering Sears
to refund to debtors all payments made under such agreements, and assessing
exemplary or punitive damages against Sears for its alleged willful
violations of the Bankruptcy Code, as well as double or treble damages.
The District Court Action was commenced on May 20, 1997. In
addition to the claims alleged in the Bankruptcy Court Action, the District
Court Action alleged, on behalf of a nationwide class of debtors, that
Sears conduct constituted a violation of the federal Racketeer Influenced
and Corrupt Organizations Act, 18 U.S.C. 1961 et seq. ("RICO"), and of the
federal Truth in Lending Act, 15 U.S.C. 1601 et seq. For relief, the
District Court Action prayed, among other things, for judgment declaring
Sears conduct unlawful, ordering Sears to refund to debtors all payments
made under the allegedly illegal and unenforceable reaffirmation
agreements, and assessing exemplary or punitive damages as well as double
or treble damages against Sears.
SETTLEMENT DISCUSSIONS; COURT ORDERS AND
OTHER MATTERS PRECEDING THE SETTLEMENT;
AND THE PARTIES' REASONS FOR THE SETTLEMENT
The issues raised by the Bankruptcy Court Action and the District
Court Action first came to the attention of the senior management of Sears
on March 28, 1997. Sears represents that prior to March 28, 1997, no
member of Sears senior management or of its board of directors knew that
Sears had failed to file reaffirmation agreements with the appropriate
bankruptcy courts in violation of the Bankruptcy Code or that Sears had
sought to collect upon agreements that had not been so filed or upon
reaffirmation agreements that had been filed but were subsequently
disapproved or rejected by the bankruptcy courts or rescinded by the
debtor. On that date, Sears senior management directed that all
reaffirmation agreements henceforth be filed with the appropriate
bankruptcy court and that an immediate audit be commenced in an effort to
ascertain the scope and nature of the manner in which reaffirmation
agreements had been handled by Sears, including the failure to file with
the appropriate bankruptcy court.
On April 9, 1997, Sears publicly acknowledged that the company had
exercised flawed legal judgment and execution in failing to file all
reaffirmation agreements with the appropriate bankruptcy court. In that
announcement, Sears also indicated that it would compensate bankruptcy
debtors nationwide whose debt reaffirmations were not filed as required by
the Bankruptcy Code during the period 1992 to date.
Sears thereafter expressed its desire to effect a global
resolution of the reaffirmation agreement matter and discussions were
commenced with counsel for plaintiffs. Sears discussions have also
included the Attorneys General of the United States; the United States
Attorney for the District of Massachusetts; the Office of the United States
Trustee for the District of Massachusetts; and the Boston Regional Office
and the Consumer Protection Bureau of the United States Federal Trade
Commission.
On April 14, 1997, the Bankruptcy Court entered an Order in a
related proceeding initiated by the Bankruptcy Court's own Order to Show
Cause Why Compensatory And Punitive Damages Should Not Be Imposed On Sears,
Roebuck and Co. for Wilful Violation Of The Discharge Order and Of 11
U.S.C. 302(a) (filed on April 9, 1997 in In re Travis Amalfitano and
others, Case No. 95-15260-CJK). The Bankruptcy Court's April 14, 1997
order, which was issued following a hearing in that Court held on April 11,
1997, ordered on the consent of Sears: (1) that Sears retain the services
of Professor Lawrence P. King, the Charles Seligson Professor of Law at New
York University School of Law and of counsel to the law firm of Wachtell,
Lipton, Rosen & Katz (one of the firms representing Sears in the Actions),
to perform a legal review of Sears policies and procedures with regard to
reaffirmation agreements and that Sears adopt Professor King's
recommendations to assure future compliance with the requirements of 524 of
the U.S. Bankruptcy Code; and (2) that no later than April 16, 1997 at 5:00
p.m., Sears cease sending billing statements and assessing interest charges
to the approximately 2,700 debtors identified in that proceeding as having
had reaffirmation agreements with Sears that were not filed with the
bankruptcy court.
By Order dated April 16, 1997, the Bankruptcy Court, on Sears
consent and noting that the plaintiffs and Sears had expressed a genuine
interest in achieving an equitable, appropriate, national resolution of the
issues raised in the Bankruptcy Court Action, conditionally certified a
nationwide class for settlement purposes only. The Order appointed the
plaintiffs in the Bankruptcy Court Action as class representatives and
plaintiffs' counsel (Grant & Roddy, Edelman & Combs, and The Law Office of
Claude LeFebvre) as class counsel.
Class counsel have sought and obtained substantial formal and
informal discovery from Sears. That discovery has included production of
documents, depositions of Sears employees, and interviews of Sears
employees. In addition, class counsel have conducted their own
investigation into Sears practices and procedures by contacting members of
the class and various debtors' counsel in other jurisdictions, and have
engaged in extensive discussions with counsel for Sears with regard to
Sears prior practices and procedures, its current practices and procedures,
and other issues relevant to the Actions.
Class counsel, furthermore, have consulted and shared information
and analyses regarding the Actions and this proposed Settlement with the
Office of the United States Trustee of the District of Massachusetts, the
United States Attorney's Office for the District of Massachusetts, and the
Office of the Massachusetts Attorney General, and representatives of such
governmental authorities participated in settlement discussions with Sears
that facilitated the agreement to the Settlement.
SUPPORT OF THE SETTLEMENT BY
INVOLVED FEDERAL AND STATE
GOVERNMENTAL AUTHORITIES, AND THE PARTIES
The Attorneys General of the United States support the Settlement
and believe that it provides a fair, reasonable and adequate resolution of
the claims of the nationwide class of debtors being settled. In addition,
the Federal Trade Commission has approved, subject to a statutory notice
and comment period, and Sears has consented to an Agreement Containing
Consent Order which provides, among other things, that the FTC will not
institute action under Section 19 of the Federal Trade Commission Act if
consumers receive full redress; such requirement is satisfied under the
terms of the Settlement, so long as the amount paid in restitution is at
least $100 million (this amount could be adjusted upward or downward by not
more than 25 percent based on Sears ongoing nationwide review to identify
eligible debtors). [To be updated at the time of mailing.]
Based on their review and analysis of the relevant facts and legal
principles, class counsel believe that the terms and conditions of the
Settlement are fair, reasonable and adequate, and beneficial to and in the
best interests of plaintiffs and the Settlement Class. Class counsel have
determined to execute this Stipulation and urge approval by the Bankruptcy
Court and the District Court of the Settlement after considering the
substantial damages that the Settlement Class will receive pursuant to the
Settlement; the fact that the Settlement provides for members of the
Settlement Class to receive such payments in the most expeditious and
efficient manner practicable, and thus much sooner than would be possible
were the claims asserted to be litigated through trial and appeal even if
such claims were to be found to be meritorious in all respects; the fact
that the Settlement provides for significant monetary benefits to the
Settlement Class beyond the restitution damages paid with respect to
unfiled (and otherwise unenforceable) reaffirmation agreements, including
the amounts to be distributed out of a $25 million fund being created by
Sears, the elimination of finance charges on post-petition purchases, Sears
agreement not to act upon its security interest in goods sold to members of
the Settlement Class prior to their bankruptcy filing, the payment of
interest by Sears, and Sears commitment to continue to extend credit to
members of the Settlement Class notwithstanding that no such credit would
have been extended but for the existence of the reaffirmation agreements;
the provision of the Settlement that obliges Sears, at its sole expense, to
identify members of the Settlement Class from January 1, 1992 to date and
to provide the benefits of the Settlement to such persons without their
having to take any affirmative steps (including provisions that require
Sears to bear the onus of incomplete and unavailable information by
treating reaffirmation agreements for which there is no direct evidence of
their having been filed with the bankruptcy court as having not been
filed); the fact that the Settlement provides for payments to members of
the Settlement Class who executed reaffirmation agreements before January
1, 1992 notwithstanding that such claims could be held barred by applicable
statutes of limitations and/or the doctrine of laches; the defenses
available to Sears for claims under state law that seek to go beyond the
unenforceability of unfiled reaffirmation agreements under the U.S.
Bankruptcy Code, including the possibility that any state law claims would
be deemed to be preempted by the Bankruptcy Code; the defenses available to
Sears for claims under the Bankruptcy Code, including whether persons whose
reaffirmation agreements were not filed could obtain recoveries for
violation of the discharge injunction; the defenses available to Sears for
claims under RICO, including defenses based on the 18 U.S.C. 1962(c)
requirement of establishing a RICO "enterprise" distinct from the
defendant, Sears; the defenses available to Sears with respect to the
availability and amount of any punitive relief; Sears consent to the
certification of a nationwide class of debtors; the provisions of the
Settlement regarding Sears future practices and policies with regard to
reaffirmation agreements and the ability to enforce such commitments by the
Bankruptcy Court and the District Court that the Settlement provides; and
the fact that the Settlement allows members of the Settlement Class to
exclude themselves from the Settlement Class should they so desire and
thereby not be precluded by the Settlement from individually seeking to
pursue the claims alleged in the Actions or any other claims relating to
the conduct of Sears at issue in the Actions.
Sears has agreed to the Settlement consistent with its
acknowledgment that the company previously had exercised flawed legal
judgment and execution in failing to file reaffirmation agreements. Sears
considers it desirable that the Actions be settled on a global nationwide
basis in order to achieve what it believes is a fair, responsible, and
final resolution of the claims being settled.
THE STIPULATION AND AGREEMENT
OF COMPROMISE AND SETTLEMENT
In light of the foregoing, the parties entered into a Stipulation
and Agreement of Compromise and Settlement (the "Stipulation of
Settlement") on June 5, 1997, which they have filed with the Bankruptcy
Court and the District Court. The Stipulation of Settlement details the
terms and conditions of the Settlement, which are summarized below. The
parties are urging the Courts to approve the Settlement.
THE SETTLEMENT
The following is a summary of the terms and conditions of the
proposed Settlement, which are set forth in detail in the Stipulation of
Settlement.
Filing of all reaffirmation agreements. The Stipulation of
Settlement provides that Sears and its agents, servants, employees,
attorneys and all persons acting in concert and participation with them,
shall henceforth file all reaffirmation agreements it obtains from debtors
pursuant to 524(c) and (d) of the U.S. Bankruptcy Code (11 U.S.C.) with the
appropriate U.S. bankruptcy court on or before the date that the debtor's
order of discharge is entered.
Identification of members of the Settlement Class from January 1,
1992 to date. The Stipulation of Settlement provides that Sears shall
complete its ongoing national review to identify those persons who, from
January 1, 1992 to April 1, 1997 (the date upon which Sears senior
management directed that henceforth all reaffirmation agreements be filed
as required by the Bankruptcy Code), filed Chapter 7 petitions in
bankruptcy and from whom Sears obtained a reaffirmation agreement that was
not filed with the appropriate bankruptcy court (or that was filed but
later rescinded by the debtor or disapproved or rejected by the Bankruptcy
Court, or not approved by the court where approval was required for the
enforceability of the agreement) ("Identified Class Members"). The
identification process is anticipated to be completed, subject to Sears
best efforts, by August 15, 1997. Sears is providing class counsel a
status report on the identification process every two weeks, in conjunction
with its reports to the U.S. Attorney's Office in accordance with the
Stipulated Order in the United States Action.
Moratorium on billing. Within two business days after
identification of a debtor as an Identified Class Member, Sears has
implemented and will continue to implement steps to cease all collection
activities on that individual's Sears account. As to such accounts, Sears
will suspend all billing, including for both reaffirmed indebtedness and
post-petition purchases, and suspend the accrual of any finance charges.
In addition, any available "open to buy" credit for such accounts will be
maintained as available. Following the calculation of the new balance of
an individual pursuant to the Settlement, Sears may recommence the billing
and collection of that account. No finance or other charges will be made
on account of the moratorium on billing.
Payments to Identified Class Members. Pursuant to the Settlement,
Sears will remit to Identified Class Members, as damages, all amounts paid
by them to Sears with respect to reaffirmed debt, with interest.
The Stipulation of Settlement contains detailed provisions
regarding the calculation of the amounts to be remitted by Sears. In
general, the amount payable for the account of each Identified Class Member
will be calculated as follows: The amount of reaffirmed indebtedness will
be treated as a nullity and reset to $0. All post-petition payments will
be deemed to have first been made on account of reaffirmed indebtedness
(including all finance charges, late fee charges, returned check charges or
other similar charges with respect thereto), and, to that extent, will be
payable back to such member, with interest as provided below, and the
balance of the account will be reset to reflect only the remaining balance
on post-petition purchases. If such person made no post-petition
purchases, the balance of his or her account shall be reset to $0. If the
person made post-petition purchases, all finance charges attributable to
such purchases shall be eliminated and the new balance of such person's
account shall equal the amount of such post-petition purchases.
If a person made post-petition payments in excess of the amount of
reaffirmed debt plus finance charges on account of such reaffirmed debt,
the amount payable to such person will equal the sum of reaffirmed debt and
finance charges on account of reaffirmed debt, and such excess will reduce
such person's new account balance calculated in accordance with the
previous paragraph. In no case will the amount of such person's new
account balance due exceed the balance of the account prior to giving
effect to the Settlement. The calculation has the effect of returning
(with interest) finance charges previously assessed on reaffirmed
indebtedness, and of removing finance charges previously assessed on
post-petition purchases.
The Settlement provides that the interest payable to the
Identified Class Members will be calculated as follows: All post-petition
payments will be recognized as if received by Sears on the first day of the
billing cycle during which the payments were actually received. If an
individual payment was received on account of reaffirmed indebtedness and
is therefore payable to such Member, monthly interest at the annual rate of
10% will be added to the amount of such individual payment to calculate the
total amount payable. Interest will be calculated through the end of the
most recently completed billing cycle prior to the date on which payment to
the member of the Settlement Class is mailed.
Any amounts payable to an Identified Class Member shall be paid by
a Sears check mailed by first class mail to such person's last known
address. The damages to Identified Class Members will be provided as soon
as practicable following the Settlement becoming final (or, at Sears
option, upon approval of the Settlement by the District Court).
In addition to the compensation described above, Sears will pay
each of the named plaintiffs $2,500 for serving in the capacity of a
representative of the plaintiff class, subject to approval of the Courts.
Payments to members of the Settlement Class other than Identified
Class Members. Pursuant to the Settlement, members of the Settlement Class
other than Identified Class Members, including individuals who executed
reaffirmation agreements with Sears prior to January 1, 1992 that were not
filed with the Bankruptcy Court (or if filed, were thereafter disapproved,
rejected or rescinded, or not approved where approval was required for
enforceability), will be eligible for compensation damages on the same
basis as Identified Class Members, in accordance with detailed provisions
contained in the Stipulation of Settlement. The following is a summary of
those provisions.
Because Sears is unable as a practical matter to identify such
persons from either its own records or records available from other
sources, and does not have complete purchase and payment data for the
pre-1992 period, members of the Settlement Class other than Identified
Class Members may seek such compensation damages by submitting a "Proof of
Claim" form. (NOTE: PLEASE REFER TO THE NOTE ON PAGE __ OF THIS NOTICE
FOR INFORMATION ON WHETHER YOU NEED TO SUBMIT A "PROOF OF CLAIM" FORM IN
ORDER TO PARTICIPATE IN THE BENEFITS OF THE SETTLEMENT.)
If the person filing a Proof of Claim is able to supply acceptable
documentary information in the form of account statements (or other
documentary evidence acceptable to the Settlement Administrator as)
reflecting the record of his or her post-petition purchases from and cash
payments to Sears, such person's Claim will be calculated on the same basis
as the compensation payable to Identified Class Members as described above.
If such person does not supply such documentation, Sears shall use its
reasonable best efforts to ascertain the record of such person's post-
petition purchases from and cash payments to Sears; and if such information
is obtained, such person's Claim will likewise be calculated on the same
basis as Identified Class Members.
If the Settlement Class member does not supply the information and
Sears is not able using its reasonable best efforts to produce the
information necessary to calculate the person's Claim on the same basis as
Identified Class Members, the total amount payable to such person will be
calculated to be the same percentage of that person's reaffirmed
indebtedness (which must be established by documentary evidence) as the
average percentage of reaffirmed indebtedness that Sears provides as
compensation damages to Identified Class Members as described above. If
the Settlement Class member cannot prove the amount of reaffirmed
indebtedness in accordance with the guidelines to be submitted by the
parties to the Courts, the total amount payable to such member nevertheless
will be the same percentage of that member's pre-petition indebtedness to
Sears that was discharged by a bankruptcy court (which, together with some
post-petition payment activity, must be established by documentary evidence
as provided in the guidelines) as the average percentage of pre-petition
indebtedness that Sears provides as compensation damages to Identified
Class Members.
$25 million additional fund provided to Settlement Class Members.
In addition to the amount payable to Settlement Class members as described
above, Sears will provide a fund of $25 million to be distributed to the
members of the Settlement Class otherwise entitled to receive payments
under the Settlement, as follows: Each such member will receive the same
share of the $25 million fund as such member's pro rata share of the total
amount otherwise payable by Sears to all Settlement Class members under the
Settlement (such amounts shall not include interest calculated as described
above).
Cy pres fund for consumer education. In the event that the total
amounts payable by Sears as compensation to members of the Settlement Class
who executed reaffirmation agreements with Sears after January 1, 1992
ultimately aggregate less than $100 million (separate and apart from the
$25 million payable as described in the previous paragraph), that
difference will not be retained by Sears but rather will be paid by Sears
into a cy pres fund to be devoted to consumer credit education (including
personal bankruptcy education, consumer finance and debt collection issues
and debtor counsel education).
Process of calculation of compensation. Sears calculation of the
compensation to members of the Settlement Class will be overseen by the
accounting firm of Deloitte & Touche LLP. Deloitte & Touche LLP will be
retained for this purpose by Sears at Sears sole expense, and will
periodically report to class counsel as requested on the calculation
process. In addition, the parties have also retained [name of firm] to act
as Settlement Administrator, at Sears expense. The Settlement
Administrator will review the calculation of the compensation to members of
the Settlement Class and otherwise administer the Settlement.
Continuation of extension of credit by Sears; credit reports. The
Settlement provides that Sears will continue to extend credit to members of
the Settlement Class who, at the time of the calculation of amounts payable
to them, have an "open to buy" extension of credit, notwithstanding the
voiding of reaffirmed debt amounts previously owed by such persons, it
being understood that Sears will treat its relationship with such persons
on the same basis as its relationship with its credit customers generally,
including with respect to the maintenance and adjustment of "open to buy"
levels, fees, charges and all other matters.
In addition, the Settlement provides that Sears will undertake to
determine if it has made any negative reports to credit bureaus or similar
organizations on account of nonpayment by members of the Settlement Class
(whether Identified Class Members or other class members who file Proofs of
Claim as provided for in the Settlement) based on reaffirmed indebtedness,
and will advise such bureaus or organizations to correct such reports.
Waiver of Sears security interest. The Settlement provides that,
with respect to all members of the Settlement Class, Sears will not seek to
recover any of the goods sold by it in which Sears claimed a security
interest prior to such person's bankruptcy filing, and will in all respects
treat such security interest as waived.
Revision of Sears policies and procedures. Class counsel have
reviewed and shall continue to review the revision of Sears policies and
procedures regarding reaffirmation agreements already implemented and to be
implemented by Sears pursuant to the recommendations of Professor King, and
shall consult with Professor King as to such matters.
Western Auto. Members of the Settlement Class who executed
reaffirmation agreements with Western Auto will be entitled to compensation
on the same terms as other members of the Settlement Class who are not
Identified Class Members.
SCOPE OF PROPOSED DISMISSAL
OF THE ACTIONS AND RELEASE
OF SEARS, WESTERN AUTO AND RELATED PERSONS
Pursuant to the proposed Settlement, plaintiffs in the Action have
agreed to dismiss, release and discharge the Settled Claims (as defined
below) against Sears, Western Auto and the Related Persons (as defined
below) on behalf of themselves and on behalf of the Settlement Class.
Thus, the Stipulation of Settlement provides that, if the Settlement is
approved by the Courts, all claims, rights and causes of action, damages,
losses and demands of any nature whatsoever, state or federal, including
but not limited to claims arising under the U.S. Bankruptcy Code, the
Federal Rules of Bankruptcy Procedure, or any state or federal law
regarding consumer or debtor fraud or unfair or deceptive trade practices,
or otherwise (and including but not limited to whether for compensatory
damages, consequential damages, restitution, punitive damages, contempt,
sanctions, penalties, injunctive relief, declaratory relief, or otherwise),
whether known or unknown, that are, could have been or might in the future
be asserted by any of the plaintiffs or any member of the Settlement Class,
whether directly, representatively or in any other capacity, against Sears
(or Western Auto) and any of their present and former officers, directors,
shareholders, employees, accountants, representatives, attorneys,
subsidiaries, affiliated companies, divisions, successors, heirs, agents
and assigns (the "Released Persons"), in connection with or that arise out
of Sears (or Western Auto) obtaining of a reaffirmation agreement from a
member of the Settlement Class, the nonfiling of any such agreement with
the appropriate bankruptcy court, the solicitation or billing of or
collecting under or any steps to enforce any such unfiled agreement (or any
filed reaffirmation agreement that was subsequently disapproved or rejected
by the bankruptcy court (or that was not approved by such court where
approval was required for the enforceability of such agreement) or that was
subsequently rescinded by the debtor), or any communications,
representations or omissions by or on behalf of Sears or Western Auto with
respect to any of the foregoing, or any acts, facts, transactions or
occurrences, alleged or otherwise asserted or that could have been asserted
in either of the Actions (all of which are hereinafter referred to as the
"Settled Claims"), shall be compromised, settled, released and discharged
with prejudice.
NOTICE OF SETTLEMENT HEARINGS
NOTICE IS HEREBY GIVEN that hearings have been scheduled in the
Courts, on October 28, 1997, at 10:00 a.m., in the U.S. Bankruptcy Court,
Federal Office Building, 10 Causeway Street, Boston, Massachusetts 02222,
and on _________, 1997, at __.m. in the U.S. District Court, J. W.
McCormack P.O. and Courthouse, Boston, Massachusetts 02109, respectively,
for the purposes of: (a) determining whether the proposed Settlement of
the Actions is fair, reasonable and adequate, and should be approved by the
Courts, and whether judgment should be entered thereon; and (b) considering
such other matters as may properly come before the Courts in connection
with the hearings, which may include an application by class counsel for an
award of attorneys' fees and expenses and reimbursement of expenses (see
"Attorneys' Fees and Expenses" below).
Each of the Courts has reserved the right to adjourn the hearing
before it or any adjournment thereof, without further notice to members of
the Settlement Class other than by announcement at the hearing or any
adjournment thereof.
If the Settlement (including any modification thereto made with
the consent of the parties as provided for in the Stipulation) is approved
by the Courts following the hearings, the parties will jointly request the
Courts each to enter an Order and Final Judgment ("Final Order"), among
other things: (a) approving the Settlement as fair, reasonable and
adequate and directing consummation of the Settlement in accordance with
its terms and provisions; (b) dismissing the Bankruptcy Court Action and
the District Court Action as to Sears (and Western Auto) with prejudice as
against all plaintiffs and all members of the Settlement Class, without
costs except as therein provided, such dismissal to be subject only to
compliance by the parties with the terms and conditions of the Stipulation
and any order of the Courts with reference to the Stipulation of
Settlement; (c) permanently barring and enjoining the institution or
prosecution by plaintiffs or any member of the Settlement Class, either
directly or in any other capacity, of any action asserting claims that are
Settled Claims; (d) releasing and discharging, on behalf of the Settlement
Class and the plaintiffs, the Released Persons from all Settled Claims;
(e) reserving continuing and exclusive jurisdiction over implementation of
the Settlement, and over enforcement, construction and interpretation of
the Stipulation; and (f) awarding attorneys' fees and expenses to class
counsel if application therefor has been made, or reserving jurisdiction
with respect thereto.
RIGHT TO REQUEST EXCLUSION
All members of the Settlement Class have the option of excluding
themselves from the Settlement Class by mailing a timely and valid Request
for Exclusion postmarked not later than October 8, 1997, [twenty (20) days
prior to the first settlement hearing] addressed to Sears Personal
Bankruptcy Debtor Class Litigation, P.O. Box _____, Boston, Massachusetts
________. A Request for Exclusion must set forth the following information
with respect to the person requesting exclusion: name; address; social
security number or taxpayer identification number. All Requests for
Exclusion must be signed by or on behalf of the person so requesting
exclusion.
If a Request for Exclusion does not include all of the foregoing
information, it shall not be a valid Request for Exclusion and the person
filing an invalid Request for Exclusion shall be a member of the Settlement
Class. In addition, members of the Settlement Class requesting exclusion
are requested to provide the year of the individual's bankruptcy filing,
the bankruptcy court in which the filing was made and the amount of
indebtedness to Sears that the individual reaffirmed, although the failure
to provide such information shall not affect the validity of the Request
for Exclusion.
All persons who properly submit valid Requests for Exclusion from
the Settlement Class shall not be members of the Settlement Class and shall
have no rights with respect to the Settlement and no interest in the
Settlement. As set forth above, the Settlement provides for the release
and discharge as to members of the Settlement Class of the Settled Claims
as against Sears, Western Auto and the other Released Person. By
submitting a valid Request for Exclusion, a member of the Settlement Class
will not be precluded from individually seeking to pursue any of the
Settled Claims at his or her own expense.
RIGHT TO APPEAR
Any person who has not requested exclusion from the Settlement
Class who objects to the Settlement, the judgment to be entered thereon, or
the award of attorneys' fees and expenses to plaintiffs' counsel, or who
otherwise wishes to be heard, may appear in person or by his attorney at
the settlement hearings and present any evidence or argument that may be
proper and relevant. However, no such person shall be heard and no papers,
briefs, pleadings or other documents submitted by any person shall be
received and considered by either of the Courts (unless the Court in its
discretion shall thereafter otherwise direct, upon application of such
person and for good cause shown), unless no later than twenty (20) days
prior to the hearing, such persons shall file with the Court (a) a notice
of intention to appear; (b) a detailed statement of such person's specific
objections to any matter before the Court; (c) proof of membership in the
Settlement Class; and (d) the grounds for such objections and any reasons
why such person desires to appear and to be heard, as well as all documents
or writings which such person desires this Court to consider. Such
documents shall be served upon the following counsel prior to filing such
documents with the Court:
John Roddy
Frederic D. Grant, Jr.
GRANT & RODDY
44 School Street
Boston, MA 02108
On Behalf of All Plaintiffs
Mark N. Polebaum
Stephen H. Oleskey
Paul P. Daley
HALE AND DORR LLP
60 State Street
Boston, MA 02109
On Behalf of Defendants
Sears, Roebuck and Co. and
Western Auto Supply Company
Any person who fails to object in the manner prescribed above shall be
deemed to have waived his or her objections and shall forever be barred
from making any such objections in the Actions or in any other action or
proceeding. In light of the scheduling of the settlement hearings in each
of the Courts, persons who wish to file objections should do so in both of
the Courts.
In its Hearing Order scheduling the hearing before it, the
District Court has ordered that, pending decision by the Courts on whether
to approve the Settlement, each member of the Settlement Class is barred
and enjoined from instituting or prosecuting any action in state or federal
court against Sears or Western Auto or any of their present or former
officers, directors, shareholders, employees, accountants, attorneys,
representatives, subsidiaries, affiliated companies, divisions, successors,
heirs, agents and assigns, which assert claims that are Settled Claims that
would be released and discharged upon approval of the Settlement.
FINALITY OF AND
CONDITIONS TO THE SETTLEMENT
The Stipulation provides that the approval by the Courts of the
Settlement will be considered final, and the Settlement will be considered
final (and Sears obligations thereunder will arise), either (a) upon the
entry by the Courts of the Final Order and when the applicable period for
the appeal of such Final Orders shall each have expired without an appeal
having been filed; or (b) if an appeal is taken, upon entry of an order
affirming the Final Order and when the applicable period for the appeal of
such affirmance of the Final Order shall have expired without an appeal
having been filed, or upon entry of any stipulation dismissing any such
appeal with no right of further prosecution of the appeal; or (c) if an
appeal is taken from any decision affirming the Final Order, upon entry of
an order in such appeal finally affirming the Final Order without right of
further appeal or upon entry of any stipulation dismissing any such appeal
with no right of further prosecution of the appeal. None of the
obligations of Sears pursuant to the Settlement shall become effective
until the Settlement becomes final. Notwithstanding the above, Sears shall
have the option to declare the Settlement effective and final upon approval
by the District Court (whether or not then approved by the Bankruptcy
Court) or upon such approval having been finally affirmed on appeal or no
appeal therefrom having been taken within the applicable time period
limiting the taking of such an appeal.
ATTORNEYS' FEES AND EXPENSES
Provided that judicial approval of the Settlement has been
obtained, class counsel intend to jointly apply for court approval of an
award of attorneys' fees, plus reimbursement of expenses (including
experts' fees). As an additional benefit to the Settlement Class, any
attorneys' fees and expenses awarded to class counsel will be paid by Sears
and will not diminish the benefits of the Settlement to the class. Class
counsel's application for attorneys' fees and expenses may be made, at the
option of class counsel, at or subsequent to the settlement hearings.
The Stipulation also provides that Sears will pay the costs of all
notices and settlement administration.
SCOPE OF THIS NOTICE
AND FURTHER INFORMATION
The foregoing description of the Actions, the terms of the
Settlement and other matters described herein are only summaries. For the
full details of the Actions and the terms and conditions of the Settlement,
you are referred to the Stipulation of Settlement, and the pleadings and
the other documents on file with the Courts in the Actions. These
documents may be examined by you or your attorney during regular business
hours of each business day at the office of the Clerk of the Courts, at the
U.S. Bankruptcy Court, 10 Causeway Street, Boston, Massachusetts 02222 (for
the Bankruptcy Court Action), and the J. W. McCormack P.O. and Courthouse,
Boston, Massachusetts 02109 (for the District Court Action).
Alternatively, you may request copies of these documents from, or direct
any questions or communications concerning the Settlement to the Settlement
Administrator at 1-800-___-____ (toll-free).
PLEASE DO NOT CONTACT THE COURTS FOR INFORMATION.
Dated: Boston, Massachusetts
_____________, 1997 [date of initial mailing of Notice]
By orders of the United States Bankruptcy
Court for the District of Massachusetts,
Eastern Division, and of the United States
District Court for the District of Massachusetts.
Exhibit D
SUMMARY NOTICE OF CLASS ACTION
DETERMINATION, PROPOSED SETTLEMENT
OF CLASS ACTIONS AND SETTLEMENT HEARINGS
TO: ALL INDIVIDUALS WHO PREVIOUSLY FILED FOR PERSONAL BANKRUPTCY AND
ENTERED INTO REAFFIRMATION AGREEMENTS WITH SEARS, ROEBUCK AND CO. (OR
WESTERN AUTO SUPPLY COMPANY)
This summary notice relates to the proposed settlement,
subject to court approval, of nationwide class action litigation on behalf
of a class (the "Settlement Class") of individual bankruptcy debtors who
entered into reaffirmation agreements with Sears, Roebuck and Co. (or Sears
subsidiary, Western Auto Supply Company), that were not filed with the
bankruptcy courts (or were filed but subsequently disapproved by those
courts or rescinded by the debtor, or were filed but not approved by the
court where approval was necessary to the enforceability of the agreement).
A reaffirmation agreement is an agreement by which an individual who has
filed for personal bankruptcy under the U.S. Bankruptcy Code agrees
nonetheless to repay, in whole or in part, indebtedness to a creditor (such
as Sears) that the individual debtor incurred before his or her bankruptcy.
OCTOBER 8, 1997 IS THE DEADLINE FOR SUBMITTING PROOFS OF
CLAIM, OR FOR EXERCISING YOUR RIGHT TO APPEAR OR REQUESTING EXCLUSION FROM
THE CLASS.
If you previously filed for personal bankruptcy and
entered into a reaffirmation agreement with Sears (or Western Auto), you
may be a member of the Settlement Class covered by the proposed settlement
which will effect your rights, and this notice accordingly applies to you.
A description of the settlement, its background and
additional information is contained in the printed Notice of Pending Class
Actions, Class Action Determination, Proposed Settlement of Class Actions,
Settlement Hearings, and Right to Appear. IF YOU HAVE NOT RECEIVED A COPY
OF THE PRINTED NOTICE IN THE MAIL, YOU MAY REQUEST THAT A COPY BE MAILED TO
YOU BY CALLING 1-800-___-____ (TOLL-FREE). You will then be mailed a copy
of the printed Notice together with a form of Proof of Claim that may apply
to you, with instructions, at no cost to you.
PLEASE DO NOT CONTACT THE COURTS FOR INFORMATION.
The litigations proposed to be settled are entitled
Douglas O. Brioso v. Sears, Roebuck and Co., Adversary Proceeding No. 97-
1222-CJK, consolidated with Antonia Caldas v. Sears, Roebuck and Co.,
Adversary Proceeding No. 97-1229-CJK, pending in the U.S. Bankruptcy Court,
District of Massachusetts, Eastern Division, and David Conley v. Sears,
Roebuck and Co., Civil No. 97-11149-PBS, pending in the U.S. District
Court, District of Massachusetts.
YOU ARE HEREBY NOTIFIED, pursuant to Rule 23 of the
Federal Rules of Civil Procedure, that hearings have been scheduled in
these courts on October 28, 1997, at 10:00 a.m., in the U.S. Bankruptcy
Court, Federal Office Building, 10 Causeway Street, Boston, Massachusetts
02222, and on ________________, 1997, at ____ _.m., in the U.S. District
Court, J.W. McCormack P.O. and Courthouse, Boston, Massachusetts 02109,
respectively, for the purposes of: (a) determining whether the proposed
settlement of the actions, on a national class-wide basis, is fair,
reasonable and adequate, and should be approved by the courts, and whether
judgment should be entered thereon; and (b) considering such other matters
as may properly come before the courts in connection with the hearings,
which may include an application by class counsel for an award of
attorneys' fees and reimbursement of expenses. Each of the courts may
adjourn the hearings, or any adjournment thereof, without further notice to
members of the class other than by announcement at the hearing or any
adjournment thereof. If you are a member of the Settlement Class, you may
be entitled to monetary benefits pursuant to the settlement if it is
judicially approved.
You may request to be excluded from the Settlement Class
by mailing a written request for exclusion postmarked no later than October
8, 1997 to Sears Personal Bankruptcy Debtor Class Litigation, P.O. Box ___,
Boston, Massachusetts ______. As is further explained in the printed
Notice, any requests for exclusion must state your name, address, and
social security number or taxpayer identification number. Any Settlement
Class member who requests exclusion will not be entitled to share in the
benefits of the proposed settlement and will not be bound by any judgment
entered in the litigation affecting the Settlement Class. If you elect to
be excluded from the Settlement Class, you may pursue, at your own expense,
whatever legal rights you may have on an individual basis. As is also
described in the printed Notice, any member of the Settlement Class who has
not requested exclusion and who objects to the proposed Settlement may
appear in person or by his or her attorney at the hearings and present any
evidence or argument that may be proper or relevant, by following the
procedures set forth in the Notice. Such objections are required to be
served and filed no later than October 8, 1997 at 4:00 p.m.
Exhibit E
NOTICE INSERT
[for inclusion in statements
being mailed by Sears]
NOTICE: If you previously filed for personal bankruptcy under
Chapter 7 and entered into a reaffirmation agreement with Sears, you may be
a member of a Settlement Class in a proposed class action settlement. For
information, please call 1-800-____-______. There are deadlines as early
as October 8, 1997 applicable to the settlement.
Exhibit F
WESTERN AUTO
NOTICE INSERT
NOTICE: If you previously filed for personal bankruptcy under
Chapter 7 and entered into a reaffirmation agreement with Western Auto, you
may be a member of a Settlement Class in a proposed class action
settlement. For information, please call 1-800-____-______. There are
deadlines as early as October 8, 1997 applicable to the Settlement.
