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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For Annual and Transition Reports pursuant to Sections 13 or 15(d) of the
Securities Exchange Act of 1934
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2000
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
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of each class Which Registered
Common Shares, par value $0.75 per share New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
On January 31, 2000, the Registrant had 367,179,362 common shares
outstanding. Of these, 297,378,733 common shares, having an aggregate market
value (based on the closing price of these shares as reported in a summary of
composite transactions in The Wall Street Journal for stocks listed on the New
York Stock Exchange on January 31, 2000) of approximately $9.2 billion, were
owned by shareholders other than (i) directors and executive officers of the
Registrant and (ii) any person known by the Registrant as of the date thereof
to beneficially own five percent or more of Registrant's common shares.
Indicate by check mark whether the 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Documents Incorporated By Reference
Parts I and II of this Form 10-K incorporate by reference certain
information from the Registrant's 1999 Annual Report to Shareholders (the "1999
Annual Report"). Part III of this Form 10-K incorporates by reference certain
information from the Registrant's definitive Proxy Statement, dated March 17,
2000, for its Annual Meeting of Shareholders to be held on May 11, 2000 (the
"2000 Proxy Statement").
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PART I
Item 1. Business
Sears, Roebuck and Co. ("Sears") originated from an enterprise established
in 1886 and was incorporated under the laws of New York in 1906. Its principal
executive offices are located at 3333 Beverly Road, Hoffman Estates, Illinois.
Sears (together with its consolidated subsidiaries, the "Company") is a multi-
line retailer that provides a wide array of merchandise and services through
five segments - Retail, Services, Credit, Corporate and International. The
Company is among the largest retailers of merchandise and services in the world.
The Company's segments in the United States and Puerto Rico are Retail
(comprised of Full-line Stores and Specialty Stores), Services (comprised of
Home Services and Direct Response), Credit (comprised of the domestic credit
operations) and Corporate (comprised of activities which are of a holding
company nature and its investment in Sears Online).
The International segment consists of similar retail, services, credit and
corporate operations conducted through a majority-owned subsidiary in Canada.
For further information, see "Retail," "Services," "Credit," "Corporate"
and "International" below and "Management's Analysis of Consolidated
Operations" and "Management's Analysis of Consolidated Financial Condition"
beginning on pages 17 and 25, respectively, of the 1999 Annual Report,
incorporated herein by reference in response to Item 7 hereof.
________________________________
Information regarding revenues, operating income and assets of the
Company's Retail, Services, Credit, Corporate and International segments for
each of the three fiscal years ended January 1, 2000, January 2, 1999 and
January 3, 1998 is in Note 15 of the Notes to Consolidated Financial Statements
on page 40 of the 1999 Annual Report, incorporated herein by reference in
response to Item 8 hereof. Information on the components of revenues is
included in the "Management's Analysis of Consolidated Operations" beginning on
page 17 of the 1999 Annual Report, incorporated herein by reference in response
to Item 7 hereof.
The Company employs approximately 326,000 people worldwide.
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RETAIL
The Company's Retail operations consist of the following:
Full-line Stores
At January 1, 2000, the Full-line Store operations consist primarily of
858 mall-based retail stores selling the following categories of
merchandise:
- Softlines, which consists of apparel and accessories for the
entire family, plus cosmetics, fine jewelry and home fashions. The
Softlines departments seek to be the price/value leader among
mall-based stores.
- Hardlines, which consists of a full assortment of appliances,
electronics and computers for the home, home improvement products,
- sporting goods, lawn and garden equipment and seasonal items. The
Hardlines departments compete with off-the-mall specialty stores
in the same product categories.
- Licensed Businesses, which consist of third party concessions
primarily operated within the Full-line Stores, and include
portrait studios, optical and other licensees.
Specialty Stores
At January 1, 2000, Specialty Stores operations consist of formats
designed to offer the Company's hardlines and home fashion merchandise
through outlets other than the Full-line Stores. The specific store
formats are as follows:
- 738 Sears Dealer Stores that are primarily independently owned and
operated and offer appliances, electronics, hardware, lawn and
garden equipment, and automobile batteries. Dealer Stores carry
exclusive brands such as CRAFTSMAN, KENMORE and DIEHARD, as
well as a wide assortment of national brands and are located in
smaller rural, and urban markets.
- 267 free-standing, neighborhood Hardware stores, operating under
the Sears Hardware and Orchard Supply Hardware names, which carry
Sears proprietary brands such as CRAFTSMAN tools, as well as a
wide assortment of national brands and other home repair products.
- The Great Indoors, which currently has two test stores in
operation, is a prototype format for home decorating and
remodeling.
- Contract Sales primarily targets home builders, remodelers and
property managers for appliance purchases, as well as vocational
schools, factory maintenance and service companies for industrial
tool purchases. Contract Sales has also implemented the Appliance
Select, which utilizes 78 Full-line Stores as showrooms to target
the new home buyer and offers a full selection of KENMORE(r) and
other major national brand kitchen and home appliances.
- Automotive Stores, which consists of 798 Sears Auto Centers
primarily located at the mall-based Full-line Stores and 310 NTB
National Tire & Battery stores. These stores sell and install
tires, DIEHARD(r) and other automotive batteries, and related goods
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and services. The Automotive Stores, which are the country's
largest seller of tires and auto batteries, are positioned to
compete effectively with companies that specialize in tires,
batteries and related services.
SERVICES
At January 1, 2000, the Services operations consist of:
Home Services, which includes:
- Product Services (repair services), which provides product repair
on all major brands of appliances, consumer electronics, and
heating and air conditioning systems, regardless of where
purchased.
- Service Contracts, which provide extended warranty coverage
through maintenance agreements.
- Installed Home Improvements, which includes the following services
provided by Sears associates and outside contractors:
- Home Improvement Services, which sells and installs siding,
windows, roofing, cabinet refacing, and other home
improvements and provides services such as pest control,
carpet cleaning, home security, and plumbing services.
- Air Conditioning and Heating Systems, which sells and
installs heating, ventilation and air conditioning for
homes.
- Installation Services, which installs water heaters,
dishwashers and other products purchased at Sears retail
stores.
Direct Response, which includes specialty catalogs, insurance (credit
protection and traditional life and health products), clubs and
services and impulse and continuity merchandise marketed through
multiple media.
________________________
The pricing strategy for the Retail and Services businesses is to offer
customers good values every day, as well as to have special sales events and
promotions offering additional values. Through these operations, the Company
offers a mixture of national brands and high quality private label merchandise.
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CREDIT
The products offered by the Company's domestic credit operations ("Credit")
make it more attractive for customers to purchase goods and services from the
Retail and Services businesses. As of January 1, 2000, Credit had approximately
24 million active customer credit accounts (accounts with balances as of the end
of December 1999) with an average balance of $1,121. Sears Card, the
traditional credit card, accounted for approximately 90% of total receivables.
There were approximately 39 million Sears Card customers with accounts that
carried a balance during any month in 1999.
Sears stores also accept third party credit and debit cards such as VISA,
MasterCard, American Express and Discover Card. Sears Card sales as a
percentage of total sales in Full-line Stores and the majority of the Specialty
Store formats was approximately 47.9%, 51.6% and 55.1% for fiscal years 1999,
1998 and 1997, respectively. Since Sears began to accept VISA, MasterCard and
American Express cards at all Sears stores, the Company has focused intensely on
marketing and other initiatives that are designed to maintain the penetration of
Credit's products in all sales and service channels, as well as to increase the
revenues of the Retail and Services businesses.
Sears has an ongoing securitization program through which a wholly-owned
subsidiary of Sears transfers a portion of the Company's domestic customer
receivable balances to a master trust (the "Master Trust") that issues credit
account pass-through certificates to public and private investors. To the
extent the pass-through certificates are sold to third parties, the related
transferred balances qualify as sales for financial statement purposes and as
such the receivables are removed from the Company's consolidated balance sheet.
The balance of the receivables in the Master Trust for which pass-through
certificates are not sold to third parties, is presented as retained interest in
transferred credit card receivables. Pursuant to contractual agreements, Sears
remains the servicer on the accounts and receives a fee for the services
performed. See "Management's Analysis of Consolidated Operations,"
"Management's Analysis of Consolidated Financial Condition" and Notes 1 and 8 of
the Notes to Consolidated Financial Statements beginning on pages 17, 25, 30 and
36, respectively, of the 1999 Annual Report, incorporated herein by reference in
response to Items 7 and 8 hereof.
Credit's operations are subject to federal and state legislation and
regulation. From time to time, such legislation, as well as competitive
conditions, may affect, among other things, credit card finance charges. While
the Company cannot predict the effect of future competitive conditions and
legislation or the measures the Company might take in response thereto, a
significant reduction in the finance charges imposed by Credit would have an
adverse effect on the Company. In addition, changes in general U.S. economic
conditions, including, but not limited to, higher interest rates and
increases in delinquencies, charge-offs and personal bankruptcies could have an
adverse effect on the Company.
Sears National Bank (the "Bank"), a wholly-owned subsidiary of Sears based
in Arizona, is a limited purpose credit card bank engaging in credit card
operations. The Bank is subject to certain other restrictions applicable to
credit card banks under federal law, as well as Arizona credit card lending
guidelines. The Bank originates Sears Card accounts in all fifty states.
Certain of the Company's other customer credit accounts have also been
transferred to or are being originated by the Bank.
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CORPORATE
Corporate operations include activities that are of an overall holding
company nature, primarily consisting of administrative activities, the costs of
which are not allocated to the Company's businesses. Corporate operations also
include the Company's investment in Sears Online, which consists of the
Company's e-commerce activities including the sale of appliances, tools, repair
parts, and other products through Sears.com. Sears Online will continue to
expand its product and service offerings and its integration with the Company's
retail operations throughout 2000.
INTERNATIONAL
The Company conducts similar retail, services, credit and corporate
operations in Canada through Sears Canada Inc. ("Sears Canada"), a
consolidated, 54.6% owned subsidiary of Sears. On December 30, 1999,
Sears Canada completed a share purchase transaction with The T. Eaton
Company Limited ("Eaton's"). Sears Canada acquired 16 store locations and
three leased Eaton's store locations, among other assets. Of the 19 Eaton's
locations acquired, Sears Canada plans to convert 10 locations to Sears
Canada Full-line stores (three in replacement of Sears Canada
stores in close proximity to the Eaton's locations), one to a Sears Furniture
Store, one to an outlet store and continue to operate seven Full-line stores
under the Eaton's banner. As of March 1, 2000, Sears Canada operates 116
Full-line stores (including five Full-line stores formerly operating as
Eaton's and one operating under the Eaton's banner), 25 Sears Furniture
Stores and 12 outlet stores, and has 2,005 independent catalog merchant
agents operating under local ownership, 110 independently operated dealer
stores and seven active warehouses. During fiscal 1999, Sears Canada o
tores, open one outlet store, open 15 dealer stores and 45 catalog merchant
agent locations, as well as renovate four Full-line stores. Sears Canada
continues to seek opportunities for expansion in desirable locations.
As of January 1, 2000, Sears Canada employed approximately 46,000 full and
part-time employees.
Sears Canada has an ongoing securitization program pursuant to which
undivided co-ownership interests in its pool of customer charge account
receivables are sold to trusts established to issue debt and trust units
(representing the residual equity interest in the trust) to third parties.
Effective January 1, 1997, these securitizations do not qualify as sales under
United States generally accepted accounting principles. Therefore, the
customer charge account receivables are maintained on the Company's balance
sheet and related proceeds are recorded as debt. Sears Canada acts as
servicer of the customer charge account receivables.
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Strategic Initiatives
The Company's strategic initiatives form the framework for competing in
the continually changing retail landscape. The Company's objective is to
develop an on-going, enduring relationship with all North American consumers
and is centered around five strategic initiatives.
First, make the Company a compelling place to shop anytime and anywhere.
The Company will position its businesses to become a multi-channel retailer of
merchandise and services, reaching customers through its Full-line Stores,
Specialty Stores, catalogs and the Internet. The Company strives to serve its
customers throughout the various stages of their lives via multiple delivery
channels. The Company's ability to sell, finance, deliver, install and service
a wide array of consumer products will help make it a compelling place to shop
anytime and anywhere.
Second, the Company will focus on winning with the customers by
communicating and delivering the Company's unique value proposition. The
Company offers a competitive price and strong assortment of national brands
complemented with outstanding proprietary brands such as KENMORE(r),
CRAFTSMAN(r), CIRCLE OF BEAUTY(tm) and CANYON RIVER BLUES(r). This value
proposition should retain existing customers and also attract new customers
into a long-term relationship with Sears.
Third, the Company will continue to stress a localized focus via the
utilization of our customer data warehouse. With more than 60 million
households in the data warehouse, the Company can execute merchandising and
marketing programs on a highly targeted basis.
Fourth, the Company will further emphasize cost and asset productivity.
This initiative involves ongoing improvements in cost containment and inventory
leverage throughout the Company. It also involves the allocation and
redeployment of assets to uses that enhance shareholder value.
Fifth, the Company will continue to build a winning culture internally.
This will be accomplished by focusing on associate satisfaction, reducing
turnover, and increasing diversity in the workforce.
Sources of Merchandise
At January 1, 2000, the Retail and Services businesses purchased goods
primarily from approximately 4,300 domestic suppliers, most of which have been
suppliers for many years.
Seasonality
Due to holiday buying patterns, merchandise sales are traditionally higher
in the fourth quarter than in the other quarterly periods and the Company
typically earns a disproportionate share of operating income in the fourth
quarter. Similarly, sales and operating income are generally lowest in the
first quarter.
Trademarks
The name "SEARS" is used extensively in the Company's domestic operations
and other businesses. The Company's right to the name "SEARS" domestically
continues so long as it uses the name. The name is also the subject of
numerous renewable United States and foreign trademark registrations. This
trademark is material to the Company's domestic operations and other
related businesses.
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The Company sells private label merchandise under a number of brand names
which are important to its domestic operations. Sears KENMORE(r), CRAFTSMAN(r)
and DIEHARD(r) brands are among the strongest private label brands in
retailing. These names are the subject of numerous renewable United States
and foreign trademark and service mark registrations. Other important and
well-recognized Company trademarks and service marks include BRAND CENTRAL(r),
CIRCLE OF BEAUTY(tm), CANYON RIVER BLUES(r), WISHBOOK(r), NTB(r), ORCHARD(r)
and The Good Life at a Great Price. Guaranteed.SM ad campaign. The Company's
right to all of its brand names continues so long as it uses the names.
Competition
The domestic retail, services and credit businesses are highly
competitive. The principal factors that differentiate competitors include
convenience of shopping facilities, quality of merchandise, competitive
prices, brand names and availability of services such as credit, product
delivery, repair and installation. The Company believes it is able to
compete very effectively despite strong competitive pressures in recent years.
Employees
The Company employs approximately 280,000 people in the United States and
Puerto Rico, and 46,000 people in Canada, including part-time employees.
FINANCE SUBSIDIARIES
To meet certain capital requirements of its businesses, Sears borrows on a
short-term basis through the issuance of notes to, and from time to time sells
receivable balances to, Sears Roebuck Acceptance Corp. ("SRAC"), a wholly-owned
finance subsidiary. SRAC obtains funds primarily by issuing commercial paper
and through medium-term notes and discrete underwritten debt.
Sears DC Corp. ("SDC"), a wholly-owned finance subsidiary of Sears, was
formed to borrow in domestic and foreign debt markets and lend the proceeds of
such borrowings to Sears and certain of its direct and indirect subsidiaries in
exchange for their unsecured notes. SDC raised funds through the sale of its
medium-term notes and direct placement of commercial paper with corporate and
institutional investors. The only outstanding debt of SDC is two outstanding
series of medium-term notes. SDC does not plan to issue additional debt.
Substantially all the debt and related interest expense of SRAC and SDC
support the Company's credit card receivables portfolio.
In addition, various direct and indirect subsidiaries of Sears have
engaged in securitization programs in which pass-through certificates
representing interests in credit card receivables are sold in public or
private transactions. See "Credit," and "International," beginning on pages
6 and 7 hereof, respectively, and Notes 1 and 8 of the Notes to Consolidated
Financial Statements beginning on pages 30 and 36, respectively, in the
1999 Annual Report, incorporated herein by reference to Item 8 hereof.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names of the executive officers of the
Company, the current positions and offices with the Company held by them, the
date they first became officers of the Company and their current ages:
Date First
Became
Name Position Officer Age
Arthur C. Martinez Chairman of the Board of Directors, 1992 60
President and Chief Executive Officer
M. Shan Atkins Executive Vice President, Strategic 1996 42
Initiatives
Jeffrey N. Boyer Chief Financial Officer 1996 41
James R. Clifford President and Chief Operating Officer,
Full-Line Stores 1993 54
Mark A. Cohen President, Softlines, 1998 51
Chief Marketing Officer
Mary E. Conway President, Stores 1998 51
Julian C. Day Executive Vice President and 1999 47
Chief Operating Officer
Lyle G. Heidemann President, Hardlines 1992 54
Anastasia D. Kelly Executive Vice President, General Counsel 1999 50
Alan J. Lacy President, Services 1994 46
Gerald N. Miller Senior Vice President, Chief Information 1995 52
Officer
William G. Pagonis Executive Vice President, Logistics 1993 58
John T. Sloan Executive Vice President, Human Resources 1996 48
Messrs. Martinez, Clifford, Heidemann, Lacy, Miller and Pagonis and Ms.
Conway have held the positions set forth in the above tables for at least the
last five years or have served the Company in various executive or
administrative capacities for at least that length of time. The remaining
executive officers have held the following positions for such five-year period:
Ms. Atkins joined Sears in 1996 as Vice President - Strategy, Merchandise
Planning Office, Imports. From 1998 until 1999 she served as Vice
President/General Merchandising Manager Lawn & Garden. In 1999 she was
appointed to the position of Senior Vice President - Strategy. She was elected
to her current position in September 1999. Prior to joining Sears, she had
been Vice President and Partner at Bain & Company, a consulting firm, from
1990 to 1996.
Mr. Boyer joined Sears in 1996 as Vice President, Finance - Full-Line
Stores. From 1998 until September 1999 he served as Vice President and
Controller. In September 1999, he became Chief Financial Officer. Prior to
joining Sears, Mr. Boyer had been Vice President, Business Development of The
Pillsbury Company from 1995 to 1996. From 1994 to 1995, he held the position
of Vice President of Finance - General Foods at Kraft General Foods.
Mr. Cohen joined Sears in February 1998 as Senior Vice President,
Cosmetics, Accessories, Fine Jewelry, Footwear and Home Fashions. In 1999 he
served as Executive Vice President - Marketing, and as President Softlines,
Chief Marketing Officer since September 1999. Prior to joining Sears, he had
been Chairman and Chief Executive Officer of Bradlees, Inc. from 1994 to 1997.
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Mr. Day joined Sears in March 1999, as Executive Vice President and Chief
Financial Officer, and became Executive Vice President and Chief Operating
Officer and a member of the Office of the Chief Executive in September 1999.
Prior to joining Sears, he had been Executive Vice President & Chief Financial
Officer of Safeway, Inc. from 1992 to 1998.
Ms. Kelly joined Sears as Executive Vice President, General Counsel and
Secretary in March 1999 and has been Executive Vice President, General Counsel
since September 1999. Prior to joining Sears, she had been Senior Vice
President of Fannie Mae, a financial services company, since 1995 and had been
Fannie Mae's General Counsel and Secretary since 1996. Prior to joining Fannie
Mae, she was a partner in the law firm of Wilmer, Cutler & Pickering.
Mr. Sloan has been Executive Vice President, Human Resources since 1999.
Prior to that, he served as Senior Vice President, Human Resources since April
1998. He joined Sears in September 1996 as Vice President, Human Resources,
Full-Line Stores. Prior to joining Sears, he had been Senior Vice President,
Administration, of Tribune Company, a diversified media company, since 1993.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
Certain statements made in this Annual Report on Form 10-K are forward
looking statements made in reliance on the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. As such, they involve
risks and uncertainties that could cause actual results to differ materially.
The Company's forward looking statements are based on assumptions about many
important factors, including ongoing competitive conditions in the retail
industry, changes in consumer confidence and spending, acceptance of new
products, the ability of the Company to successfully implement its promotional
plan and cost control strategy, success of technological advances, general
United States economic conditions, such as interest rates, and normal business
uncertainty. In addition, the Company typically earns a disproportionate share
of its operating income in the fourth quarter due to holiday buying patterns,
which are difficult to forecast with certainty. While the Company believes
that its assumptions are reasonable, it cautions that it is impossible to
predict the impact of such factors that could cause actual results to differ
materially from predicted results. The Company intends the forward-looking
statements in this Annual Report on Form 10-K and the exhibits hereto to
speak only at the time of its filing and does not undertake to update or
revise these projections as more information becomes available.
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Item 2. Properties
The Company's principal executive offices are located on a 200-acre site
owned by the Company at Prairie Stone, in Hoffman Estates, Illinois. The
complex consists of six interconnected office buildings totaling approximately
two million gross square feet of office space.
The following table sets forth information concerning stores operated by
the Company's domestic Retail operations.
Auto Stores Specialty Stores
Full-line ----------- ------------------------------------
Stores Tire Parts HomeLife Hardware Dealer Other(a) Total
Stores at
January 1,
2000:
Owned 483 630 - - 12 2 19 1,146
Leased(b) 375 478 - - 255 - 21 1,129
Independently - - - - - 736 - 736
owned and
Operated Dealer
Stores
Total Stores at
Fiscal Year-End
1996 821 1,058 627 107 229 469 60 3,371
Stores opened
during fiscal
1997 21 68 90 3 33 124 0 339
Stores closed
during fiscal
1997 (9) (20) (102) (9) (7) (17) (16) (108)
1997 833 1,106 615 101 255 576 44 3,530
Stores opened
during fiscal
1998 23 50 43 4 18 101 1 240
Stores closed
during fiscal
1998 (11) (20) (658)(c) (5) (8) (24) (1) (727)
1998 845 1,136 - 100 265 653 44 3,043
Stores opened
during fiscal
1999 19 24 - 5 18 100 1 167
Stores closed
during fiscal
1999 (6) (52) - (105)(d) (16) (15) (5) (199)
1999 858 1,108 - - 267 738 40 3,011
Gross Retail
Area at Fiscal
Year-End
(square feet
in millions)
1999 113.7 15.8 - - 8.9 6.1 1.9 146.4
1998 112.4 16.2 - 3.6 8.8 5.4 1.9 148.3
1997 110.3 15.9 6.6 3.6 8.2 4.7 1.7 151.0
Retail Selling
Area at Fiscal
Year-End
(square feet
in millions)
1999 75.3 2.2 - - 6.9 4.0 1.3 89.7
1998 73.3 2.3 - 3.0 6.9 3.6 1.3 90.4
1997 71.9 2.2 4.7 3.0 6.5 3.1 1.3 92.7
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Retail Store Revenues per Selling Square Foot
1999. . . . . . . . . . . . . . . . . . .$325
1998. . . . . . . . . . . . . . . . . . .$317
1997. . . . . . . . . . . . . . . . . . .$318
_____________
(a) Consists of small-size appliance stores, retail outlet stores and The
Great Indoors stores. Excludes "Other" facilities owned or leased as
part of Full-line Store properties.
(b) Many of the leases contain renewal options and contingent rentals
(for additional information, see Note 7 of the Notes to Consolidated
Financial Statements beginning on page 36 of the 1999 Annual Report,
incorporated herein by reference to Item 8 hereof).
(c) Includes 652 Western Auto stores that were sold in November 1998.
(d) Effective January 30, 1999, Sears sold its HomeLife business,
including five retail outlet stores transferred to the HomeLife
organization in January 1999.
In addition, at January 1, 2000, there were 842 other sales offices and
service facilities, most of which are occupied under short-term leases or are a
part of other Sears facilities included in the above table. There were also 96
distribution facilities, most of which are leased for terms ranging from one to
20 years.
Credit principally services its accounts at nine regional credit card
operations centers ("RCCOCs"), one national account authorization center
("NAAC"), four Credit Processing Centers, at the headquarters of the Bank in
Tempe, Arizona and at the Company's headquarters in Hoffman Estates. The
Company owns one of the RCCOCs and leases eight for remaining terms ranging
from four to ten years. The Company owns the NAAC. The Company owns one
of the Credit Processing Centers and leases three for remaining terms
ranging from one to six years.
For the Company's operations, the capital expenditures for expansion and
remodeling and other improvements (excluding capitalized financing leases)
amounted to $1.0 billion for the fiscal year ended January 1, 2000. In fiscal
2000, the Company plans capital expenditures of approximately $1.2 billion for
the opening of approximately 10 new Full-line Stores and over 175 Specialty
Stores. The Company's ability to attain this growth will depend on, among
other things, the availability of suitable store locations on appropriate
terms. The Company may also pursue selective strategic acquisitions.
For additional information, see "International" on page 7 hereof and
"Management's Analysis of Consolidated Financial Condition" beginning on page
25 of the 1999 Annual Report, incorporated herein by reference in response
to Item 7 hereof.
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Item 3. Legal Proceedings
The Company remains a party to two cases arising from the Company's
purchase of garments produced under allegedly illegal labor conditions on the
island of Saipan in the Commonwealth of the Northern Marianas Islands. The two
actions were filed on January 13, 1999, the first on behalf of ten "Doe"
plaintiffs in the United States District Court for the Central District of
California against eighteen domestic clothes retailers and eleven foreign
clothing suppliers (which case subsequently was transferred to the United
States District Court for the District of Hawaii), and the second by various
interest groups, purportedly on behalf of the general public of the State of
California, in the San Francisco County Superior Courts. Plaintiffs in the
suits seek various injunctive relief, damages (including punitive and
treble damages), restitution and disgorgement of profits, interest, and
attorney fees and costs. On February 23, 2000, the Company entered into a
settlement agreement with the plaintiffs that provides for the dismissal of
both cases with respect to the Company. While continuing to deny plaintiffs'
claims and contentions, the Company agreed to an immaterial one-time cash
payment to the plaintiffs. The Company further agreed that following the
effective date of the agreement, it would only purchase garments produced in
Saipan from factories that adhere to the terms of a monitoring program
provided for in the settlement agreement. The settlement of the cases is
subject to the final approval of both courts. In the event that the
settlement is not approved and the cases continue against the Company, their
consequences are not presently determinable, but in the opinion
of the management of the Company, the ultimate liability is not expected to
have a material effect on the results of operations, financial position,
liquidity or capital resources of the Company.
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 that 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.
Item 4. Submission of Matters to a Vote of Security Holders
None
14
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
DESCRIPTION OF SEARS COMMON SHARES
The summary contained herein of certain provisions of the Restated
Certificate of Incorporation, as amended (the "Certificate of Incorporation"),
of Sears does not purport to be complete and is qualified in its entirety by
reference to the provisions of such Certificate of Incorporation filed as
Exhibit 3.(i) hereto and incorporated by reference herein.
The Certificate of Incorporation authorizes the issuance of 1,000,000,000
common shares, par value $0.75 per share, and 50,000,000 preferred shares, par
value $1.00 per share. As of the date hereof, there are no preferred shares
outstanding. Preferred shares may be issued in series with rights and
privileges as authorized by the Board of Directors.
Subject to the restrictions on dividends mentioned below and the rights of
the holders of any preferred shares which may hereafter be issued, each holder
of common shares is entitled to one vote per share, to vote cumulatively for
the election of directors, to dividends declared by the Board of Directors,
and, upon liquidation, to share in the assets of Sears pro rata in accordance
with his, her or its holdings after payment of all liabilities and obligations.
The holders of common shares have no preemption, redemption, subscription or
conversion rights.
Sears Board of Directors is divided into three classes serving staggered
three-year terms. Because the Board is classified, shareholders wishing to
exercise cumulative voting rights to assure the election of one or more
directors must own approximately three times as many shares as would be
required if the Board were not classified. Directors may be removed only for
cause upon the affirmative vote of at least 75% of the shares entitled to
vote. Such a vote is also required to alter, amend or repeal, or to adopt
any provision inconsistent with, Article 5 of the Certificate of
Incorporation concerning directors, or to fix the number of directors by
shareholder vote.
There are no restrictions on repurchases or redemption of shares by Sears
which do not impair its capital, except that the indentures relating to certain
of Sears long-term debt and an agreement pursuant to which Sears has provided a
credit facility in support of certain tax increment revenue bonds issued by the
Village of Hoffman Estates, Illinois, in connection with the construction of
its headquarters facility, provide that Sears will not take certain actions,
including the declaration of cash dividends and the repurchase of shares, which
would cause Unencumbered Assets plus certain Capitalized Rentals to drop below
150% of Liabilities plus such Capitalized Rentals (as such terms are defined in
the indentures and the agreement). The amount by which such Unencumbered
Assets plus Capitalized Rentals exceeds 150% of such Liabilities plus
Capitalized Rentals, as computed under certain of the indenture provisions,
is set forth in Note 13 of the Notes to Consolidated Financial Statements on
page 38 of the 1999 Annual Report.
Information regarding the principal market for Sears common shares, the
number of shareholders and the prices of, and dividends paid on, Sears common
shares is incorporated herein by reference to the section headed "Common Stock
Market Information and Dividend Highlights" on page 44 of the 1999 Annual
Report and to the information under the heading "Shareholders' equity -
Dividend payments" contained in Note 13 of the Notes to Consolidated Financial
Statements on page 38 of the 1999 Annual Report.
15
<PAGE>
Item 6. Selected Financial Data
The material under the caption "Five-Year Summary of Consolidated
Financial Data" on page 43 of the 1999 Annual Report is incorporated herein
by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information contained under the captions "Management's Analysis of
Consolidated Operations" on pages 17 - 23 and "Management's Analysis of
Consolidated Financial Condition" on pages 25, 27 and 29, of the 1999 Annual
Report, is incorporated herein by reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
The information contained under the caption "Market Risk" included in
"Management's Analysis of Consolidated Operations" on page 23 of the 1999
Annual Report is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of the Company, including the notes
to all such statements, and other information on pages 16 - 44 (other than that
incorporated by reference to Item 7 hereof) of the 1999 Annual Report is
incorporated herein by reference.
Item 9. Changes in and Disagreements with Independent Auditors on
Accounting and Financial Disclosure
None
17
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors and executive officers of Sears is
incorporated herein by reference to the descriptions under "Item 1: Election of
Directors" on pages 4 - 7 of the 2000 Proxy Statement and to Item 1 of this
Report under the caption "Executive Officers of the Registrant" on pages
10 - 11.
Item 11. Executive Compensation
Information regarding executive compensation is incorporated by reference
to the material under the captions "Item 1: Election of Directors," "Directors'
Compensation and Benefits," "Executive Compensation," "Stock Options," "Long-
Term Incentive Plan," "Pension Plan Table," "Termination and Change in Control
Arrangements" and "Compensation Committee Interlocks and Insider Participation"
on pages 4 - 7, 12 - 16, 14 - 15, 15, 16, 17 - 19 and 22, respectively, of the
2000 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners and
management is incorporated herein by reference to the material under the
heading "Beneficial Ownership" on pages 10 - 11 of the 2000 Proxy Statement.
Item 13. Certain Relationships and Related Transactions
None
17
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K
(a) 1 and 2 - An "Index to Financial Statements and Financial
Statement Schedules" has been filed as a part of this Report beginning on page
S-1 hereof.
(a)3 - Exhibits:
An "Exhibit Index" has been filed as a part of this Report beginning on
page E-1 hereof and is incorporated herein by reference.
(b) - Reports on Form 8-K:
A Current Report on Form 8-K dated December 16, 1999 was filed with the
Securities and Exchange Commission (the "Commission") on December 16, 1999 to
report, under Item 5, that Moody's Investor Service had lowered the
Registrant's long-term debt rating.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SEARS, ROEBUCK AND CO.
(Registrant)
/S/ Jeffrey N. Boyer
By: Jeffrey N. Boyer
Chief Financial Officer
March 22, 2000
Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
/*S/Arthur C. Martinez*
Arthur C. Martinez Director, Chairman of the )
Board of Directors, President )
and Chief Executive Officer )
)
)
)
/S/Jeffrey N. Boyer* )
Jeffrey N. Boyer Chief Financial Officer )
(Principal Financial Officer )
)
)
)
/S/Glenn R. Richter* )
Glenn R. Richter Vice President and )
Controller (Principal )
Accounting Officer) )
)
)March 22,
) 2000
/S/Hall Adams, Jr.* )
Hall Adams, Jr. Director )
)
/S/Brenda C. Barnes* )
Brenda C. Barnes Director )
)
)
/S/Warren L. Batts* )
Warren L. Batts Director )
)
19
<PAGE>
)
/S/Alston D. Correll, Jr.* )
Alston D. Correll, Jr. Director )
)
)
/S/W. James Farrell* )
W. James Farrell Director )
)
)
/S/Michael A. Miles* )
Michael A. Miles Director )
)
)
/S/Richard C. Notebaert* )
Richard C. Notebaert Director )
)
)March 22,
) 2000
/S/Hugh B. Price* )
Hugh B. Price Director )
)
)
/S/Patrick G. Ryan* )
Patrick G. Ryan Director )
)
)
/S/Dorothy A. Terrell* )
Dorothy A. Terrell Director )
*By: /s/ Jeffrey N. Boyer Individually and as Attorney-in-fact
Jeffrey N. Boyer
20
<PAGE>
SEARS, ROEBUCK AND CO.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Year Ended January 1, 2000
The following consolidated financial statements, notes thereto and related
information of Sears, Roebuck and Co., are incorporated herein by reference to
the Company's 1999 Annual Report.
Incorporated by reference in Item 8 herein: Page*
Consolidated Statements of Income 16
Consolidated Balance Sheets 24
Consolidated Statements of Cash Flows 26
Consolidated Statements of Shareholder's Equity 28
Notes to Consolidated Financial Statements 30
Independent Auditors' Report 42
Five-Year Summary of Consolidated Financial Data 43
Quarterly Results 44
Incorporated by reference in Item 5 herein:
Common Stock Market Information and Dividend Highlights 44
Incorporated by reference in Item 7a herein:
Market Risk (included in Management's Analysis of
Consolidated Operations) 23
*Refers to page number in Company's Annual Report
S-1
<PAGE>
SEARS, ROEBUCK AND CO.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Year Ended January 1, 2000
The following additional statement schedule, Independents Auditors' Report and
Consent of Independent Auditors are furnished herewith pursuant to the
requirements of Form 10-K.
Page
Schedule required to be filed under the provisions
of regulation S-X Article 5:
Schedule II - Valuation and Qualifying Accounts S-3
Independent Auditors' Report S-4
Consent of Independent Auditors S-5
All other schedules are omitted because they are not applicable or not required.
S-2
<PAGE>
SEARS, ROEBUCK AND CO.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(millions)
Additions
Balance at Charged to Balance at
Beginning Cost and Deductions End of
of Period Expenses (Describe) Period
Year Ended January 1, 2000
Allowance for uncollectible
accounts $ 974 $ 871 $1,085 (A) $ 760
Year Ended January 2, 1999
Allowance for uncollectible
accounts $1,113 $1,287 $1,426 (B) $ 974
Year Ended January 3, 1998
Allowance for uncollectible
accounts $ 801 $1,532 $1,220 (A) $1,113
(A) Represents uncollectible credit card receivable accounts which have
been charged off.
(B) Represents uncollectible credit card receivable accounts which have
been charged off and $106 million transferred to retained interest
in transferred credit card receivables related to receivables which
were transferred to the Master Trust in 1998.
S-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Director Sears, Roebuck and Co.
We have audited the Consolidated Balance Sheets of Sears, Roebuck and Co.
as of January 1, 2000 and January 2, 1999, and the related Consolidated
Statements of Income, Shareholders' Equity and Cash Flows for each of the three
years in the period ended January 1, 2000, as set forth in the Index to
Financial Statements and Financial Statement Schedules on page S-1, and have
issued our report thereon dated February 7, 2000; such consolidated financial
statements and report are included in your 1999 Annual Report to Shareholders
and are incorporated herein by reference. Our audits also included the
financial statement schedule of Sears, Roebuck and Co., listed on page S-2.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
We have also previously audited, in accordance with generally accepted
auditing standards, the Consolidated Balance Sheets of Sears, Roebuck and Co.
as of January 3, 1998, December 28, 1996, and December 30, 1995, and the
related Consolidated Statements of Income, Shareholders' Equity and Cash
Flows for the years ended December 28, 1996 and December 30, 1995 (none of
which are presented herein); and we expressed unqualified opinions on those
consolidated financial statements.
Our audits were conducted for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The additional
information set forth under "Operating Results" and "Financial Position" and on
the lines captioned "Book value per common share", "Average common and
equivalent shares outstanding", and "Earnings per common share - diluted" for
each of the five years in the period ended January 1, 2000, appearing under the
caption "Five Year Summary of Consolidated Financial Data" on page 43 of your
1999 Annual Report to Shareholders is presented for the purpose of additional
analysis and is not a required part of the basic consolidated financial
statements. This additional information is the responsibility of the Company's
management. Such information has been subjected to the auditing procedures
applied in our audits of the basic consolidated financial statements and, in
our opinion, is fairly stated in all material respects when considered in
relation to the basic consolidated financial statements taken as a whole.
/S/Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
February 7, 2000
S-4
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement
Nos. 2-64879, 2-80037, 33-18081, 33-23793, 33-41485, 33-43459, 33-45479,
33-55825, 33-58851, 33-64345, 333-8141, and 333-38131 of Sears, Roebuck and
Co.; Registration Statement Nos. 33-58139, 33-64215, 33-9817, 333-30879,
and 333-62847 of Sears, Roebuck and Co. and Sears Roebuck Acceptance Corp.;
Registration Statement Nos. 33-64775, 333-18591, and 333-43309 of Sears,
Roebuck and Co. and Sears, Roebuck and Co. Deferred Compensation Plan;
Registration Statement Nos. 33-57205, 333-11973, 333-53149, and 333-92501
of Sears Roebuck and Co. and the Sears 401(k) Profit Sharing Plan (formerly,
The Savings and Profit Sharing Fund of Sears Employees); and Registration
Statement No. 33-44671 of Sears, Roebuck and Co. and Sears DC Corp.; of our
report dated February 7, 2000, incorporated by reference in the Annual
Report on Form 10-K of Sears, Roebuck and Co. for the year ended January 1,
2000.
/S/Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
March 22, 2000
S-5
<PAGE>
EXHIBIT INDEX
Sears, Roebuck and Co. Form 10-K
For the Year Ended January 1, 2000
3.(i) Restated Certificate of Incorporation, as amended to May 13, 1996
(incorporated by reference to Exhibit 3(a) to Registration
Statement No. 333-8141).
*3.(ii) By-Laws as amended to February 1, 2000.
4.(i) Forms of restricted stock grants under Registrant's 1990 Employees
Stock Plan (incorporated by reference to Exhibit 4.(i) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993).**
4.(ii) Form of restricted stock grants under Registrant's 1994 Employees
Stock Plan (incorporated by reference to Exhibit 4.(ii) to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).**
4.(iii) Forms of Performance-Based Stock Options granted under
Registrant's 1994 Employees Stock Plan (incorporated by reference
to Exhibit 4(iii) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1998).**
4.(iv) Forms of Performance-Based Restricted Stock grants under
Registrant's 1994 Employees Stock Plan (incorporated by reference
to Exhibit 4(iv) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 3, 1998).**
4.(v) Forms of stock options granted under Registrant's 1994 Employees
Stock Plan (incorporated by reference to Exhibit 4(v) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 2, 1999).**
4.(vi) Registrant hereby agrees to furnish to 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.(i)(a) Separation Agreement dated February 20, 1995 between Registrant
and The Allstate Corporation (incorporated by reference to Exhibit
10(a) to The Allstate Corporation's Current Report on Form 8-K
dated February 22, 1995).***
10.(i)(b) Marketing File Separation Agreement dated February 20, 1995
between Registrant and The Allstate Corporation (incorporated by
reference to Exhibit 10(b) to The Allstate Corporation's Current
Report on Form 8-K dated February 22, 1995).***
10.(i)(c) Research Services Agreement dated February 20, 1995 between
Registrant and The Allstate Corporation (incorporated by reference
to Exhibit 10(c) to The Allstate Corporation's Current Report on
Form 8-K dated February 22, 1995).***
10.(i)(d) Tax Sharing Agreement dated May 14, 1993 between Registrant and
its subsidiaries (incorporated by reference to Exhibit 10.6 to
Amendment No. 3 to The Allstate Corporation's Registration
Statement No. 33-59676).
<PAGE>
10.(i)(e) Supplemental Tax Sharing Agreement dated January 27, 1995 between
Registrant and The Allstate Corporation (incorporated by reference
to Exhibit 10(d) to The Allstate Corporation's Current Report on
Form 8-K dated February 22, 1995).***
10.(ii)(1) Registrant's 1979 Incentive Compensation Plan (incorporated by
reference to Exhibit 10.(iii)(1) to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended March 31,
1985).** ****
10.(ii)(2) Registrant's 1978 Employes Stock Plan, as amended (incorporated by
reference to Exhibit 10.(iii)(2) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989).** ****
*10.(ii)(3) Registrant's Deferred Compensation Plan for Directors, as amended
and restated on August 11, 1999.
10.(ii)(4) Registrant's Annual Incentive Compensation Plan, amended and
restated as of January 1, 1994 (incorporated by reference to
Appendix B to the Registrant's Proxy Statement dated March 23,
1994).** ****
10.(ii)(5) Registrant's Long-Term Incentive Compensation Plan, amended and
restated as of January 1, 1994 (incorporated by reference to
Appendix C to the Registrant's Proxy Statement dated March 23,
1994).** ****
10.(ii)(6) Registrant's 1982 Employees Stock Plan (incorporated by reference
to Exhibit 4(a)(1) to Registration Statement No. 2-80037 of the
Registrant).****
10.(ii)(7) Description of Registrant's Supplemental Life Insurance Plan,
amended as of December 31, 1986 (incorporated by reference to the
second and third full paragraphs on page 10 of the Registrant's
Proxy Statement dated March 26, 1987).** ****
10.(ii)(8) Registrant's Non-Employee Directors' Retirement Plan, as amended
and restated to March 13, 1996 (incorporated by reference to
Exhibit 10.(iii)(8) to Registrant's Annual Report on Form 10-K for
the year ended December 30, 1995).** ****
10.(ii)(9) Description of Registrant's Non-Employee Director Life Insurance
Plan (incorporated by reference to the first paragraph on page 10
of the Registrant's Proxy Statement dated March 26, 1998).** ****
10.(ii)(10) Registrant's 1990 Employees Stock Plan, amended as of May 12,
1994 (incorporated by reference to Exhibit 10.20 to The Allstate
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994).*** ****
10.(ii)(11) Registrant's Supplemental Retirement Income Plan, as amended and
restated effective March 25, 1997.
10.(ii)(12) Registrant's 1986 Employees Stock Plan, amended as of May 12,
1994 (incorporated by reference to Exhibit 10.19 to The Allstate
Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994).*** ****
<PAGE>
10.(ii)(13) Registrant's Transferred Executives Pension Supplement
(incorporated by reference to Exhibit 10.(iii)(13) to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988).** ****
10.(ii)(14) Amendment to Registrant's Transferred Executives Pension
Supplement adopted on March 13, 1996 (incorporated by reference
to Exhibit 10.(iii)(14) to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 30, 1995).** ****
10.(ii)(15) Registrant's Supplemental Long-Term Disability Plan
(incorporated by reference to Exhibit 10.d to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1995).** ****
10.(ii)(16) Registrant's Deferred Compensation Plan, as amended and restated
on October 14, 1998 (incorporated by reference to Exhibit
10(ii)(17) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 2, 1999).**
10.(ii)(17) Registrant's Management Supplemental Deferred Profit Sharing Plan
(incorporated by reference to Exhibit 10(b) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 1,
1994).** ****
10.(ii)(18) Registrant's Non-Employee Director Stock Plan (incorporated by
reference to Appendix B of the Registrant's Proxy Statement dated
March 20, 1996).** ****
10.(ii)(19) Registrant's 1994 Employees Stock Plan (incorporated by reference
to Appendix A to the Registrant's Proxy Statement dated March 23,
1994).** ****
10.(ii)(20) Registrant's Associate Stock Ownership Plan (incorporated by
reference to Exhibit 10.(iii)(21) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended January 3, 1998).**
10.(ii)(21) Employment Agreement between Registrant and Arthur C. Martinez
dated August 10, 1992 (incorporated by reference to Exhibit
10.(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1992).** ****
10.(ii)(22) Agreement dated November 13, 1995 amending employment contract of
Arthur C. Martinez dated August 10, 1992 (incorporated by
reference to Exhibit 10. (iii)(21) to Registrant's Annual Report
on Form 10-K for the year ended December 30, 1995).** ****
10.(ii)(23) Extension of employment contract of Arthur C. Martinez, dated
August 9, 1995 (incorporated by reference to Exhibit 10(c) to the
Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1995).** ****
10.(ii)(24) Letter from the Registrant to Alan J. Lacy dated December 14,
1994 relating to employment (incorporated by reference to Exhibit
10(d) to the Registrant's Current Report on Form 8-K dated June
20, 1995).** ****
<PAGE>
10.(ii)(25) Letter from the Registrant to Anastasia D. Kelly dated December
14, 1998 relating to employment (incorporated by reference to
Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended April 3, 1999).** ***
*10.(ii)(26) Letter from the Registrant to Julian Day dated February 19, 1999
relating to employment.
10.(ii)(27) Form of severance and non-compete agreement for executive
officers of the Registrant (incorporated by reference to Exhibit
10 to the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended July 3, 1999).** ****
10.(ii)(28) Sears Executive Retirement Plan Arrangements dated March 27, 1997
(incorporated by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended June
28, 1997).** ****
*12.(a) Computation of ratio of income to fixed charges for Registrant
and consolidated subsidiaries.
*12.(b) Computation of ratio of income to combined fixed charges and
preferred share dividends for Registrant and consolidated
subsidiaries.
*13. Portions of Registrant's Annual Report incorporated by reference
into Part I or Part II of Registrant's Annual Report on Form 10-K
for the fiscal year ended January 1, 2000.
*21. Subsidiaries of the Registrant.
*23. Consent of Deloitte & Touche LLP.
*24. Power of Attorney of certain officers and directors of the
Registrant.
*27. Financial Data Schedules.
*99.(i) Sears 401(k) Profit Sharing Plan, as amended and restated
effective January 1, 2000.
*99.(ii) Third Amendment to the Sears Profit Sharing Trust Agreement dated
as of March 31, 1999.
*99.(iii) Sears Pension Plan, as amended and restated effective January 1,
2000.
* Filed herewith
** SEC File No. 1-416
*** SEC File No. 1-11840
**** A management contract or compensatory plan or arrangement required to
be filed as an exhibit to this report pursuant to Item 14(c) of Form
10-K.
Sears, Roebuck and Co.
By-Laws
As Amended to
February 1, 2000
Incorporated
New York
1906
By-Laws
of
Sears, Roebuck and Co.
as amended to
February 1, 2000
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 45 days nor more than 75 days prior to
the first anniversary of the date on which the Company first
mailed its proxy materials for 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 the anniversary date of the preceding
year's annual meeting, 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 Chairman of the Board of
Directors, the President, the Secretary, or a Vice President
designated by the Chairman and served by mail upon each
shareholder of record entitled to vote at such meeting not less
than ten nor more than sixty 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 such
shareholder in accordance with applicable law, 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 25 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, and a Nominating
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 Secretary of the Company shall act as secretary of each
committee meeting or 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 Chairmen of the Board of Directors, the chairman
of the Audit, Compensation and Nominating Committees, and 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 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. The Committee shall also periodically review the
Company's policies with respect to compliance with laws and
regulations. After such reviews, the Committee shall report
thereon to the Board of Directors.
The Committee shall:(1) review recommendations made by the
Company's independent public accountants and internal auditors
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, internal auditors, and
compliance office concerning compliance by management with
governmental laws and regulations and with the Company's policies
relating to business practices and procedures, ethics, conflicts
of interest, perquisites and use of corporate assets.
The Committee shall meet with the Company's independent public
accountants, internal auditors or compliance officer, without
management present, whenever the Committee shall deem it
appropriate. 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 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 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 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, internal auditors or
compliance officer 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. The Compensation Committee shall approve
the salaries, bonuses, and other compensation to be paid to the
officers of the Company, including the terms and conditions of
their employment, shall approve 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, on its own initiative or
upon referral from the Board of Directors, investigate, analyze
and consider the current and future financial practices of the
employee benefit plans of the Company and its subsidiaries and
shall report and make such recommendations to the Board of
Directors as the Committee deems 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 appoint
the Chair of each Committee of the Board of Directors. The
Nominating Committee shall periodically review and set a maximum
six year term for each Committee Chair.
The Nominating Committee shall annually review the Company's
Corporate Governance Guidelines, assess the performance of the
Board, make recommendations to the Board of Directors with
respect to the compensation of directors, 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.
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 sealError! Bookmark not
defined. 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 sixty
nor less than ten days preceding the date of any meeting of
shareholders, and not more than sixty 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.
This document constitutes part of a prospectus covering
securities that have been
registered under the Securities Act of 1933.
SEARS, ROEBUCK AND CO.
DEFERRED COMPENSATION PLAN
AS AMENDED AND RESTATED TO
August 11, 1999
SEARS, ROEBUCK AND CO.
DEFERRED COMPENSATION PLAN
ARTICLE I
DESIGNATION OF PLAN AND DEFINITIONS
1.1
Title
This Plan shall be known as the "Sears,
Roebuck and Co. Deferred Compensation Plan" and shall become
effective for Compensation received on and after January 1,
1987.
1.2
Definitions
As used herein, the terms below shall have
the following meanings. Any of these terms, unless the
context otherwise requires, may be used in the singular or
plural, depending upon the reference.
"Accounts" shall mean
Deferred Compensation Accounts.
(b)
"Annual Bonus" shall mean an
award (including Restricted Common Shares payable
pursuant to an Equity Swap election) payable under
the Sears, Roebuck and Co. Annual Incentive Plan.
(a) "Annual Bonus Election Date" shall mean, for any
Fiscal Year, November 30 of the Plan Year (or such other
date as selected by the Committee or its appointed
representative, provided that the Committee or its appointed
representative shall not select any such other date with
respect to a Fiscal Year unless the date (1) is established
and communicated to Eligible Employees by the date two
months prior to the last day of the Fiscal Year, (2) does
not change after the date two months prior to the last day
of the Fiscal Year, (3) is the same date for all Eligible
Employees and (4) is no later than the last day of the
Fiscal Year or such earlier date as the Committee or its
appointed representative determines is necessary to be
satisfied that, for income tax purposes, no Participant may
be in constructive receipt of any Compensation deferred
under this Plan.
(b) "Base Salary" shall mean the base salary payable to
an employee of a Participating Employer, by the
Participating Employer, in cash.
(c) "Beneficiary" or "Contingent Beneficiary"
(collectively, "Beneficiary" or "Beneficiaries") shall mean
the person or persons last designated in writing by the
Participant to the Committee, in accordance with Section 8.4
of this Plan.
(d) "Board" shall mean the Board of Directors of the
Company.
(e) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(f) "Committee" shall mean the Administrative
Committee for Sears Benefit Plans established by the Board
of Directors on August 14, 1996.
(g) "Common Shares" shall have the same meaning as set
forth in Section 4.3(h).
(h) "Common Shares Vesting Date" shall mean, for any
Vested Common Share Compensation, the date on which the
Vested Common Share Compensation arises because of the
lapsing of the Section 83 Restrictions on Restricted Common
Shares.
(i) "Company" shall mean Sears, Roebuck and Co. and
all consolidated subsidiaries thereof.
(j) "Company Stock Option" shall mean any option to
acquire Common Shares granted under a stock plan of the
Company by a Participating Employer to an Eligible Employee
for services rendered, but only if (1) the Eligible Employee
is (i) a member of the Corporate Strategic Leadership Team
(or the successor to such group) or any other group
designated by the Committee for purposes of this definition
or (ii) designated by the Committee for purposes of this
definition and (2) the stock option grant specifically
provides for option gain deferral under the terms of this
Plan.
(k) "Compensation" shall mean Base Salary, Annual
Bonuses, LTIP Awards, Stock Option Gain Compensation, Vested
Common Share Compensation and Other Compensation; provided,
however, that notwithstanding any other provision of this
Plan, (1) none of Base Salary, Annual Bonuses, LTIP Awards,
Vested Common Share Compensation or Other Compensation may
include any stock option, compensation paid in the form of
one or more stock options or compensation related to a stock
option and (2) Compensation shall only include any stock
option, compensation paid in the form of one or more stock
options or compensation related to a stock option if it is
Stock Option Gain Compensation.
(l) "Deferred Compensation Account" shall mean the
balance of all Compensation deferred by a Participant, plus
all interest, Dividend Equivalents and other amounts accrued
pursuant to Article IV of the Plan.
(m) "Dividend Equivalent" shall have the same meaning
as set forth in Section 4.3(h) of this Plan.
(n) "Eligible Employee" shall mean any Employee who is
eligible to be selected as a Participant under Article II of
this Plan.
(o) "Employee" shall mean any regular, full-time
employee of the Company.
(p) "Equity Swap" shall mean any plan, contract,
authorization or arrangement of the Company that allows an
employee of the Company to elect to receive all or any
portion of an Annual Bonus or LTIP Award in Common Shares
that are subject to Section 83 Restrictions.
(q) "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(r) "Fair Market Value" shall have the same meaning as
set forth in Section 4.3(h).
(s) "Fiscal Year" shall mean the fiscal year of the
Company for accounting and federal income tax purposes.
(t) "Hardship" shall mean severe financial hardship to
the Participant resulting from a sudden and unexpected
illness or accident of the Participant or of a dependent (as
defined in Section 152(a) of the Internal Revenue Code of
1986, as amended) of the Participant, loss of the
Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant. The
circumstances that will constitute an unforeseeable
emergency will depend upon the facts of each case, but, in
any case, payment may not be made to the extent that such
hardship is or may be relieved-
1) through reimbursement or compensation by
insurance or otherwise,
2) by liquidation of the Participant's assets,
to the extent the liquidation of such assets would not
itself cause severe financial hardship, or
3) by cessation of deferrals under the Plan.
Examples of what are not considered to be unforeseeable
emergencies include the need to send a Participant's
child to college or the desire to purchase a home.
(u) "LTIP" shall mean the Sears, Roebuck and Co.
Long-Term Incentive Compensation Plan.
(v) "LTIP Award" shall mean an award payable
under the LTIP (including Common Shares payable
pursuant to the LTIP and Restricted Common Shares
payable pursuant to an Equity Swap election).
(w) "LTIP Award Election Date" shall mean, for
any LTIP cycle, November 30 of the last Fiscal Year of
the LTIP cycle (or such other date as selected by the
Committee or its appointed representative, provided
that the Committee or its appointed representative
shall not select any such other date with respect to
any LTIP cycle unless the date (1) is established and
communicated to Eligible Employees prior to the date
two months prior to the last day of the LTIP cycle, (2)
does not change after the date two months prior to the
last day of the LTIP cycle, (3) is the same date for
all Eligible Employees and (4) is no later than the
last day of the LTIP cycle or such earlier date as the
Committee or its appointed representative determines is
necessary to be satisfied that, for income tax
purposes, no Participant may be in constructive receipt
of any Compensation deferred under this Plan).
(x) "Other Compensation" shall mean
compensation that is not Base Salary, an Annual Bonus,
an LTIP Award, Stock Option Gain Compensation or Vested
Common Share Compensation, but is (i) a special bonus
or other compensation, in each case payable in cash or
equity securities of the Company by a Participating
Employer to an employee for services rendered or (ii)
any other compensation payable for services rendered as
may be designated by the Board, an Unaffiliated
Director Committee or, as pertaining only to
Participants who are not Section 16(a) Participants,
the Committee.
(y) "Participant" shall mean an Eligible Employee
participating in the Plan in accordance with Article II
hereof.
(z) "Participating Employer" shall mean the
Company, or any Subsidiary which adopts this Plan in
accordance with Section 2.2 hereof.
(aa) "Plan" shall mean this Sears, Roebuck and Co.
Deferred Compensation Plan as set forth herein, and as
amended from time to time in accordance with Article
VII hereof.
(bb) "Plan Year" shall mean the calendar year.
(cc) "Restricted Common Shares" shall mean
Common Shares subject to Section 83 Restrictions that
have not yet lapsed and that are received by an
Employee (1) as a special bonus or other compensation
for services rendered to the Participating Employer or
(2) because of the Employee's Equity Swap election with
respect to an Annual Bonus or an LTIP Award.
(dd) "Section 16(a) Participants" shall mean
Participants who are required to file reports under
Section 16(a) of the Exchange Act.
(ee) "Section 83 Restrictions" shall mean
restrictions that (1) prevent the Common Shares to
which they are attached from being transferable or (2)
cause the Common Shares to which they are attached to
be subject to a substantial risk of forfeiture, in each
case as defined by Section 83(c) of the Code.
(ff) "Separation from Service" shall mean the
termination of a Participant's employment with the
Company for any reason whatsoever, including
retirement, resignation, dismissal and death.
(gg) "Stock Option Gain Compensation" shall mean
the excess of the Fair Market Value on the exercise
date of the Common Shares acquired from the exercise of
a Company Stock Option by an Eligible Employee over the
exercise price of the Company Stock Option.
Notwithstanding any other provision in this Plan, any
stock option, compensation paid in the form of one or
more stock options or compensation related to a stock
option (1) shall only constitute Compensation if it is
Stock Option Gain Compensation and (2) shall not
constitute any other type of Compensation.
(hh) "Stock Option Gain Compensation Election
Date" shall mean, with respect to any acquisition of
Common Shares pursuant to the exercise of a Company
Stock Option, the date two calendar months prior to the
date the Eligible Employee acquires the Common Shares
by exercising the Company Stock Option (or such other
date as selected by the Committee or its appointed
representative, provided that the Committee or its
appointed representative shall not select any such
other date for acquisitions of Common Shares in a Plan
Year unless the date (1) is established and
communicated to Eligible Employees prior to the
beginning of the Plan Year, (2) does not change after
the beginning of the Plan Year, (3) is the same date
for all Eligible Employees and (4) is, for any
acquisition of Common Shares in the Plan Year, no later
than the date the Company Stock Option is exercised
with respect to those Common Shares, or such earlier
date as the Committee or its appointed representative
determines is necessary to be satisfied that, for
income tax purposes, no Participant may be in
constructive receipt of any Compensation deferred under
this Plan).
(ii) "Subaccount" shall have the same meaning as
set forth in Section 4.3(h) of this Plan.
(jj) "Subsidiary" shall mean any corporation,
partnership, limited liability company or other entity
at least 50 percent of the equity securities or voting
power of which are owned directly or indirectly by the
Company.
(kk) "Transfer" shall mean a change in a
Participant's employment from a Participating Employer
to a Subsidiary which is not a Participating Employer.
(ll) "Unaffiliated Director Committee" shall
mean a committee of the Board that is composed solely
of two or more non-employee directors, as that term is
defined in Rule 16b-3 promulgated under the Exchange
Act.
(mm) "Vested Common Share Compensation" shall
mean compensation that an Employee receives in the form
of Common Shares when, and if, the Section 83
Restrictions on any Restricted Common Shares lapse.
(nn) "Vested Common Share Compensation Election
Date" shall mean, with respect to any Vested Common
Share Compensation, the date two months prior to the
Common Shares Vesting Date (or such other date as
selected by the Committee or its appointed
representative, provided that the Committee or its
appointed representative shall not select any such
other date for Vested Common Share Compensation
potentially to be received in a Plan Year unless the
date (1) is established and communicated to Eligible
Employees prior to the beginning of the Plan Year, (2)
does not change after the beginning of the Plan Year,
(3) is the same date for all Eligible Employees and (4)
is, for any Vested Common Share Compensation, no later
than the Common Shares Vesting Date, or such earlier
date as the Committee or its appointed representative
determines is necessary to be satisfied that, for
income tax purposes, no Participant may be in
constructive receipt of any Compensation deferred under
this Plan).
ARTICLE II
PARTICIPATION
2.1 Eligibility
(a) All Employees who are designated by the Board
from time to time as "executive officers" for the purposes
of Section 16 of the Exchange Act, and the rules and
regulations promulgated thereunder, shall be Eligible
Employees and may be Participants for the next Plan Year.
(b) Unless the Committee designates otherwise,
all other key officers and Employees who are expected to
have Compensation and such other items of income as the
Committee shall determine, of over the amount fixed from
time to time by the Secretary of the Treasury pursuant to
Section 401(a)(17) of the Code, for services rendered in the
next Plan Year (or, with respect to Compensation that is for
services rendered in a Fiscal Year, in the Fiscal Year that
ends nearest to the end of the next Plan Year), shall be
Eligible Employees and may be Participants for the next Plan
Year. The Committee may change the requirements in this
Section 2.1 for eligibility, provided, however, that the
Committee shall not decrease said income eligibility
requirement.
2.2 Participating Employers
Any Subsidiary, with the approval of the Company,
may adopt this Plan for its Eligible Employees.
2.3 Notice of Eligibility
The Committee or its appointed representative
shall notify each Eligible Employee no later than 30 days
prior to the first business day of any Plan Year or as soon
thereafter as practicable, that he/she is entitled to become
a Participant in the Plan for such Plan Year.
2.4 Participation Election
An Eligible Employee shall be a Participant in the
Plan for any Plan Year if he/she elects to defer any
Compensation for the Plan Year (or, with respect to
Compensation that is for services rendered in a Fiscal Year,
the Fiscal Year that ends nearest to the end of the Plan
Year) in accordance with the procedures set forth in one or
more of paragraphs (a) through (f) below (subject to the
limitations and conditions set forth in this Section 2.4 and
in Sections 2.6 and 3.1 hereof):
(a) Base Salary. Each Eligible Employee shall
give written notice to the Committee or its appointed
representative, of his/her election to defer Base Salary
expected to be earned by and otherwise payable to him/her in
any Plan Year, no later than the last business day of the
preceding Plan Year. Such notice shall specify the deferral
percentage to be deferred of the Base Salary which would be
expected to be earned by and otherwise payable to him/her in
the upcoming Plan Year, as set forth in Section 3.1 of the
Plan. If an Eligible Employee fails to give such written
notice of election by the last business day of the preceding
Plan Year, such failure will be deemed an election not to
defer Base Salary earned by and payable to him/her in such
upcoming Plan Year. A Participant (or Eligible Employee)
may make changes in the deferral election for (or election
not to defer) Base Salary expected to be earned by otherwise
payable to him/her for the remainder of a Plan Year starting
with Base Salary expected to be earned by and otherwise
payable to him/her in the pay period following the receipt
by the Committee or its appointed representative of written
notice of such change; provided, however, that
notwithstanding the foregoing, the Committee and its
appointed representative shall only allow one change in Base
Salary deferral election per Plan Year quarter for each
Participant, unless the Committee or its appointed
representative notifies Participants that more frequent
changes are to be permitted.
(b) Annual Bonus. Each Eligible Employee shall
give written notice to the Committee or its appointed
representative, of his/her election to defer all or any
portion of the Annual Bonus expected to be payable to
him/her for services rendered in the Fiscal Year that ends
nearest to the end of any Plan Year, no later than the
Annual Bonus Election Date. Such notice shall specify the
deferral percentage or amount to be deferred of the Annual
Bonus which would otherwise be expected to be payable to
him/her for services rendered in the Fiscal Year, as set
forth in Section 3.1 of the Plan. If an Eligible Employee
fails to give such written notice of election by the Annual
Bonus Election Date, such failure will be deemed an election
not to defer any Annual Bonus payable to him/her for
services rendered in the Fiscal Year. A Participant may
make changes in his/her previously made deferral election
for an Annual Bonus otherwise expected to be payable to
him/her for services rendered in the Fiscal Year up to and
including the Annual Bonus Election Date.
(c) LTIP Award. Each Eligible Employee shall
give written notice to the Committee or its appointed
representative, of his/her election to defer the LTIP Award
(or portion of any LTIP Award) expected to be payable to
him/her for services rendered in the Fiscal Years of an LTIP
cycle that end nearest to the end of each Plan Year in an
LTIP cycle, no later than the LTIP Award Election Date.
Such notice shall specify the deferral percentage or amount
to be deferred of the LTIP Award which would otherwise be
expected to be payable to him/her for services rendered in
the LTIP cycle, as set forth in Section 3.1 of the Plan. If
an Eligible Employee fails to give such written notice of
election by the LTIP Award Election Date, such failure will
be deemed an election not to defer any LTIP Award payable to
him/her for services rendered in the LTIP cycle. A
Participant may make changes in his/her previously made
deferral election for an LTIP Award otherwise expected to be
payable to him/her for services rendered in a LTIP cycle up
to and including the LTIP Award Election Date.
Notwithstanding any of the foregoing, for LTIP cycles
beginning with the 1999-2001 cycle, any Eligible Employee's
deferral election (or change in deferral election) with
respect to an LTIP Award must be made for the entire LTIP
cycle, except to the extent that the person is not an
Eligible Employee for the entire LTIP cycle. The deferral
election (or change in deferral election) of a person who is
not an Eligible Employee for the entire LTIP cycle shall be
effective only for the Fiscal Years of the LTIP cycle that
end nearest to the end of the Plan Years in which he/she is
an Eligible Employee.
(d) Stock Option Gain Compensation. Each
Eligible Employee shall give written notice to the Committee
or its appointed representative, of his/her election to
defer his/her Stock Option Gain Compensation related to any
Common Shares he/she may acquire pursuant to any Company
Stock Option no later than the Stock Option Gain
Compensation Election Date for that acquisition of Common
Shares. Such notice shall specify the number of Common
Shares and the Company Stock Option(s) to which it is
applicable. If an Eligible Employee fails to give such
written notice of election by the Stock Option Gain
Compensation Election Date for any acquisition of Common
Shares, such failure will be deemed an election not to defer
the Stock Option Gain Compensation related to those Common
Shares. Any deferral election with respect to Stock Option
Gain Compensation is irrevocable in the event that the
Eligible Employee actually exercises the Company Stock
Option to which the election relates. If an Eligible
Employee makes a deferral election with respect to any
Company Stock Option, he/she is prohibited from exercising
that Company Stock Option until the date two calendar months
after the election date (or such other date as selected by
the Committee or its appointed representative, the selection
of which shall be subject to the same proviso as set forth
in the parenthetical of Section 1.2(jj)).
(e) Vested Common Share Compensation. Each
Eligible Employee shall give written notice to the Committee
or its appointed representative, of his/her election to
defer the Vested Common Share Compensation he/she may
receive with respect to any Restricted Common Shares no
later than the Vested Common Share Compensation Election
Date. Such notice shall specify the Restricted Common
Shares and the Common Shares Vesting Date(s) that are
related to the Vested Common Share Compensation to be
deferred. If an Eligible Employee fails to give such
written notice of election by the Vested Common Share
Compensation Election Date for any Vested Common Share
Compensation, such failure will be deemed an election not to
defer that Vested Common Share Compensation. Any deferral
election with respect to Vested Common Share Compensation is
irrevocable. Notwithstanding the provisions of Sections
2.4(b) and (c), it is understood that in the case of
Restricted Common Shares received pursuant to an Equity Swap
election made in connection with an Annual Bonus or an LTIP,
an Eligible Employee may defer, in accordance with the
provisions of this Section 2.4(e), the Vested Common Share
Compensation that he/she may receive with respect to those
Restricted Common Shares.
(f) Other Compensation. Each Eligible Employee
shall give written notice to the Committee or its appointed
representative, of his/her election to defer all or any
portion of any type of Other Compensation on or before the
date that is 20 business days prior to the date on which
such Other Compensation would otherwise be payable to the
Eligible Employee. Notwithstanding the foregoing, such
notice of deferral election shall not become effective
unless approved by the Committee or its appointed
representative in a written notice to the Eligible Employee
making the election, it being understood that the Committee
or its appointed representative may reject the Eligible
Employee's notice of deferral election only if the Committee
or its appointed representative, in its sole discretion,
determines that, for federal income tax purposes, the
Eligible Employee may be in constructive receipt of the
Other Compensation otherwise payable if the deferral
election is approved. A Participant's deferral election
shall specify the deferral percentages or amount to be
deferred and the type of Other Compensation to be deferred,
as set forth in Section 3.1 of the Plan. If an Eligible
Employee fails to give such written notice of election or if
the Committee or its appointed representative rejects an
Eligible Employee's notice of election with respect to any
Other Compensation, such failure or rejection will be deemed
an election not to defer such Other Compensation. A
Participant may not make changes in his/her previously made
deferral election for any type of Other Compensation without
the prior approval of the Committee or its appointed
representative, which approval may be withheld if the
Committee or its appointed representative, in its sole
discretion, determines that, for federal income tax
purposes, the Eligible Employee or any other Participant may
be in constructive receipt of Compensation deferred under
this Plan if the change in deferral election is approved.
2.5 Participation Election Forms
The Committee shall approve and make
available to all Eligible Employees the forms (on paper
and/or electronically) which shall be used by Eligible
Employees to notify the Committee of their elections
pursuant to Section 2.4 hereof to participate in the Plan.
Such forms shall clearly delineate the deferral alternatives
provided by the Plan, pursuant to Section 3.1 hereof.
2.6 Exercise of Company Stock Option
Notwithstanding any other provision of this
Plan, the deferral of Stock Option Gain Compensation with
respect to any Company Stock Option is conditioned on the
Eligible Employee's use of the reload feature of the Company
Stock Option and the attestation by the Eligible Employee of
his/her current ownership of Company Common Shares having a
Fair Market Value on the exercise date equal to the exercise
price of the Company Stock Option.
ARTICLE III
DEFERRALS
3.1 Amount of Deferral
(a) Pursuant to Section 2.4 hereof, a Section
16(a) Participant may elect to defer in whole number
percentages or whole dollar terms, or a combination thereof,
up to all of such person's Compensation for the Plan Year
(or the Fiscal Year, as the case may be); provided, however,
that a Participant may defer Base Salary only in whole
number percentages; provided, further, that a Participant's
deferral election with respect to any number of Common
Shares related to a Company Stock Option shall apply to all
of such person's Stock Option Gain Compensation with respect
to that number of Common Shares first thereafter acquired
pursuant to the exercise of such Company Stock Option;
provided, further, that a Participant's deferral election
with respect to the Vested Common Share Compensation related
to any number of Restricted Common Shares and any Common
Shares Vesting Date shall apply to all the Vested Common
Share Compensation related to both that number of Restricted
Common Shares and that Common Shares Vesting Date; provided,
further, that any deferral election shall be subject to the
limitations and conditions set forth in Section 2.4 and
Section 2.6 hereof. Notwithstanding any other provision of
this Plan, except in the case of deferrals of Base Salary,
no deferral election with respect to any Compensation shall
take effect unless, on the date the Compensation otherwise
would be deferred, the amount of such type of Compensation
otherwise to be deferred is at least $1000.
(b) Any other Participant may, pursuant to
Section 2.4 hereof, elect to defer in whole number
percentages or whole dollar terms, or a combination thereof,
up to all of such Participant's Compensation for the Plan
Year (or the Fiscal Year, as the case may be); provided,
however, that a Participant may defer Base Salary only in
whole number percentages; provided, further, that a
Participant's deferral election with respect to any number
of Common Shares related to a Company Stock Option shall
apply to all of such person's Stock Option Gain Compensation
with respect to that number of Common Shares first
thereafter acquired pursuant to the exercise of such Company
Stock Option; provided, further, that a Participant's
deferral election with respect to the Vested Common Share
Compensation related to any number of Restricted Common
Shares and any Common Shares Vesting Date shall apply to all
the Vested Common Share Compensation related to both that
number of Restricted Common Shares and that Common Shares
Vesting Date; provided, further, that any deferral election
shall be subject to the limitations and conditions set forth
in Section 2.4 and Section 2.6 hereof.
3.2 Effective Date of Deferral
Compensation deferred shall be credited to a
Participant's Account as set forth in Section 4.2.
3.3. Use of Amounts Deferred
Amounts credited to Deferred Compensation Accounts
hereunder shall be a part of the general funds of the
Company, shall be subject to all the risks of the Company's
business, and may be deposited, invested or expended in any
manner whatsoever by the Company.
ARTICLE IV
DEFERRED COMPENSATION ACCOUNTS AND VESTING
4.1 Establishment of Account
The Committee shall establish, by bookkeeping
entry on the books of the Company, a Deferred Compensation
Account for each Participant. Such Account shall be
established as of the first day of the Plan Year for which
the Eligible Employee first becomes a Participant.
4.2 Contributions to Account
(a) Timing. The Committee shall cause deferred
Compensation to be credited by bookkeeping entry to each
Participant's Account on the following dates: (1) Base
Salary deferred in accordance with Sections 2.4(a) and 3.1
shall be credited as of the first day of the month following
the month containing the date on which such Compensation
otherwise would have been payable to the Participant; (2)
Annual Bonuses and LTIP Awards (including Restricted Common
Shares otherwise payable pursuant to an Equity Swap
election) deferred in accordance with Section 2.4(b) or (c)
and Section 3.1 shall be credited as of the date on which
such Compensation otherwise would have been payable to the
Participant; (3) Stock Option Gain Compensation deferred in
accordance with Sections 2.4(d), 2.6 and 3.1 shall be
credited as of the date the Participant exercises the
Company Stock Option with respect to the Common Shares to
which it relates; (4) Vested Common Share Compensation
deferred in accordance with Sections 2.4(e) and 3.1 shall be
credited as of the Common Shares Vesting Date and (5) Other
Compensation deferred in accordance with Sections 2.4(f) and
3.1 shall be credited as of the date on which such Other
Compensation otherwise would have been payable to the
Participant.
(b) Amount. The Committee shall cause deferred
Compensation credited by bookkeeping entry to each
Participant's Account on the above dates to be credited in
the following amounts: (1) deferred Compensation that
would have otherwise been payable in cash shall be credited
in the amount of the cash Compensation that would have
otherwise been payable; (2) deferred Compensation that would
have been payable in Common Shares (including Vested Common
Share Compensation, but not including Restricted Common
Shares) shall be credited in the amount of the Fair Market
Value on the date of credit of the Common Shares; (3)
deferred Compensation that would have been payable in
Restricted Common Shares shall be credited in the amount of
the Fair Market Value on the date of credit of the Common
Shares to which the Section 83 Restrictions are attached
(determined without regard to the Section 83 Restrictions);
(4) deferred Compensation that would have been payable in
equity securities of the Company that are not Common Shares
or Restricted Common Shares shall be credited in the amount
of the fair market value on the date of credit of the equity
securities, as determined by the Committee or its appointed
representative; and (5) Stock Option Gain Compensation that
is deferred shall be credited in the amount of the Stock
Option Gain Compensation.
4.3 Accrual of Interest, Dividend Equivalents and
Other
Amounts on Compensation Deferred
To each Subaccount shall be credited, as
applicable, Compensation deferred, interest, Dividend
Equivalents and other amounts as set forth in paragraphs (a)
through (i) of this Section 4.3. Payments to the
Participant shall be debited from the appropriate Subaccount
on the date of payment and amounts transferred from another
Subaccount under the Plan shall be debited from the
appropriate Subaccount on the date the transfer is effective
pursuant to Section 4.3(g).
(a) Subaccount #1 - Sears Roebuck Acceptance
Corp. Commercial Paper Rate. Compensation deferred into
Subaccount #1 shall be credited to the Subaccount on the
same date or dates and in the same amount or amounts the
Participant's Account is credited as set forth in Section
4.2. Transfers to this Subaccount from another Subaccount
shall be credited to the Subaccount on the effective date of
the transfer as set forth in Section 4.3(g). Amounts
credited to this Subaccount shall earn interest from the
date of credit to the date of debit. At the end of each
calendar month or, if earlier, on the date of payment,
interest at a rate equal to the monthly average per annum
cost of commercial paper or the equivalent issued by Sears
Roebuck Acceptance Corp. ("SRAC") as reported in the monthly
report to the SRAC Board of Directors shall be credited to
the amounts in each Subaccount for the period from the date
amounts were credited to such Subaccount for amounts
credited during the month or from the first day of the month
for amounts in the Subaccount on the last day of the
preceding month to the end of such calendar month or, if
earlier, to the date of payment.
(b) Subaccount #2 - Common Share Units.
Compensation deferred into Subaccount #2 shall be credited
to the Subaccount on the same date or dates and in the same
amount or amounts the Participant's Account is credited as
set forth in Section 4.2. Transfers to this Subaccount from
another Subaccount shall be credited to the Subaccount on
the effective date of the transfer as set forth in Section
4.3(g), except for mandatory transfers from Subaccount #5,
which shall be credited to the Subaccount on the same date
as provided in Section 4.3(e). Amounts credited to this
Subaccount shall be converted into a number of Common Share
Units on the date credited to the Subaccount by dividing the
Compensation deferred by the Fair Market Value on such date.
If Common Share Units exist in a Participant's Subaccount
which are indexed under Subaccount #2 on a dividend record
date for the Company's Common Shares, Dividend Equivalents
shall be credited to the Participant's Subaccount on the
related dividend payment date, and shall be converted into
the number of Common Share Units which could be purchased
with the amount of Dividend Equivalents so credited.
In the event of any change in the Company's Common
Shares outstanding, by reason of any stock split or
dividend, recapitalization, merger, consolidation,
combination or exchange of stock or similar corporate
change, the Committee shall make such equitable adjustments,
if any, by reason of any such change, deemed appropriate in
the number of Common Share Units credited to each
Participant's Subaccount #2.
(c) Subaccount #3 - Equity Index Subaccount.
Compensation deferred into Subaccount #3 shall be credited
to the Subaccount on the same date or dates and in the same
amount or amounts the Participant's Account is credited as
set forth in Section 4.2. Transfers to this Subaccount from
another Subaccount shall be credited to the Subaccount on
the effective date of the transfer as set forth in Section
4.3(g). On the last day in the month the amounts in the
Participant's Subaccount shall be adjusted by a percentage
factor based on the total return (including dividends) of
the Equity Index from the date the amount was credited to
the Subaccount for amounts credited during the month or from
the first day of the month for amounts in the Subaccount on
the last day of the preceding month. Similar adjustments
shall also be made on any date the Subaccount is debited by
reason of any distribution to the Participant. In the event
that the Equity Index is not published for any date referred
to above, the Equity Index for the closest day preceding
such date for which such Index is published shall be used.
(d) Subaccount #4 - Fixed Income Index
Subaccount. Compensation deferred into Subaccount #4 shall
be credited to the Subaccount on the same date or dates and
in the same amount or amounts the Participant's Account is
credited as set forth in Section 4.2. Transfers to this
Subaccount from another Subaccount shall be credited to the
Subaccount on the effective date of the transfer as set
forth in Section 4.3(g). Amounts in the Subaccount shall
earn additional amounts which will be credited to the
Subaccount on the last business day of each month or, if
earlier, the date of distribution to the Participant, based
upon the performance of the Fixed Income Index and the
period of time during the month that the amounts were in the
Subaccount.
(e) Subaccount #5 - Restricted Common Share Unit
Account. Compensation deferred into Subaccount #5 shall be
credited to the Subaccount on the same date or dates and in
the same amount or amounts the Participant's Account is
credited as set forth in Section 4.2. If a Participant has
elected under this Plan to defer Restricted Common Shares
that otherwise would have been received pursuant to an
Equity Swap election in connection with an Annual Bonus or
an LTIP Award, then the dollar amount of such Compensation
shall be allocated to Subaccount #5 and to no other
Subaccount, except as provided below.
Such Compensation shall be converted into Common
Share Units in the same manner as provided in Section 4.3(b)
on the same date credited to the Subaccount. Dividend
Equivalents shall be credited to and equitable adjustments
shall be made to Subaccount #5 in the same manner as to
Subaccount #2 as set forth in Section 4.3(b). Any event
that would cause a forfeiture of the Restricted Common
Shares that otherwise would have been received under the
Equity Swap election, shall cause a forfeiture of Common
Share Units under Subaccount #5.
On the date on which all Section 83 Restrictions
would lapse if a participant had received Restricted Common
Shares pursuant to the Equity Swap election, instead of
restricted common share units pursuant to this Plan, all
Dividend Equivalents (except for Dividend Equivalents
accruing as of the close of business on such date) will
cease to accrue and all amounts in Subaccount #5 shall
automatically be transferred into Subaccount #2 and
thereafter shall be subject to all of the provisions of the
Plan applicable to Subaccount #2, including provisions
relating to transfers of amounts between Subaccount #2 and
other Subaccounts and distribution.
(f) Subaccount #6 - Nondiversifiable Common Share
Subaccount. Stock Option Gain Compensation and Vested
Common Share Compensation deferred into Subaccount #6 shall
be credited to the Subaccount on the same date or dates and
in the same amount or amounts the Participant's account in
credited as set forth in Section 4.2. If a Participant has
elected under this Plan to defer Stock Option Gain
Compensation and/or Vested Common Share Compensation, then
the dollar amount of such Compensation shall be allocated to
Subaccount #6 and to no other Subaccount. The dollar amount
of such Compensation shall be converted into Common Share
Units on the date credited to the Subaccount in the same
manner as provided in Section 4.3(b). Dividend Equivalents
shall be credited to and equitable adjustments shall be made
to Subaccount #6 in the same manner as to Subaccount #2 as
set forth in Section 4.3(b).
(g) Transfers between Subaccounts. Transfers
among Subaccounts #1, #2, #3 and #4 may be made once each
calendar month at the request of the Participant upon
application to the Director of Executive Compensation of the
Company (or any person succeeding to the functions
previously performed by the Director of Executive
Compensation of the Company, regardless of title), and shall
be effective as of the first day of the calendar month
subsequent to the month in which the Company receives such
Participant's request to transfer. Notwithstanding the
foregoing, (i) except for the mandatory transfer referred to
in Section 4.3(e) above, no transfers shall be allowed to or
from Subaccount #5 and (ii) no transfers shall be allowed to
or from Subaccount #6.
With respect to a Section 16(a) Participant, in the
case of:
(i) any election to transfer or withdraw from
Subaccount #2 which occurs within six months after
an election to transfer into Subaccount #2 or into
another Equity Fund Account; and
(ii) any election to transfer into Subaccount #2 which
occurs within six months after an election to
transfer or withdraw from Subaccount #2 or from
another Equity Fund Account,
the second election shall not be effective for any purpose
under this Plan, and the account of any such Section 16(a)
Participant shall continue to reflect all balances and
accruals as if such election had not been made. The Company
is authorized to make any adjustments to a Section 16(a)
Participant's account as may be necessary to give effect to
the foregoing provision.
(h) The following definitions apply to this
Section 4.3:
1) "Common Share Unit" shall mean an amount
of Compensation deferred which is converted
into a unit or fraction of a unit for
purposes of the Plan by dividing a dollar
amount by the Fair Market Value of one of the
Company's Common Shares.
2) "Common Shares" shall mean the Company's
common shares, par value $.75 per share.
3) "Dividend Equivalent" shall mean an
amount equal to the cash dividend paid on one
of the Company's Common Shares credited to a
Subaccount for each Common Share Unit
credited to such Subaccount.
4) "Equity Fund Account" shall mean an
account for a Section 16(a) Participant
maintained under a benefit plan of the
Company, that contains a Company "equity
security" within the meaning of the term
"equity security of such issuer" in Rule 16a-
1 under the Exchange Act.
5) "Equity Index" shall mean the Standard &
Poor's 500 Composite Stock Price Index which
is a market value-weighted index consisting
of 500 common stocks of large U.S. domiciled
companies selected by Standard and Poor's
Corporation ("S&P") through a detailed
screening process starting on a macro-
economic level and working toward a micro-
economic level dealing with company specific
information such as market value, industry
group classification, capitalization and
trading activity. S&P's primary objective
for the S&P Index is to represent the segment
of the U.S. equity securities markets
consisting of large market capitalization
stocks. However, companies are not selected
by S&P for inclusion because they are
expected to have superior stock price
performance relative to the market in general
or other stocks in particular.
6) "Fair Market Value" shall mean the
closing price of the Company's Common Shares
as reported by the Wall Street Journal or
other comparable source in a summary of
composite transactions for stocks listed on
the New York Stock Exchange.
7) "Fixed Income Index" shall mean the
Lehman Brothers Aggregate Bond Index, which
is made up of the Lehman Government/Corporate
Bond Index ("Bond Index"), the Lehman
Mortgage-Backed Securities Index ("Mortgage-
Backed Securities Index"), and the Lehman
Asset-Backed Securities Index ("Asset-Backed
Securities Index"). The Bond Index is a
composite of all publicly issued, fixed rate,
nonconvertible, domestic bonds. The issues
are rated investment grade or higher by
Moody's Investors Service, Inc., S&P, or
Fitch Investors Service, Inc., in that order,
have a minimum outstanding principal of $100
million for U.S. Government issues or $50
million for other bonds, and have a maturity
of at least one year. The index is
capitalization-weighted. The Mortgage-Backed
Securities Index includes 15- and 30-year
fixed rate securities backed by mortgage
pools of the Government National Mortgage
Association, the Federal Home Loan Mortgage
Corporation, and the Federal National
Mortgage Association. Graduated payment
mortgages and balloon mortgages are included
in the index; buydown, manufactured homes and
graduated equity mortgages are not. The
Asset-Backed Securities Index is composed of
credit card, auto, and home equity loans.
Included in the index are pass-through,
bullet (noncallable), and controlled
amortization structures; no subordination
tranches are included. All securities have
an average life of at least one year.
8) "Subaccount" shall mean the portion of
the balance in an Account reflecting the
Compensation deferred and indexed, as
specified by the Participant, against one of
the indices set forth in Sections 4.3(a),
(b), (c), (d), (e) or (f), and the interest,
Dividend Equivalents and other amounts
credited thereto.
(i) Each Participant may vary the choice of
Subaccounts to which Compensation is credited by executing
and delivering a notice to the Director of Executive
Compensation of the Company at any time; provided, however,
that (i) an Annual Bonus and/or LTIP Award that the
Participant has elected to receive in Restricted Common
Shares under an Equity Swap and that the Participant has
deferred in accordance with Section 2.4(b) or (c) and
Section 3.1 may be credited only to Subaccount #5 and (ii)
Stock Option Gain Compensation and Vested Common Share
Compensation may be credited only to Subaccount #6. Such
election shall be applicable only to Compensation payable on
or after the first day of the month following the month in
which such notice of election is received.
4.4 Vesting
A Participant shall be fully vested in his/her
Deferred Compensation Account at all times, subject to
Sections 3.3 and 8.2 and any potential forfeiture referred
to in Section 4.3(e).
4.5 Participant Transfers
In the event of a Transfer, deferrals of
Compensation under this Plan shall be discontinued as of the
first day of the pay period during which the Transfer
becomes effective, according to Company policy. The
Participant's Account shall continue to be credited with
interest, Dividend Equivalents and other amounts pursuant to
Section 4.3 in the same manner as the Accounts of all other
Participants, until such time as the Account is
distributable pursuant to Article V. In the event such an
Employee again becomes an Eligible Employee, he will be
notified of his eligibility to become a Participant again in
accordance with the procedure in Section 2.3 and may elect
to become a Participant again in accordance with the
procedure in Section 2.3 and may elect to become a
Participant again in accordance with the procedure in
Section 2.4.
4.6 Transfers of Liabilities From Another Plan
The Committee or the Board, in the sole discretion
of either the Committee or the Board, may approve the
transfer of benefit liabilities from another unfunded
deferred compensation arrangement of the Company (the "Other
Plan") to this Plan with respect to any individual who is an
Eligible Employee, even if such individual has not elected
to participate in the Plan in accordance with Section 2.4.
If such individual is already a Participant, the balance of
his/her Account under this Plan will be increased by the
balance of his account(s) under the Other Plan as of the
date of transfer. If the individual is not already a
Participant, an Account will be established for him/her
reflecting the balance of his/her account(s) under the Other
Plan as of the date of transfer. Each individual who has an
account balance from an Other Plan transferred to this Plan
will be given the opportunity, prior to the date of
transfer, to choose the Subaccount(s) to which the
transferred amount will be credited under Section 4.3 and
the timing and form of payment to be made under Section 5.4;
provided, however, that the Board or Committee may eliminate
the election with respect to any or all of the choice of
Subaccounts, the timing of payment and/or the form of
payment to the extent that the Other Plan provided the
individual with the same options as the Plan with respect to
the choice of Subaccounts, the timing of payment and/or the
form of payment; provided, further, that the Board or
Committee may designate the Subaccount(s) to which
restricted property may be transferred; provided, further,
that the Board or Committee may limit or prohibit transfers
to Subaccounts #5 and #6. If an individual fails to make a
timely election in accordance with the preceding sentence or
to the extent the Board or the Committee eliminates an
individual's election as provided in the previous sentence,
the individual's balance in the Other Plan will be
transferred to this Plan and allocated among the
Subaccount(s) under this Plan in a manner that, in the
judgment of the Company's Senior Vice President, Human
Resources, or any other person performing similar functions,
regardless of title (the "Senior Vice President, Human
Resources"), most closely duplicates the subaccount(s) to
which his balance was allocated under the Other Plan, and/or
such individual will be deemed to have elected distribution
in the form and/or at the time available under this Plan
that in the judgment of the Senior Vice President, Human
Resources, most closely matches his/her distribution
election under the Other Plan. If the Senior Vice
President, Human Resources, determines that this Plan does
not have a comparable distribution option, the individual
will be deemed to have elected distribution in a lump sum
upon the Participant's Separation from Service. Once the
balance from the Other Plan is transferred to this Plan, it
will be governed by the same rules regarding accrual of
interest, Dividend Equivalents and other amounts and the
same rules regarding distributions, including the ability to
make new elections, as any other deferrals under this Plan.
ARTICLE V
PAYMENTS
5.1 Events Causing Accounts to Become
Distributable
A Participant's Account becomes distributable on
the date on which any of the following occurs:
(a) Separation from Service;
(b) Demonstration of Hardship by the Participant
to the Committee or its appointed representative;
(c) As to all or any portion of an Account, on a
date certain occurring at any time subsequent to the date
one month after the date on which the Committee receives a
Participant's election form under this Section 5.1(c), as
shall be irrevocably specified by the Participant; provided,
however, that a Participant shall be permitted to make an
election under this Section 5.1(c) only if the Participant
agrees to forego all entitlement to, and to allow the
Company to withhold and retain for its own use, an amount
equal to 10 percent of the portion of the Account specified
by the Participant to be distributed on the date certain.
(d) As to all or any portion of an Account
attributable to Compensation earned and deferred and
interest, Dividend Equivalents and other amounts accrued
thereon after the date on which the Committee receives a
Participant's election form under this Section 5.1(d), on a
date certain occurring at any time subsequent to the close
of the Plan Year in which the Participant makes the election
under this Section 5.1(d), as shall be irrevocably specified
by the Participant; provided, however, that a Participant
shall be permitted to make an election under this Section
5.1 (d) no more than one time per Plan Year and shall not be
permitted to have more than one election under this Section
5.1 (d) outstanding at any time.
Any balance in the Participant's Account remaining
after any payment under paragraph (c) and/or paragraph (d),
and any balance in the Account attributable to participation
in the Plan in any year subsequent to the year in which a
payout on such date(s) certain occurs, shall be paid to the
Participant as provided in paragraph (a) or (b) above.
Notwithstanding any contrary election by a
Participant, if any payment under this Section 5.1 would be
made at a time when a Participant is a "covered employee" as
defined in Section 162(m) of the Internal Revenue Code of
1986, as amended, and if such payment, together with other
compensation payable to the Participant, could cause the
Company to be limited by said Section 162(m) from claiming
as a deduction the full amount of compensation payable to
that Participant on any tax return, then the Company may
require the payment to be deferred hereunder until the first
date on which the Company can claim such deduction, unless
further deferred as provided in this Section 5.1.
5.2 Notice of Account Payment and Commencement
of Distribution
The Committee or its appointed representative
shall notify a Participant or Beneficiary, as the case may
be, that he/she is entitled to receive payment from an
Account, no later than the first day of the month succeeding
the date on which the Account becomes distributable, or as
soon thereafter as practicable. Distribution of Account
balances shall commence on the first day of the month
following the date on which the Account becomes
distributable, or as soon thereafter as practicable.
5.3 Form of Payment
(a) Payments of Account balances to a Participant
from Subaccounts #1, #2, #3 and #4 shall be in cash;
payments of Account balances to a Participant from
Subaccount #6 shall be made in whole Common Shares. Except
as provided in paragraphs (c) and (d) of this Section 5.3
and Article VIII hereof, payments of Account balances to a
Participant shall be in the form of one lump sum payment or
annual installment payments over a period of from 1 to 10
years, at the election of the Participant; provided, that,
at the election of the Participant, a lump sum payment
distributable upon the Participant's Separation from Service
may be delayed until the date one or two years after the
Participant's Separation from Service; provided, further,
that,
at the election of the Participant, payment of the first
installment distributable upon the Participant's Separation
from Service may be delayed until one year after the
Participant's Separation from Service.
(b) The following formula shall be used to
determine each annual installment payment to a Participant
who has elected to receive installment payments:
(i) cash equal to:
remaining Account balance from Subaccounts #1, #2, #3 and #4
as of
current payment date
number of remaining payments, including the current one
plus
(ii) whole Common Shares equal to:
remaining number of Common Share Units from Subaccount #6
as of current payment date
number of remaining payments, including the current one
On the last payment date, in addition to the installment
payment determined according to the above formula, the
Participant shall receive cash in an amount equal to the
fractional Common Share Units remaining in Subaccount # 6
after the application of the above formula for that date,
multiplied by the Fair Market Value on such date. Annual
payments shall be made on the day payments commence pursuant
to Section 5.2 and on each annual anniversary date of such
initial payment. Interest, Dividend Equivalents and other
amounts shall continue to accrue on the entire unpaid
Account balance, as provided in Section 4.3.
(c) In the event of a Participant's death prior
to full distribution of his/her Account, the remaining
Account balance shall be paid in a lump-sum to the
Beneficiary or Beneficiaries, according to the designation
made by the Participant, as soon as practicable after a
Participant's death, and shall accrue interest, Dividend
Equivalents and other amounts, as provided in Section 4.3,
until the account is completely distributed.
(d) Notwithstanding the provisions of paragraph
(b) above, if the remaining unpaid Account balance is $5,000
or less on any date an annual installment payment is to be
made to a Participant, the payment shall be the remaining
unpaid Account balance.
5.4 Distribution Election
(a) Each Participant shall give written notice of
his/her desired form of payment at the time of his/her first
participation election set forth in Section 2.4.
(b) Except for distribution elections under
Section 5.1(c) and (d), each Participant may from time to
time revise the terms of distribution of the Participant's
Account by submitting a revised written notice of his/her
desired form of payment, provided that the revised written
notice of his/her desired form of payment must be filed by
the Participant with the Committee or its appointed
representative no later than (1) the earlier of (A) the end
of the calendar year prior to the date on which payment
would commence to be made in the absence of such revised
written notice and (B) 20 business days prior to the date on
which payment would commence to be made in the absence of
such revised written notice, (2) the earlier of (A) the end
of the calendar year prior to the date on which payment
would commence under the Participant's revised notice and
(B) 20 business days prior to the date on which payment
would commence under the revised notice and (3) the day
before the date of the Participant's Separation from
Service.
5.5 Distribution Election Form
The Committee shall approve and make available to
all Participants a form (on paper and/or electronically)
which shall be used by each Participant to notify the
Committee of his/her desired form of payment or to notify
the Committee of any revision to his/her desired form of
payment. Such form shall clearly delineate the payment
alternatives provided pursuant to Section 5.3 hereof.
ARTICLE VI
ADMINISTRATION
6.1 General Administration; Rights and Duties
Subject to the express limitations of the Plan,
the Committee, on behalf of the Participants, shall be
charged with the general administration of the Plan and with
the responsibility for carrying out its provisions, and
shall have all powers necessary to accomplish those
purposes, including, but not by way of limitation, the
following:
(a) To construe and interpret the Plan;
(b) To compute the amount of benefits payable to
Participants;
(c) To authorize all disbursements by the Company of
Account balances pursuant to the Plan;
(d) To maintain all the necessary records for the
administration of the Plan;
(e) To make and publish rules for the administration
and interpretation of the Plan and the transaction of its
business;
(f) To inform each Participant as soon as practicable
after January 1 of each Plan Year, of the value of the
Participant's Deferred Compensation Account as of the end of
the previous Plan Year;
(g) To appoint (i) officers or Employees of the
Company whom the Committee believes to be reliable and
competent; and (ii) legal counsel (who may be Employees of
the Company and Participants), independent accountants and
other persons to assist the Committee in administering the
Plan; and
(h) To conclusively determine, in its sole discretion,
all questions arising under the Plan, including the power to
determine the rights and eligibility of employees,
Participants, and other persons, and the amounts of their
benefits under the Plan, and to remedy ambiguities,
inconsistencies or omissions, and without limiting the
generality of the foregoing, to interpret the provisions of
the Plan to eliminate these ambiguities, inconsistencies or
omissions, and such determination by the Committee shall be
conclusive on all persons unless demonstrated to be
incorrect to the satisfaction of the Committee.
The determination of the Committee as to any
disputed question or controversy shall be conclusive.
Any member of the Committee may resign by
delivering a written resignation to the Board.
ARTICLE VII
PLAN AMENDMENTS AND TERMINATION
7.1 Amendments
The Company shall have the right to amend this
Plan from time to time by resolutions of the Board or by an
Unaffiliated Director Committee or the Committee, and to
amend or rescind any such amendments; provided, however,
that no action under this Section 7.1 shall in any way
reduce the amount of Compensation deferred or any interest,
Dividend Equivalents or other amounts credited thereon, up
to and including the end of the month in which such action
is taken; provided, further, that Sections 1.2 (m) and
4.3(g), each as it pertains to Section 16 (a) Participants,
and Sections 1.2(ff), 2.1 (a), 3.1 (a) and 4.3(h) may be
amended only by the Board or by an Unaffiliated Director
Committee. Interest, Dividend Equivalents and other amounts
will continue to accrue as provided in Section 4.3. All
such amendments shall be in writing and shall be effective
as provided by the Board or the Committee, as the case may
be, subject to the limitations in this Section 7.1. The
Committee shall inform each Participant as soon as
practicable following the enactment of any such amendment.
7.2 Termination of Plan
Although the Company expects that this Plan will
continue indefinitely, continuance of this Plan is not a
contractual or other obligation of the Company, and the
Company expressly reserves its right to discontinue this
Plan at any time by resolutions of the Board or the
Compensation Committee of the Board, effective as provided
in such resolutions. However, no such action shall in any
way reduce the amount of Compensation deferred or any
interest, Dividend Equivalents or other amounts credited
thereon, up to and including the end of the month in which
such action is taken. Interest, Dividend Equivalents and
other amounts will continue to accrue as provided in Section
4.3.
ARTICLE VIII
MISCELLANEOUS
8.1 Notification to Committee
Any notification given by a Participant pursuant
to this Plan shall be made in writing to the Committee or to
such representative of the Committee as may be designated by
it for such purpose, and shall be deemed to have been made
or given on the date received by the Committee or such
representative. To the extent permitted by the Committee or
its appointed representative, any notification required to
be provided in writing under this Plan may be provided
electronically.
8.2 Participants' Employment
Participation in this Plan shall not give any
Participant the right to be retained in the Company's employ
or any right or interest other than as herein provided. No
Participant or Employee shall have any right to any payment
or benefit hereunder except to the extent provided in this
Plan. The Company expressly reserves the right to dismiss
any Participant without any liability for any claim against
the Company, except to the extent expressly provided herein.
This Plan shall create only a contractual obligation on the
part of the Company and shall not be construed as creating a
trust or other fiduciary relationship with Participants.
Participants will have only the rights of general unsecured
creditors of the Company with respect to Compensation
deferred and interest, Dividend Equivalents and other
amounts credited to their Accounts.
8.3 Other Plans
This Plan shall not affect the right of any
Employee or Participant to participate in and receive
benefits under and in accordance with the provisions of any
other Company plans which are now or may hereafter be in
existence.
8.4 Beneficiaries and Contingent Beneficiaries
Each Participant shall, by written notice to the
Committee, designate one or more persons or entities
(including a trust or trusts or his/her estate) to receive
any balance in his/her Deferred Compensation Account payable
to him/her under this Plan in the event of his/her death
prior to full payment thereof. The Participant may also
designate a person or persons as a Contingent Beneficiary or
Contingent Beneficiaries who shall succeed to the rights of
the person or persons originally designated as Beneficiary
or Beneficiaries, in case the latter should die. He/she may
from time to time change any designation of Beneficiary or
Contingent Beneficiary so made, and the last written notice
given by him/her to the Committee shall be controlling. In
the event a Participant designates a person other than
his/her spouse as Beneficiary of any interests under this
Plan, the Participant's spouse shall sign a statement
specifically approving such designation and authorizing the
Committee to make payment of such interests in the manner
provided in such designation. In the absence of such
designation by the Participant, or in the absence of spousal
approval and authorization as hereinabove provided, or in
the event of the death prior to or simultaneous with the
death of the Participant, of all Beneficiaries or Contingent
Beneficiaries, as the case may be, to whom payments were to
be made pursuant to a designation under this Section, and
failing any other valid designation by the Participant, such
payments or any balance thereof shall be paid to such
Participant's legal representatives. In the event of the
death, subsequent to the death of the Participant, of all
Beneficiaries or Contingent Beneficiaries, as the case may
be, to whom such payments were to be made or were being made
pursuant to a designation under this Section, such payments
or any balance thereof shall be paid to the legal
representatives of such Beneficiaries or Contingent
Beneficiaries.
8.5 Taxes
To the extent permitted by law, if the whole or
any part of a Participant's Account shall become the subject
of any estate, inheritance, income, employment or other tax
which the Company shall legally be required to withhold
and/or pay, the Company shall have full power and authority
to pay such tax out of any monies or other property in its
hands and charge such amounts paid against the Account of
the Participant whose interest hereunder is subject to such
taxes. Prior to making any such tax payment, the Company
may require such releases or other documents from any lawful
taxing authority as the Company shall deem necessary.
8.6 Benefits Not Assignable; Obligations
Binding Upon Successors
Benefits under this Plan and rights to receive the
amounts credited to the Account of a Participant shall not
be assignable or transferable and any purported transfer,
assignment, pledge or other encumbrance or attachment of any
payments or benefits under this Plan, other than by
operation of law, shall not be permitted or recognized.
Obligations of the Company under this Plan shall be binding
upon successors of the Company.
8.7 Illinois Law Governs; Saving Clause
The validity of this Plan or any of its provisions
shall be construed and governed in all respects under and by
the laws of the State of Illinois. If any provisions of
this Plan shall be held by a court of competent jurisdiction
to be invalid or unenforceable, the remaining provisions
hereof shall continue to be fully effective.
8.8 Headings Not Part of Plan
Headings and subheadings in this Plan are inserted
for reference only, and are not to be considered in the
construction of the provisions hereof.
8.9 Mid-Year Participants
Notwithstanding Article III and Sections 4.5 and
5.4(a) and 5.5 of the Plan, any person who during a Plan
Year (i) shall become eligible to participate in the LTIP
and (ii) expects to have Compensation over the amount
specified in Section 2.1(b) of the Plan for services
rendered in such Plan Year (or, with respect to Compensation
payable for a Fiscal Year, the Fiscal Year ending nearest
the end of the Plan Year) ("Mid-Year Participants"), shall
be an Eligible Employee and may be a Participant, with
respect to the portion of the Plan Year beginning the day
after the effective date of election or appointment, or
eligibility to participate in the LTIP. The Director of
Executive Compensation of the Company, or any other person
performing similar functions, regardless of title, is
directed to notify all persons who become Mid-Year
Participants of their eligibility to participate in the
Plan, as soon as practicable after their election or
appointment or after they become eligible to participate in
the LTIP. Each Mid-Year Participant shall give written
notice to the Committee or its appointed representative, of
his or her election to become a Participant in the Plan for
the remainder of such Plan Year, on a form to be provided by
the Company, by the relevant time or times provided in
Section 2.4 or, if later, within 30 days of being notified
of his or her eligibility. If a Mid-Year Participant fails
to give such notice by the time provided in the foregoing
sentence, such failure will be deemed an election not to
become a Participant for the remainder of such Plan Year.
0
33
Exhibit 10.(ii)(11)
SUPPLEMENTAL RETIREMENT INCOME PLAN
As Amended Effective as of March 25, 1997
This Supplemental Retirement Income Plan is established for
the benefit of participants in Sears Pension Plan who retire
or die after December 31, 1977. The Company shall pay, from
time to time out of its general funds, to such participants
(or, in the case of the death of such participant, to any
person or persons to whom benefits are payable) a monthly
retirement amount equal to the amount, if any, by which the
benefit payable under Sears Pension Plan, was reduced in
order to comply with the limits imposed by the Internal
Revenue Code on the annual amount of retirement income,
including limits on the maximum amount of annual
compensation which may be taken into account. Compensation
for the purposes of the Supplemental Retirement Income Plan
shall include any compensation deferred under the Sears,
Roebuck and Co. Deferred Compensation Plan which is not
included and compensation under the Sears Pension Plan.
Notwithstanding the foregoing, no individual who is eligible
to receive a Special ERIP Payment pursuant to resolutions
adopted by the Board of Directors on August 11, 1993 shall
be a participant in, or entitled to benefits under, this
Supplemental Retirement Income Plan.
Except as expressly provided herein, the monthly retirement
amount, if any, payable from time to time to any person
under the Supplemental Retirement Income Plan shall be paid
commencing as of the same date, for the same period, based
upon the same assumptions and subject to the same terms and
conditions as the monthly retirement income paid to such
person under Sears Pension Plan, including Supplemental A
thereto.
If a participant elects to receive the retirement benefit
payable under the Sears Pension Plan in the form of a lump
sum, rather than in the form of monthly payments, such
participant, with the approval of the Sears Pension Plan
Administrator, may elect to have the monthly retirement
income amount, if any, payable under the Supplemental
Retirement Income Plan paid to him (as of the date the lump
sum payment under the Sears Pension Plan is calculated) in
an actuarially adjusted amount pursuant to one of the
optional forms set forth in Section 7.2 of the Sears Pension
Plan.
If a participant under the Supplemental Retirement Income
Plan terminates employment prior to attaining eligibility
for a lump sum distribution under the Sears Pension Plan,
the monthly retirement amount payable under the Supplemental
Retirement Income Plan may be paid at the request of the
participant, in the sole discretion of Sears Pension Plan
Administrator, to the person or persons entitled thereto in
a lump sum, and payable as of the first day of the month
following termination of employment from the Company. If a
participant is not eligible for a lump sum distribution
under the Sears Pension Plan upon termination of employment,
and does not request a lump sum distribution from the
Supplemental Retirement Income Plan upon termination of
employment, such participant will not be eligible for a lump
sum distribution from the Supplemental Retirement Income
Plan at a later date.
In calculating the lump sum which is the actuarial
equivalent of the monthly retirement amount, the mortality
table used for lump sum calculations under the Sears Pension
Plan shall be used, and the interest rate employed shall be
the lump sum interest rate under the Sears Pension Plan
multiplied by sixty percent (60%).
In the event a participant dies while employed by the
Company after he has attained age 55 and has completed ten
or more years of continuous service, then the monthly
retirement amount which would become payable pursuant to the
terms of the Supplemental Retirement Income Plan shall be
payable to the person or persons designated by him pursuant
to such election as he shall have made from among the
options provided for in Subsection 7.2 of Sears Pension
Plan. Such monthly retirement amount shall commence with
the first day of the month following the month in which the
participant's death occurs. A participant may elect for
this purpose under the Supplemental Retirement Income Plan
an option other than the one he has elected for the purposes
of the Sears Pension Plan. In the event a deceased
participant had not elected an option under the Supplemental
Retirement Income Plan, the monthly retirement amount shall
be paid pursuant to any option elected under Sears Pension
Plan, or if no such option has been elected, then in the
manner provided pursuant to Subsection 6.2 of Sears Pension
Plan. Notwithstanding the foregoing, in the event that a
participant under the Supplemental Retirement Income Plan or
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.
The liability for any other supplemental pension benefits
which have been granted on an individual basis to certain
key executives, and described in individual agreements
previously incorporated by reference into this Supplemental
Retirement Income Plan, is hereby transferred to the Sears
Executive Retirement Plan Arrangements.
<PAGE>
16 SEARS, ROEBUCK AND CO.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
millions, except per common share data 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Merchandise sales and services $36,728 $36,957 $36,649
Credit revenues 4,343 4,618 4,925
------- ------- -------
Total revenues 41,071 41,575 41,574
------- ------- -------
COSTS AND EXPENSES
Cost of sales, buying and occupancy 27,212 27,444 26,985
Selling and administrative 8,418 8,384 8,394
Provision for uncollectible accounts 871 1,287 1,532
Depreciation and amortization 848 830 785
Interest 1,268 1,423 1,409
Reaffirmation charge -- -- 475
Restructuring and impairment costs 41 352 --
------- ------- -------
Total costs and expenses 38,658 39,720 39,580
------- ------- -------
Operating income 2,413 1,855 1,994
Other income, net 6 28 144
------- ------- -------
Income before income taxes, minority interest and extraordinary loss 2,419 1,883 2,138
Income taxes 904 766 912
Minority interest 62 45 38
------- ------- -------
Income before extraordinary loss 1,453 1,072 1,188
Extraordinary loss on early extinguishment of debt, net of tax -- 24 --
------- ------- -------
NET INCOME $ 1,453 $ 1,048 $ 1,188
======= ======= =======
EARNINGS PER COMMON SHARE - BASIC:
Income before extraordinary loss $ 3.83 $ 2.76 $ 3.03
Extraordinary loss -- 0.06 --
------- ------- -------
Net income $ 3.83 $ 2.70 $ 3.03
======= ======= =======
EARNINGS PER COMMON SHARE - DILUTED:
Income before extraordinary loss $ 3.81 $ 2.74 $ 2.99
Extraordinary loss -- 0.06 --
------- ------- -------
Net income $ 3.81 $ 2.68 $ 2.99
======= ======= =======
</TABLE>
See accompanying notes.
<PAGE>
SEARS, ROEBUCK AND CO. 17
MANAGEMENT'S ANALYSIS OF CONSOLIDATED OPERATIONS
Sears, Roebuck and Co. and its consolidated subsidiaries ("the Company") is a
multiline retailer providing a wide array of merchandise and services in the
United States, Puerto Rico and Canada. Operating results for the Company are
reported for four domestic segments and one international segment. The domestic
segments include the Company's operations in the United States and Puerto Rico.
The Company's segments are defined as follows:
RETAIL - consisting of:
> Full-line Stores - 858 Full-line stores, averaging 88,000 selling square
feet, located primarily in the best malls in the nation and offering:
-- Softlines - A complete selection of fashionable, quality apparel and
accessories for the whole family, plus cosmetics, fine jewelry and home
fashions, at value prices; includes leading national brands as well as
exclusive Sears brands such as Canyon River Blues, Fieldmaster, Crossroads,
TKS Basics and Circle of Beauty.
-- Hardlines - A full assortment of appliances, electronics and home
improvement products and services; includes major national brands as well as
exclusive Sears brands such as Kenmore, Craftsman, WeatherBeater and DieHard.
> Specialty Stores - More than 2,100 specialty stores, located primarily in
freestanding, off-the-mall locations or high-traffic neighborhood shopping
centers.
-- Hardware Stores - 267 neighborhood hardware stores under the Sears
Hardware and Orchard Supply Hardware names, averaging 20,000 to 40,000
selling square feet, that carry Craftsman tools, a wide assortment of
national brands and other home repair products.
-- Dealer Stores - 738 independently-owned stores, averaging 5,000 selling
square feet, that offer appliances, electronics, lawn and garden merchandise,
hardware and automobile batteries in smaller communities and carry exclusive
Sears brands such as Craftsman, Kenmore and DieHard.
-- Contract Sales - Showrooms dedicated to appliance and home improvement
products for commercial customers.
-- The Great Indoors - Two prototype stores for home decorating and
remodeling, averaging 100,000 selling square feet, dedicated to the four main
rooms of the house: kitchen, bedroom, bathroom and great room.
-- Automotive Stores - 798 Sears Auto Centers and 310 NTB National Tire &
Battery stores that offer tires, DieHard and other brands of batteries, and
related services. Auto Stores also included the Parts Group, which sold
automotive parts through Parts America and Western Auto Stores until November
2, 1998, when the Company sold the Parts Group.
-- Homelife Furniture Stores - included in 1997, 1998 and 1999 until January
30, 1999, when the Company sold Homelife.
SERVICES - consisting of:
> Home Services, which provides service contracts, product installation and
repair services, major home improvements and other home services such as pest
control and carpet cleaning.
> Direct Response, consisting of direct-response marketing, which markets
insurance (credit protection, life and health), clubs and services
memberships, merchandise through specialty catalogs, and impulse and
continuity merchandise.
CREDIT - which manages the Company's portfolio of credit card receivables
arising from purchases of merchandise and services from domestic operations. The
domestic credit card receivables portfolio consists primarily of Sears Card and
Sears Premier Card account balances.
CORPORATE - includes activities that are of an overall holding company nature,
primarily consisting of administrative activities and the Sears Online
investment initiatives related to selling merchandise via the Company Web sites,
the costs of which are not allocated to the Company's businesses.
INTERNATIONAL - consisting of retail, services, credit and corporate operations
similar to the Company's domestic operations. International operations are
conducted in Canada through Sears, Canada Inc. ("Sears Canada"), a majority
owned subsidiary. International operations were also conducted through Sears,
Roebuck de Mexico, S.A. de C.V. ("Sears Mexico"), a 75.5% owned subsidiary until
March 1997, when the Company sold 60% of the outstanding shares of Sears Mexico.
Throughout management's analysis of consolidated operations and financial
condition, certain prior year information has been reclassified to conform with
the current year presentation. All references to earnings per share relate to
diluted earnings per common share.
<PAGE>
18 SEARS, ROEBUCK AND CO.
MANAGEMENT'S ANALYSIS OF CONSOLIDATED OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
CONSOLIDATED
Net income in 1999 increased 38.6% to $1.45 billion, or $3.81 per share, from
$1.05 billion, or $2.68 per share for 1998. The results of operations for 1999,
1998, and 1997 were affected by certain noncomparable items. The effects of
these noncomparable items on net income and earnings per share are summarized as
follows:
<TABLE>
<CAPTION>
millions, except per share data 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
Earnings Earnings Earnings
After-tax per share After-tax per share After-tax per share
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income excluding noncomparable items $ 1,482 $ 3.89 $ 1,300 $ 3.32 $ 1,303 $ 3.27
Restructuring charge for
NTB and Corporate
staff reductions (29) (0.08) -- -- --
Sale of Homelife -- -- (21) (0.05) -- --
Sale of Western Auto -- -- (243) (0.62) -- --
Extraordinary loss on
debt extinguishment -- -- (24) (0.06) --
SFAS No. 125 accounting -- -- 36 0.09 136 0.35
Reaffirmation charge -- -- -- -- (320) (0.80)
Sale of Advantis -- -- -- -- 91 0.23
Sale of Sears Mexico -- -- -- -- (36) (0.09)
Postretirement life insurance -- -- -- -- 37 0.09
Parts America conversion -- -- -- -- (23) (0.06)
- ----------------------------------------------------------------------------------------------------------
Net income as reported $ 1,453 $ 3.81 $ 1,048 $ 2.68 $ 1,188 $ 2.99
- ----------------------------------------------------------------------------------------------------------
</TABLE>
DESCRIPTION OF NONCOMPARABLE ITEMS
In the third quarter of 1999 the Company implemented certain cost reduction
strategies resulting in a $46 million pre-tax charge ($29 million after-tax). Of
the $46 million charge, $25 million related to the closing of 33 automotive
stores and $21 million related to severance costs for headquarters staff
reductions of approximately 450 employees. The Company anticipates annual
savings of approximately $40 million (pretax) related to these cost reduction
efforts.
On November 18, 1998, the Company entered into an agreement to sell its
Homelife furniture business for $100 million in cash, a $10 million note
receivable and a 19% ownership interest in the new Homelife business. The
Company recorded a loss of $33 million ($21 million after-tax) in the fourth
quarter of 1998 related to this transaction. The sale was completed on January
30, 1999.
On November 2, 1998, the Company completed an Agreement and Plan of Merger
of Western Auto, a wholly owned subsidiary, and Advance Auto Parts whereby Sears
exchanged its interest in Western Auto for $175 million in cash and
approximately 40% equity ownership interest in the resulting combined company.
Based upon the terms of the sale, the Company recorded a pretax loss of $319
million ($243 million after-tax) in 1998.
On October 2, 1998, the Company prepaid debt with a face value of $300
million, which was due in May 2000. The transaction generated an extraordinary
loss of $37 million ($24 million after-tax). The loss resulted primarily from
the write-off of the related unamortized discount.
In 1997, the Company implemented Statement of Financial Accounting
Standards ("SFAS") No. 125, which changed the way the Company accounted for
securitizations. SFAS No. 125 accounting provided incremental operating income
of $58 million in 1998 and $222 million in 1997 ($36 million and $136 million,
respectively, after-tax).
The 1997 reaffirmation charge of $475 million ($320 million after-tax)
represents the cost of the settlement of lawsuits and investigations which
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 and other related matters. There are no further
open matters with respect to the reaffirmation charge taken in 1997.
In 1997, the Company sold to IBM its 30% equity interest in Advantis, a
joint venture between IBM and the Company. The sale resulted in a pretax gain of
$150 million ($91 million after-tax) recorded in other income.
In 1997, the Company sold 60% of the outstanding shares of Sears Mexico to
Grupo Carso S.A. de C.V. The sale was recorded in the first quarter of 1997 and
resulted in a pretax loss of $21 million reflected in other income and tax
expense of $15 million, for an after-tax loss of $36 million.
The Company changed its postretirement life insurance benefit plan in 1997
by eliminating retiree life insurance benefits for all active associates not
retired by December 31, 1997. This plan change resulted in a one-time pretax
curtailment gain of $61 million ($37 million after-tax) recorded as a reduction
of selling and administrative expense.
<PAGE>
SEARS, ROEBUCK AND CO. 19
MANAGEMENT'S ANALYSIS OF CONSOLIDATED OPERATIONS (CONTINUED)
The majority of the Western Auto stores were converted to the Parts America
format in 1997 and, as a result, the Company recorded a pretax charge of $38
million ($23 million after-tax) for this initiative.
ANALYSIS OF CONSOLIDATED RESULTS EXCLUDING
NONCOMPARABLE ITEMS
Net income in 1999, excluding noncomparable items, was $1.48 billion or $3.89
per share, an increase of 17.2% over comparable 1998 per share earnings of
$3.32. The improvement was the result of better performance in the Retail,
Credit, and International segments and the reduction of shares outstanding,
partially offset by a decline in Services results and higher Corporate expenses
including investments in Sears Online.
In 1998, net income excluding noncomparable items was $1.30 billion or
$3.32 per share, an increase of 1.5% over comparable 1997 per share earnings of
$3.27. The improved profitability of the Credit and Services segments, coupled
with strong International performance, a reduction of shares outstanding, and a
lower effective tax rate was largely offset by a decline in Retail results.
REPORTABLE SEGMENTS
Segment operating income as reported and excluding noncomparable items is as
follows:
<TABLE>
<CAPTION>
millions 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
Excluding Effect of Excluding Effect of Excluding Effect of
non- non- non- non- non- non-
comparable comparable As comparable comparable As comparable comparable As
items items reported items items reported items items reported
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail $ 866 $ (25) $ 841 $ 734 $ (352) $ 382 $ 928 $ 23 $ 951
Services 329 -- 329 375 -- 375 361 -- 361
Credit 1,347 -- 1,347 1,086 58 1,144 1,005 (253) 752
Corporate (301) (21) (322) (211) -- (211) (212) -- (212)
- ------------------------------------------------------------------------------------------------------------------------
Domestic
operating income 2,241 (46) 2,195 1,984 (294) 1,690 2,082 (230) 1,852
- ------------------------------------------------------------------------------------------------------------------------
International 218 -- 218 165 -- 165 142 -- 142
- ------------------------------------------------------------------------------------------------------------------------
Total
operating income $ 2,459 $ (46) $ 2,413 $ 2,149 $ (294) $ 1,855 $ 2,224 $ (230) $ 1,994
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
RETAIL
Retail store revenues as reported, operating income excluding noncomparable
items, and related information are as follows:
millions, except number of
stores and Retail store revenues
per selling square foot 1999 1998 1997
- -----------------------------------------------------------
Full-line Stores revenues $23,798 $23,140 $22,839
Specialty Stores revenues 5,977 7,289 7,247
- -----------------------------------------------------------
Total Retail revenues(1) $29,775 $30,429 $30,086
- -----------------------------------------------------------
Operating income excluding
noncomparable items $ 866 $ 734 $ 928
- -----------------------------------------------------------
Number of Full-line Stores 858 845 833
Number of Specialty Stores 2,153 2,198 2,697
- -----------------------------------------------------------
Total Retail stores 3,011 3,043 3,530
- -----------------------------------------------------------
Retail store revenues per
selling square foot(2) $ 325 $ 317 $ 318
Comparable store sales
percentage increase(3) 1.8% 1.1% 2.3%
- -----------------------------------------------------------
(1) The Company's 1997 fiscal year included 53 weeks, compared to 52 weeks in
1999 and 1998. Excluding the 53rd week in 1997, total retail revenues
increased 3.0% in 1998.
(2) 1997 revenues per square foot calculation excludes the 53rd week.
(3) Includes licensed businesses operating within the Full-line stores.
Retail revenues decreased 2.1% in 1999 to $29.78 billion from $30.43
billion in 1998. Excluding the exited businesses, Western Auto and Homelife,
retail revenues increased 3.2% in 1999. Revenues in 1999 and 1998 included 52
weeks compared to 53 weeks in 1997.
Full-line Stores revenues increased 2.8% in 1999, benefiting from the net
addition of 13 Full-line Stores as 19 stores were opened and 6 were closed. The
Full-line Stores increase was led by solid revenue performance in hardlines
merchandise as comparable store sales increased in 1999. Hardlines revenue
increases in home appliances, electronics and home improvement were partially
offset by a decline in home office merchandise sales. Apparel sales were strong
in women's special sizes, infant's and toddler's, fine jewelry, home fashions,
and cosmetics and fragrances but were offset by results in dresses, footwear,
junior's, boy's, girl's and men's apparel.
Specialty Store revenues decreased to $5.98 billion in 1999 from $7.29
billion in 1998 due primarily to the sale of Western Auto and Homelife.
Excluding the exited businesses, specialty retail revenues increased 4.7% in
1999. The strong revenue performance in Hardware and Dealer Stores was partially
offset by a decline in Auto Stores revenues.
The revenue increase in Hardware and Dealer Stores in 1999 resulted from
the addition of new stores and strong comparable store sales increases. During
1999, the Company opened two net new Hardware Stores and 85 net new Dealer
<PAGE>
20 SEARS, ROEBUCK AND CO.
MANAGEMENT'S ANALYSIS OF CONSOLIDATED OPERATIONS (CONTINUED)
Stores. The Contract Sales business and The Great Indoors also produced revenue
gains as the Company continued to expand these businesses.
The Auto Stores 1999 revenues were below management's expectations and
declined from 1998 levels. Comparable store sales decreased and the Company
closed 33 NTB stores in the third quarter of 1999. As of year-end, the Company
operated 798 Sears Auto Centers and 310 NTB stores.
Retail revenues increased 1.1% in 1998 to $30.43 billion from $30.09
billion in 1997. 1998 included 52 weeks of revenue compared to 53 weeks in 1997.
Full-line Stores revenues increased 1.3% in 1998 as the Company added 12
net new Full-line Stores. In 1998, apparel sales gains were led by increases in
women's special sizes, fine jewelry and cosmetics and fragrances, partially
offset by weak sales of dresses, juniors, boy's and men's apparel. Hardlines
merchandise had a solid revenue increase in 1998 led by strong sales growth in
home appliances and electronics merchandise, partially offset by a decline in
home improvement and home office merchandise sales.
Specialty Store revenues increased slightly to $7.29 billion in 1998 from
$7.25 billion in 1997 as strong performance in Hardware and Dealer stores was
offset by a decline in Auto Stores revenue. Auto Stores revenues declined in
1998 from 1997 as comparable store sales decreased from prior year levels,
Western Auto had only 10 months of sales in 1998, and sales were affected by the
relatively mild winter weather.
In addition to revenue performance, gross margin, selling and
administrative expenses, and depreciation and amortization are important
elements in determining Retail operating income. The following discussion of
Retail gross margin, selling and administrative expense, and depreciation and
amortization excludes the effect of noncomparable items to provide a more
meaningful comparison between years. The noncomparable items that affected the
Retail segment operating income were the restructuring costs related to the
closing of 33 NTB stores in 1999, the losses related to the sales of Western
Auto and Homelife in 1998, and the Parts America conversion and the
postretirement life insurance curtailment in 1997.
Retail gross margin as a percentage of Retail revenues was flat in 1999
compared to 1998. While the first three quarters of 1999 reflected unfavorable
gross margin rates compared to 1998, in the fourth quarter, gross margin rates
rebounded in both hardlines and apparel, lifting the retail gross margin rate
for the full year to a level consistent with 1998. In 1998, Retail gross margin
as a percentage of Retail revenues declined 90 basis points from 1997. In 1998,
the decline was due to higher promotional activity driven by a competitive
retail environment.
Retail selling and administrative expense as a percentage of Retail
revenues improved 50 basis points in 1999 from 1998. The improvement was
primarily driven by lower marketing expenses and improvements related to the
exit of the Western Auto and Homelife businesses which had higher cost
structures. In 1998, Retail selling and administrative expense as a percentage
of Retail revenues improved 40 basis points from 1997. In 1998, the improvement
was primarily due to leveraging payroll and other employee-related costs.
Retail depreciation and amortization expense decreased 1.8% in 1999 from
1998 and increased 5.0% in 1998 compared to 1997. The slight decrease in 1999
reflects the absence of depreciation and amortization from the exited businesses
of Homelife and Western Auto. The increase in 1998 reflects the continuation of
the Company's store remodeling program and the growth in the number of Specialty
Stores in operation.
SERVICES
Services revenues and operating income as reported are as follows:
millions 1999 1998 1997
- -------------------------------------------
Revenues $3,078 $3,113 $3,073
- -------------------------------------------
Operating income $ 329 $ 375 $ 361
- -------------------------------------------
Services revenues, generated primarily by the Home Services business,
declined 1.1% in 1999. Home Services revenues were down 1.6% due primarily to a
decline in the home improvement business. Direct Response revenues increased
1.9% in 1999 from 1998 as the clubs and services business improved while
insurance and other merchandise revenues were relatively flat.
In 1998, Services revenues increased 1.3% primarily due to an 8.5% increase
in revenues from Direct Response. All categories of Direct Response products
showed improved revenue results in 1998, including clubs and services, insurance
and specialty catalogs. In 1998 Home Services revenues were flat as an increase
in installation services was offset by a slight decline in the home improvement
business and the 53rd week included in 1997.
Services gross margin as a percentage of Services revenues increased 20
basis points in 1999 from 1998. While gross margin rates were relatively flat in
both the Home Services and Direct Response businesses, a shift in revenue
towards the higher margin Direct Response business caused the overall margin
rate to increase. In addition, included in the improved gross margin are the
costs related to the exit of a Home Services licensed business relationship
which adversely affected the Services gross margin rate by 65 basis points. In
1998, Services gross margin as a percentage of revenues improved 100 basis
points from 1997, primarily due to improved profitability of the service
contracts portfolio within the Home Services business.
Services selling and administrative expense as a percentage of Services
revenues increased 130 basis points in 1999 from 1998. The increase was
primarily due to higher payroll, insurance and marketing costs. In 1998,
Services selling and administrative expense as a percentage of Services revenues
increased 50 basis points from 1997 due to increased infrastructure investments.
Services depreciation and amortization expense increased 16.3% in 1999 from
1998 and 16.7% in 1998 compared to 1997. These increases reflect both
infrastructure investments and recent acquisitions.
<PAGE>
SEARS, ROEBUCK AND CO. 21
MANAGEMENT'S ANALYSIS OF CONSOLIDATED OPERATIONS (CONTINUED)
Overall, while operating income for both Home Services and Direct Response
decreased in 1999, the majority of the decrease came from the home improvement
division of the Home Services business. Direct Response continued to provide a
significant portion of the operating income for the Services segment in 1999.
CREDIT
Domestic Credit revenues and operating income are as follows:
millions 1999 1998 1997
- --------------------------------------------------------
Credit revenues $ 4,085 $ 4,369 $ 4,649
- --------------------------------------------------------
Operating income excluding
noncomparable items $ 1,347 $ 1,086 $ 1,005
Noncomparable items:
SFAS No. 125 -- 58 222
Reaffirmation charge -- -- (475)
- --------------------------------------------------------
Operating income
as reported $ 1,347 $ 1,144 $ 752
- --------------------------------------------------------
Operating income as reported was $1.35 billion in 1999, an increase of $203
million over the 1998 level. Although credit revenue decreased during 1999,
operating income favorability resulted from a lower provision for uncollectible
accounts as the quality of the portfolio improved due to improved risk
management techniques and investments made in the collection process. Increases
in SG&A were more than offset by lower interest expense.
In 1998, the primary reason for the $392 million increase in reported
operating income in the Credit segment compared to 1997 was the $475 million
reaffirmation charge which adversely affected 1997 results.
In 1999, Credit revenues decreased 6.5% to $4.09 billion. The decrease in
Credit revenues was attributable to a lower level of average owned credit card
receivables and lower retained interest assets. In 1998, Credit revenues
decreased 6.0% to $4.37 billion, reflecting lower average owned receivable
balances, and the 53rd week of revenues contained in 1997.
A summary of certain Credit information for the managed portfolio is as
follows:
1999 1998 1997
- --------------------------------------------------------------
Sears Card as a % of sales(1) 47.9% 51.6% 55.1%
Average account
balance (dollars) $ 1,121 $ 1,076 $ 1,058
Average managed credit
card receivables (millions) $26,593 $27,922 $27,150
- --------------------------------------------------------------
(1) Sears Card as a % of sales includes Full-line Stores, Specialty Stores,
Home Services, and Retail Outlet Stores.
The percentage of merchandise sales and services transacted with the Sears
Card in 1999 declined to 47.9% compared to 51.6% in 1998, due to a greater
preference for other payment methods, including cash, check and third-party
credit cards.
Credit selling and administrative expense increased 9.0% in 1999 from the
1998 amount. This increase was primarily attributable to increased investment in
credit collection efforts, enhanced risk management systems, the TSYS conversion
costs and the launch of the Sears Premier Card. In 1998, selling and
administrative expense increased 7.7% from the 1997 level primarily due to
increased collection and risk management activities and litigation costs.
Domestic provision for uncollectible accounts and related information is as
follows:
millions 1999 1998 1997
- ---------------------------------------------------------------
Provision for
uncollectible accounts $ 837 $ 1,261 $ 1,493
Net credit charge-offs
to average managed
credit card receivables(1)(2) 6.44% 7.35% 6.48%
Delinquency rates
at year-end(3) 7.58% 6.82% 7.00%
Owned credit
card receivables $17,068 $17,443 $19,386
Allowance for uncollectible
owned accounts $ 725 $ 942 $ 1,077
- ---------------------------------------------------------------
(1)In 1998, the net credit charge-off rate includes the effect of the
conversion of 12% of the accounts to the new credit system ("TSYS") in the
fourth quarter of 1998. The effect on the charge-off rate was not material.
In 1999, 38% of the accounts were converted in March and 50% in April.
Balances are generally charged-off earlier under the TSYS system than under
the previously used proprietary system.
(2)The following table sets forth the quarterly net credit charge-off rates for
the managed portfolio for 1999, 1998 and 1997. Although the 1998 annual
charge-off rate was higher than 1997, 1997 was a year of rapid deterioration
in the charge-off rate while 1998 showed considerable improvement. In 1999,
the charge-off rate continued to improve even though the Company converted
to the TSYS operating system, which generally charges-off accounts earlier
than under the proprietary system previously used. The net charge-off rate is
affected by seasonality, periodic sales of uncollectible accounts to third
parties, bankruptcy trends and other general economic trends.
Q1 Q2 Q3 Q4 ANNUAL RATE
- --------------------------------------------------
1997 4.97% 5.69% 6.87% 7.76% 6.48%
- --------------------------------------------------
1998 8.12% 7.37% 7.20% 6.74% 7.35%
- --------------------------------------------------
1999 7.08% 7.11% 6.39% 5.20% 6.44%
- --------------------------------------------------
(3) Delinquency rates in 1998 and 1997 were calculated based on the company's
proprietary credit system. Under the Company's proprietary credit system,
an account was generally considered delinquent when its cumulative past due
balance was three or more times the scheduled minimum monthly payment. The
1998 delinquency rate was for the 88% of the managed accounts that had not
been converted to TSYS. For the TSYS accounts, which represented 12% of the
managed accounts at year-end 1998, the delinquency rate was 9.28%. For TSYS
accounts, the aging methodology is based on the number of completed billing
cycles during which a customer has failed to make a required payment.
Therefore, under TSYS, accounts are considered delinquent when a customer
has failed to make a payment in each of the last three or more billing
cycles. The 1999 year-end delinquency rate is based on the TSYS
methodology.
<PAGE>
22 SEARS, ROEBUCK AND CO.
MANAGEMENT'S ANALYSIS OF CONSOLIDATED OPERATIONS (CONTINUED)
The delinquency rates for accounts that had been converted to TSYS were as
follows on a quarterly basis through 1999:
- -------------------------------------------
January 2, 1999 (12% converted) 9.28%
April 3, 1999 (50% converted) 8.07%
July 3, 1999 (100% converted) 7.29%
October 2, 1999 (100% converted) 7.57%
January 1, 2000 (100% converted) 7.58%
- -------------------------------------------
In 1999, the domestic provision for uncollectible accounts decreased $424
million to $837 million. The decrease is attributable to lower average owned
credit card receivable balances and improvement in portfolio quality during the
year. As shown in the table above, delinquency rates on a TSYS basis declined
from year-end 1998, when delinquencies were at 9.28%, to 7.58% at the end of
1999. In addition, the net charge-off rate for 1999 decreased to 6.44% from
7.35% in 1998. The allowance for doubtful accounts at year-end is $725 million,
or 4.26% of on-book receivables as compared to 5.44% at the prior year-end.
In 1998, the provision for uncollectible accounts decreased 15.5% from
1997. The decrease was primarily attributable to favorable trends in delinquency
rates, charge-off experience and bankruptcy filings, as well as lower owned
credit card receivable balances and one less week of provision expense in 1998
compared to 1997 due to the effect of the 53rd week. As of January 2, 1999, the
allowance was $942 million compared to $1.08 billion at January 3, 1998. The
$135 million decrease in the allowance for uncollectible accounts related to the
improvement in portfolio quality and the reduction in owned credit card
receivable balances. The owned credit card receivables decreased $1.94 billion
during 1998 primarily due to the transfer of credit card receivables from Sears
to a securitization Master Trust to provide receivable balances for future
securitizations. Receivables transferred to the securitization Master Trust in
1998 were classified as retained interest in transferred credit card receivables
in the balance sheet, and were transferred net of the related $106 million
allowance balance.
Interest expense from the domestic segments is included in the Credit
segment discussion because the majority of the Company's domestic interest
expense is allocated to the Credit segment. Generally, the domestic interest
expense that is not allocated to the Credit segment is allocated to the Retail
segment and is not a significant cost relative to costs of sales, buying and
occupancy, selling and administrative expense, and depreciation and amortization
expense in the Retail segment.
Domestic interest expense is combined with the funding cost on receivables
sold through securitizations to represent total funding costs. The Company uses
credit card receivable securitizations as a significant funding source and
therefore, for purposes of this analysis, the interest paid on securitizations
is considered a funding cost. The total domestic funding costs are as follows:
millions 1999 1998 1997
- --------------------------------------------------------
Domestic segments
interest expense(1) $1,168 $1,318 $1,290
Domestic funding cost
of securitized receivables 419 433 437
- --------------------------------------------------------
Total domestic
funding costs $1,587 $1,751 $1,727
- --------------------------------------------------------
(1) Credit segment interest expense was $1,116, $1,244 and $1,259 for 1999,
1998 and 1997, respectively.
Total domestic funding costs decreased 9.4% in 1999 to $1.59 billion. The
decrease in funding costs reflects the lower level of average managed credit
card receivable balances and a lower funding rate environment. In 1998, the
increase in funding costs reflects higher funding requirements due to a higher
average managed credit card receivable portfolio, higher inventory levels and
capital spending and share repurchases partially offset by a lower funding rate.
CORPORATE
Corporate expenses increased $111 million in 1999 compared to 1998. The increase
is primarily attributable to investment spending for the Sears Online initiative
and the $21 million restructuring charge related to staff reductions in the
third quarter of 1999. In addition, increased spending on information systems
and higher performance-based incentive costs drove Corporate expenses higher in
1999. In 1998, Corporate selling and administrative expense decreased $1 million
compared to 1997 due to targeted cost control efforts.
INTERNATIONAL
International revenues and operating income are as follows:
millions 1999 1998 1997
- ---------------------------------------------------
Merchandise sales
and services $3,875 $3,415 $3,490
Credit revenues 258 249 276
- ---------------------------------------------------
Total revenues $4,133 $3,664 $3,766
- ---------------------------------------------------
Operating income $ 218 $ 165 $ 142
- ---------------------------------------------------
International operations include the results of Sears Canada for all
periods presented and the results of Sears Mexico through the first quarter of
1997, when the Company sold its majority interest.
International revenues were $4.13 billion in 1999, a 12.8% increase from
revenues of $3.66 billion in 1998. International revenues increased as Sears
Canada experienced favorable results across all formats including Full-line
stores, dealer stores, furniture stores, catalog, and credit. Comparable store
sales were strong throughout the year. In 1998, revenues decreased 2.7% from
1997 due to the inclusion of $100 million of revenues related to Sears Mexico in
the prior year. Sears Canada had strong retail and catalog sales performance
<PAGE>
SEARS, ROEBUCK AND CO. 23
MANAGEMENT'S ANALYSIS OF CONSOLIDATED OPERATIONS (CONTINUED)
in 1998 compared to 1997. However, the favorable performance was partially
offset by the negative effects of a weaker Canadian dollar.
International gross margin as a percentage of International merchandise
sales and services increased 130 basis points in 1999 from 1998 primarily due to
a sharper focus on the management of the cost of goods sold. In 1998, gross
margin as a percentage of merchandise sales and services decreased 30 basis
points from 1997 primarily due to increased buying costs.
International selling and administrative expense as a percentage of total
revenues was relatively flat in 1999 compared to 1998 as payroll, benefits and
other related costs kept pace with the higher sales levels. In 1998,
International selling and administrative expense as a percentage of total
International revenues improved 90 basis points from 1997. The selling and
administrative rate improvement was primarily due to leveraging payroll and
other employee related costs.
International operating income improved $53 million in 1999 compared to
1998. Operating income improved $23 million in 1998 compared to 1997. The
improvement in both years is due to revenue growth resulting from the aggressive
growth strategy in the furniture and dealer store networks and renovations of
Full-line stores.
On December 30, 1999 Sears Canada acquired T. Eaton Company for $66
million. The acquisition included trademarks, leases on 16 stores and certain
tax net operating loss carryforwards.
OTHER INCOME
Consolidated other income consists of:
millions 1999 1998 1997
- --------------------------------------------------------------------
Gain on sale of Advantis $-- $-- $ 150
Loss on sale of Sears Mexico -- -- (21)
Gain on sales of property and investments 10 20 7
Miscellaneous (4) 8 8
- --------------------------------------------------------------------
Total $ 6 $ 28 $ 144
- --------------------------------------------------------------------
INCOME TAX EXPENSE
Consolidated income tax expense as a percentage of pretax income was 37.4% in
1999, 40.7% in 1998 and 42.7% in 1997. The decrease in the effective tax rate in
1999 from 1998 is a result of the unusually high effective rate in 1998 caused
by certain non-tax deductible expenses related to the sale of Western Auto.
Excluding the effect of the Western Auto sale, the Company's consolidated
effective tax rate would have been 38.2% in 1998. The 1997 tax rate was
increased by certain non-tax deductible items related to the reaffirmation
charge and the first quarter sale of Sears Mexico. Excluding these significant
items, the consolidated effective tax rate would have been 39.9% in 1997.
Excluding significant items in both 1998 and 1997, the decrease in 1998 income
tax expense as a percentage of pretax income compared to 1997 was due to
favorable resolution of tax audit issues as well as a reduction in domestic
taxes on international operations.
MARKET RISK
The Company's outstanding debt securities and off-balance sheet derivatives are
subject to repricing risk. The Company's policy is to manage interest rate risk
through the strategic use of fixed and variable rate debt and interest rate
derivatives. All debt securities and off-balance sheet derivatives are
considered non-trading. At year-end 1999 and 1998, 23% and 27%, respectively, of
the funding portfolio was variable rate (including current maturities of
fixed-rate long-term debt that will reprice in the next 12 months and the effect
of off-balance sheet derivative financial instruments, such as interest rate
swaps). Based on the Company's funding portfolio as of year-end 1999 and 1998,
which totaled $24.6 billion and $26.3 billion, respectively, a 100 basis point
change in interest rates would affect annual pretax funding cost by
approximately $56 million and $70 million, respectively. The calculation assumes
the funding portfolio balance at year-end remains constant for an annual period
and that the 100 basis point change occurs at the beginning of the annual
period.
INFLATION
The moderate rate of inflation over the past three years has not had a
significant effect on the Company's sales and profitability.
OUTLOOK
In 2000, the Company expects operating income improvement in its Retail,
Services, Credit and International segments and expects earnings per share to
benefit from a reduction in shares outstanding due to its $1.5 billion share
repurchase program. The Company anticipates low double-digit earnings per share
growth, excluding non-comparable items, for the full year of 2000.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
Certain statements made in this Annual Report including the Chairman's Letter
are forward-looking statements made in reliance on the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. As such, they involve
risks and uncertainties that could cause actual results to differ materially.
The Company's forward-looking statements are based on assumptions about many
important factors, including competitive conditions in the retail industry;
changes in consumer confidence and spending; acceptance of new products; the
ability of the Company to successfully implement its promotional plan and cost
control strategy; success of technological advances; general United States
economic conditions, such as higher interest rates; and normal business
uncertainty. In addition, the Company typically earns a disproportionate share
of its operating income in the fourth quarter due to holiday buying patterns,
which are difficult to forecast with certainty. While the Company believes that
its assumptions are reasonable, it cautions that it is impossible to predict the
impact of such factors which could cause actual results to differ materially
from predicted results. The Company intends the forward-looking statements in
this annual report to speak only at the time of its release and does not
undertake to update or revise these projections as more information becomes
available.
<PAGE>
24 SEARS, ROEBUCK AND CO.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
millions, except per share data 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 729 $ 495
Retained interest in transferred credit card receivables 3,144 4,294
Credit card receivables 18,793 18,946
Less allowance for uncollectible accounts 760 974
-------- --------
Net credit card receivables 18,033 17,972
Other receivables 404 397
Merchandise inventories 5,069 4,816
Prepaid expenses and deferred charges 579 506
Deferred income taxes 709 791
-------- --------
Total current assets 28,667 29,271
Property and equipment
Land 370 395
Buildings and improvements 5,837 5,530
Furniture, fixtures and equipment 5,209 4,871
Capitalized leases 496 530
-------- --------
Gross property and equipment 11,912 11,326
Less accumulated depreciation 5,462 4,946
-------- --------
Total property and equipment, net 6,450 6,380
Deferred income taxes 367 572
Other assets 1,470 1,452
-------- --------
TOTAL ASSETS $ 36,954 $ 37,675
======== ========
LIABILITIES
Current liabilities
Short-term borrowings $ 2,989 $ 4,624
Current portion of long-term debt and capitalized lease obligations 2,165 1,414
Accounts payable and other liabilities 6,992 6,732
Unearned revenues 971 928
Other taxes 584 524
-------- --------
Total current liabilities 13,701 14,222
Long-term debt and capitalized lease obligations 12,884 13,631
Postretirement benefits 2,180 2,346
Minority interest and other liabilities 1,350 1,410
-------- --------
TOTAL LIABILITIES 30,115 31,609
-------- --------
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY
Common shares ($.75 par value per share,
1,000 shares authorized, 369.1 and 383.5 shares outstanding) 323 323
Capital in excess of par value 3,554 3,583
Retained earnings 5,952 4,848
Treasury stock-- at cost (2,569) (2,089)
Deferred ESOP expense (134) (175)
Accumulated other comprehensive income (287) (424)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 6,839 6,066
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 36,954 $ 37,675
======== ========
</TABLE>
See accompanying notes.
<PAGE>
SEARS, ROEBUCK AND CO. 25
MANAGEMENT'S ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
The Company's significant financial capacity and flexibility are exemplified by
the quality and liquidity of its assets and by its ability to access multiple
sources of capital.
The owned credit card receivables balance of $18.79 billion excludes credit
card receivables transferred to a securitization Master Trust ("Trust"). Through
its subsidiary, SRFG, Inc., the Company sells securities backed by a portion of
the receivables in the Trust to provide funding. In addition to the receivables
in the Trust which back securities sold to third parties, the Company transfers
additional receivables to the Trust in accordance with the terms of the
securitization transactions and to have receivables readily available for future
securitizations.
A summary of these balances at year-end is as follows:
millions 1999 1998 1997
- ----------------------------------------------------------------
Domestic:
Managed credit
card receivables $ 26,785 $ 28,357 $ 28,945
Securitized
balances sold (6,579) (6,626) (6,404)
Retained interest
in transferred
credit card
receivables(1) (3,175) (4,400) (3,316)
Other customer
receivables 37 112 161
- ----------------------------------------------------------------
Domestic owned
credit card receivables 17,068 17,443 19,386
International owned
credit card receivables 1,725 1,503 1,570
- ----------------------------------------------------------------
Consolidated owned
credit card receivables $ 18,793 $ 18,946 $ 20,956
- ----------------------------------------------------------------
(1) The 1999 and 1998 retained interest amounts are shown before reserves of
$31 million and $106 million, respectively, related to the transfer of
credit card receivables into the Master Trust in 1998.
The credit card receivable balances are geographically diversified within
the United States and Canada. The Company grants retail consumer credit based on
the use of proprietary and commercially available credit histories and scoring
models. The Company promptly recognizes uncollectible accounts and maintains an
adequate allowance for uncollectible accounts to reflect losses inherent in the
owned portfolio as of the balance sheet date.
Inventories are primarily valued on the last-in, first-out or LIFO method.
Inventories would have been $595 million higher if valued on the first-in,
first-out or FIFO method at January 1, 2000. Inventories on a FIFO basis totaled
$5.66 billion at January 1, 2000, compared to $5.50 billion at January 2, 1999.
The increase in inventory levels is primarily due to additional inventory needed
to support new Full-line stores, new Specialty Stores, and the growth of Sears
Canada. The sale of Homelife partially offset some of the general increase in
inventory levels.
<PAGE>
26 SEARS, ROEBUCK AND CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
millions 1999 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,453 $ 1,048 $ 1,188
Adjustments to reconcile net income to net cash provided by
(used in) operating activities
Depreciation, amortization and other noncash items 908 907 807
Extraordinary loss on early extinguishment of debt -- 37 --
Provision for uncollectible accounts 871 1,287 1,532
Restructuring, impairments and sale of businesses 46 352 (129)
(Gain) loss on sales of property and investments (10) (20) 7
Change in (net of acquisitions):
Deferred income taxes 356 178 273
Retained interest in transferred credit card receivables 1,150 (978) (1,056)
Credit card receivables (873) 423 (2,285)
Merchandise inventories (305) (167) (475)
Other operating assets (150) (65) (160)
Other operating liabilities 251 88 (258)
------- ------- -------
Net cash provided by (used in) operating activities 3,697 3,090 (556)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (68) (34) (138)
Proceeds from sales of property and investments 118 220 394
Purchases of property and equipment (1,033) (1,212) (1,328)
------- ------- -------
Net cash used in investing activities (983) (1,026) (1,072)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 1,491 2,686 3,920
Repayments of long-term debt (1,516) (3,375) (3,299)
(Decrease) increase in short-term borrowings,
primarily 90 days or less (1,653) (576) 1,834
Termination of interest rate swap agreements -- -- (633)
Repayments of ESOP note receivable 57 23 16
Common shares purchased (570) (528) (170)
Common shares issued for employee stock plans 61 126 103
Dividends paid to shareholders (355) (278) (441)
------- ------- -------
Net cash (used in) provided by financing activities (2,485) (1,922) 1,330
------- ------- -------
Effect of exchange rate changes on cash and cash equivalents 5 (5) (4)
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 234 137 (302)
------- ------- -------
BALANCE AT BEGINNING OF YEAR 495 358 660
------- ------- -------
BALANCE AT END OF YEAR $ 729 $ 495 $ 358
======= ======= =======
</TABLE>
See accompanying notes.
<PAGE>
SEARS, ROEBUCK AND CO. 27
CAPITAL RESOURCES
Total net funding for the Company at January 1, 2000, was $24.62 billion
compared with $26.30 billion at January 2, 1999. The decrease in net funding is
primarily due to a decrease in domestic managed credit card receivable balances
at year-end 1999 compared to year-end 1998. Net year-end funding, including
debt reflected on the balance sheet and investor certificates related to credit
card receivables sold through securitizations, is as follows:
<TABLE>
<CAPTION>
millions 1999 % of Total 1998 % of Total 1997 % of Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-term borrowings $ 2,989 12.2% $ 4,624 17.6% $ 5,208 19.1%
Long-term debt and
capitalized lease obligations 15,049 61.1% 15,045 57.2% 15,632 57.4%
Securitized balances sold 6,579 26.7% 6,626 25.2% 6,404 23.5%
- -------------------------------------------------------------------------------------------
Total funding $24,617 100.0% $26,295 100.0% $27,244 100.0%
- -------------------------------------------------------------------------------------------
</TABLE>
In 1999, the Company reduced the percentage of short-term borrowings and
increased fixed-rate, longer-term debt and securitization funding in its funding
mix as interest rate conditions were favorable in the term debt markets. The
Company accesses a variety of capital markets to preserve flexibility and
diversify its funding sources. The broad access to capital markets also allows
the Company to effectively manage liquidity and repricing risk. Liquidity risk
is the measure of the Company's ability to fund maturities and provide for the
operating needs of its businesses. Repricing risk is the effect on net income
from changes in interest rates. The Company's cost of funds is affected by a
variety of general economic conditions, including the level and volatility of
interest rates. To aid in the management of repricing risk, the Company uses
off-balance sheet financial instruments, such as interest rate swaps. The
Company has policies that centrally govern the use of such off-balance sheet
financial instruments.
The ratings of the Company's debt securities as of January 1, 2000, appear
in the table below:
MOODY'S DUFF &
INVESTORS PHELPS FITCH
SERVICES, STANDARD CREDIT IBCA,
INC. & POOR'S RATING CO. INC.
- -----------------------------------------------------------
Unsecured
long-term debt A3 A- A A
Unsecured
commercial paper P-2 A-2 D-1 F-1
Term securitization Aaa AAA AAA AAA
- -----------------------------------------------------------
On February 24, 2000, the Duff & Phelps Credit Rating Co. changed its
ratings on the Company's debt securities from A, D-1 and AAA, to A-, D-1- and
AAA, respectively.
The Company utilizes Sears Roebuck Acceptance Corp. ("SRAC"), a wholly
owned subsidiary, to issue commercial paper, to maintain a medium-term note
program, and to issue intermediate and long-term underwritten debt. SRAC issued
term debt securities totaling $1.1 billion in 1999. SRAC commercial paper
outstanding was $2.68 billion and $4.24 billion at January 1, 2000, and January
2, 1999, respectively. SRAC commercial paper is supported by $5.06 billion of
syndicated credit agreements, $875 million of which expires in 2002 and $4.185
billion of which expires in 2003. The weighted average interest rate on SRAC
fixed rate term debt issued in 1999 was 6.44% compared to 6.43% in 1998. The
following securities were issued during 1999:
> $750 million of 6.25%, 10-year underwritten notes, at a yield of 6.43%
> $250 million of variable rate medium term notes, with an average term of
1.8 years; and
> $99 million of fixed rate medium term notes, with an average coupon of
6.51% and an average term of 4.3 years.
The Company, through its subsidiary SRFG, Inc., securitizes domestic credit
card receivables to access intermediate-term funding in a cost-effective manner.
In 1999, the Company issued $1.4 billion of fixed-rate term certificates through
securitizations, compared to $985 million in 1998. As of January 1, 2000, there
were $6.58 billion of investor certificates outstanding that were backed by sold
domestic credit card receivables.
CAPITAL SPENDING
The Company has an ongoing capital expenditure program to renovate and update
its Full-line Stores. In addition, the Company has added more Full-line and
Specialty Stores. Capital expenditures during the past three years are as
follows:
millions 1999 1998 1997
- ------------------------------------------------------
Full-line Stores,
primarily remodeling
and expansion efforts $ 673 $ 672 $ 812
Specialty Stores 114 241 320
Other - distribution /
support 246 299 196
- ------------------------------------------------------
Total capital expenditures $1,033 $1,212 $1,328
- ------------------------------------------------------
The Company plans capital expenditures of $1.2 billion for 2000, which
includes the opening of approximately 10 Full-line Stores, and more than 175
Specialty Stores. The Company may also pursue selective strategic acquisitions.
<PAGE>
28 SEARS, ROEBUCK AND CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED
COMMON IN EXCESS DEFERRED OTHER TOTAL TOTAL
DOLLARS IN MILLIONS SHARES COMMON OF PAR RETAINED TREASURY ESOP COMPREHENSIVE SHAREHOLDERS' COMPREHENSIVE
SHARES IN THOUSANDS OUTSTANDING STOCK VALUE EARNINGS STOCK EXPENSE INCOME EQUITY INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning
of year 1997 391,394 $323 $3,618 $3,330 $(1,655) $(230) $(441) $4,945
Net income 1,188 1,188 $1,188
Other comprehensive income:
Currency translation (17) (17) (17)
Reclassification
adjustment for
loss included in
net income 87 87 87
Minimum pension
liability, net of
tax of $34 60 60 60
------
Total comprehensive
income $1,318
======
Dividends to shareholders
($0.92 per share) (360) (360)
Stock options exercised
and other changes 2,936 (20) 123 103
Shares repurchased (3,442) (170) (170)
ESOP expense recognized 26 26
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 1997 390,888 $323 $3,598 $4,158 $(1,702) $(204) $(311) $5,862
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 1,048 1,048 $1,048
Other comprehensive income:
Currency translation (31) (31) (31)
Minimum pension
liability, net of
tax of $45 (82) (82) (82)
------
Total comprehensive
income $ 935
======
Dividends to shareholders
($0.92 per share) (358) (358)
Stock options exercised
and other changes 3,263 (15) 141 126
Shares repurchased (10,643) (528) (528)
ESOP expense recognized 29 29
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 1998 383,508 $323 $3,583 $4,848 $(2,089) $(175) $(424) $6,066
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 1,453 1,453 $1,453
Other comprehensive income:
Currency translation 14 14 14
Minimum pension
liability, net of
tax of $57 104 104 104
Unrealized gain on
securities held,
net of tax of $11 19 19 19
------
Total comprehensive
income $1,590
======
Dividends to shareholders
($0.92 per share) (349) (349)
Stock options exercised
and other changes 2,041 (29) 90 61
Shares repurchased (16,421) (570) (570)
ESOP expense recognized 41 41
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, end of year 1999 369,128 $323 $3,554 $5,952 $(2,569) $(134) $(287) $6,839
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
SEARS, ROEBUCK AND CO. 29
SHARE REPURCHASES
During 1999, the Company repurchased 16.4 million shares of its common stock
for $570 million under its February 1998 share repurchase program related to
employee stock-based incentive plans and its March 1999 $1.5 billion repurchase
plan. As of the end of 1999, the Company has the capacity to repurchase $1.04
billion of shares under the March 1999 $1.5 billion repurchase plan.
LIQUIDITY
Based upon the expected cash flow to be generated from future operations and
the Company's ability to cost-effectively access multiple sources of funding,
the Company believes sufficient resources will be available to maintain its
planned level of operations, capital expenditures, dividends and share
repurchases in the foreseeable future.
YEAR 2000
Year 2000 compliance is the ability of information systems to properly
recognize and process dates and date-sensitive information including the year
2000 and beyond (commonly referred to as Year 2000 or Y2K). Year 2000 compliance
is critical to the Company because the Company and many of its merchandise
vendors and service providers are highly reliant on information systems to
operate their businesses.
The Company used both internal and external resources to complete its Year
2000 compliance initiatives. The Year 2000 efforts of the Company's credit and
bank operations were also subject to regulatory review.
The Company did not experience any significant Y2K problems. All Sears
facilities opened as planned, systems were available on time and data centers,
networks and infrastructure were operational continuously.
As of January 1, 2000, the Company's total costs (including external costs
and the costs of internal personnel) related to its Year 2000 effort are
approximately $62 million, all of which the Company (including Sears Canada) has
incurred. In addition, the Company has accelerated the planned development of
new systems with improved business functionality to replace systems that were
not Year 2000 compliant, including the Company's new payroll processing system.
These systems cost approximately $80 million, all of which the Company has
incurred as of January 1, 2000. The Company funded Year 2000 costs with cash
flows from operations.
<PAGE>
30 SEARS, ROEBUCK AND CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE >1 > SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Sears, Roebuck and
Co. and all majority-owned domestic and international companies ("the Company").
Investments in companies in which the Company exercises significant influence,
but not control, are accounted for using the equity method of accounting.
Investments in companies in which the Company has less than a 20% ownership
interest, and does not exercise significant influence, are accounted for at
cost.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Certain reclassifications have been made in the 1998 and 1997 financial
statements to conform with the current year presentation.
FISCAL YEAR
The Company's fiscal year ends on the Saturday nearest December 31. Unless
otherwise stated, references to years in this report relate to fiscal years
rather than to calendar years.
Fiscal year Ended Weeks
- ---------------------------------------------------
1999 January 1, 2000 52
1998 January 2, 1999 52
1997 January 3, 1998 53
- ---------------------------------------------------
MERCHANDISE SALES AND SERVICES
Revenues from merchandise sales and services are net of estimated returns and
allowances and exclude sales tax. Included in merchandise sales and services are
gross revenues of licensees of $1.69, $1.74 and $1.85 billion for 1999, 1998 and
1997, respectively. In December 1999 the Securities and Exchange Commission
(SEC) issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements", which effectively changes previous guidance related to
the recording of licensed business revenues for retail companies. In the year
2000, the Company will change its method of recording licensed business revenue.
This change will reduce reported revenue and reported expenses, but have no
impact on operating income.
SERVICE CONTRACTS
The Company sells extended service contracts with terms of coverage generally
between 12 and 36 months. Revenues and incremental direct acquisition costs from
the sale of these contracts are deferred and amortized over the lives of the
contracts. Costs related to performing the services under the contracts are
expensed as incurred.
STORE PREOPENING EXPENSES
Costs associated with the opening of new stores are expensed as incurred.
EARNINGS PER COMMON SHARE
Basic earnings per common share is computed by dividing net income available to
common shareholders by the weighted average number of common shares outstanding.
Diluted earnings per common share also includes the dilutive effect of potential
common shares (dilutive stock options) outstanding during the period.
CASH AND CASH EQUIVALENTS
Cash equivalents include all highly liquid investments with maturities of three
months or less at the date of purchase.
RETAINED INTEREST IN TRANSFERRED CREDIT CARD RECEIVABLES
As part of its domestic credit card securitizations, the Company transfers
credit card receivables to a Master Trust ("Trust") in exchange for certificates
representing undivided interests in such receivables. Effective January 3, 1998,
the Company reclassified, for all periods presented, its retained interest in
transferred credit card receivables to a separate balance sheet account and
presented the related charge-offs of transferred credit card receivables as a
reduction of credit revenues. Subsequent to January 3, 1998, amounts transferred
from the Company's credit card portfolio to the Trust become securities upon
transfer. Accounts are transferred net of the related allowance for
uncollectible accounts and income is recognized generally on an effective yield
basis over the collection period of the transferred balances. The retained
interest consists of investor certificates held by the Company and the seller's
certificate, which represents both contractually required seller's interest and
excess seller's interest in the credit card receivables in the Trust. The
contractually required seller's interest represents the dollar amount of credit
card receivables that, according to the terms of the Company's securitization
agreements, must be included in the Trust in addition to the amount of
receivables which back the securities sold to third parties. The excess seller's
interest is the dollar amount of receivables that exist in the Trust to provide
for future securitizations, but is not contractually required to be in the
Trust. Retained interests are as follows:
millions 1999 1998 1997
- ---------------------------------------------------------------------------
Investor certificates held by the Company $ 960 $ 920 $ 545
Contractually required seller's interest 760 764 697
Excess seller's interest 1,455 2,716 2,074
- ---------------------------------------------------------------------------
Retained interest in
transferred credit
card receivables $3,175(1) $4,400(1) $3,316
- ---------------------------------------------------------------------------
(1) The 1998 retained interest amount is shown before reserve of $106 million
related to the transfers during 1998, $31 million of which remains at the
1999 year-end.
The Company intends to hold the investor certificates and contractually
required seller's interest to maturity. The excess seller's interest is
considered available for sale. Due to the revolving nature of the underlying
credit card receivables, the carrying value of the Company's retained interest
in transferred credit card receivables approximates fair value and is classified
as a current asset.
<PAGE>
SEARS, ROEBUCK AND CO. 31
CREDIT CARD RECEIVABLES
Credit card receivables arise primarily under open-end revolving credit accounts
used to finance purchases of merchandise and services offered by the Company.
These accounts have various billing and payment structures, including varying
minimum payment levels and finance charge rates. Based on historical payment
patterns, the full receivable balance will not be repaid within one year.
Credit card receivables are shown net of an allowance for uncollectible
accounts. The Company provides an allowance for uncollectible accounts based on
impaired accounts, historical charge-off patterns and management judgement.
In 1997 and 1998 under the Company's proprietary credit system,
uncollectible accounts were generally charged off automatically when the
customer's past due balance was eight times the scheduled minimum monthly
payment, except that accounts could be charged off sooner in the event of
customer bankruptcy. However, in the fourth quarter of 1998, the Company
converted 12% of its managed portfolio of credit card receivables to a new
credit processing system. The remaining 88% of accounts on the proprietary
credit system were then converted to the new system in the first and second
quarters of 1999. Under the new system, the Company charges off an account
automatically when a customer has failed to make a required payment in each of
the eight billing cycles following a missed payment. Under both systems, finance
charge revenue is recorded until an account is charged off, at which time
uncollected finance charge revenue is recorded as a reduction of credit
revenues.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" in 1997. SFAS No. 125 requires that the Company
recognize gains on its credit card securitizations which qualify as sales and
that an allowance for uncollectible accounts not be maintained for receivable
balances which are sold. Prior to adoption of SFAS No. 125, the Company
maintained an allowance for uncollectible sold accounts as a recourse liability
and did not recognize gains on securitizations. Accordingly, the adoption of
SFAS No. 125 increased operating income by $58 million in 1998 and $222 million
in 1997 versus the operating income that would have been recognized under the
previous accounting method. In 1999, the effects of the change in accounting
related to SFAS No. 125, compared to our previous accounting method, were not
material.
MERCHANDISE INVENTORIES
Approximately 87% of merchandise inventories are valued at the lower of cost
(using the last-in, first-out or "LIFO" method) or market using the retail
method. To estimate the effects of inflation on inventories, the Company
utilizes internally developed price indices.
The LIFO adjustment to cost of sales was a credit of $73, $34 and $17
million in 1999, 1998 and 1997, respectively. Partial liquidation of merchandise
inventories valued under the LIFO method resulted in a credit of $2 million in
1997. No layer liquidation occurred in 1999 and 1998. If the first-in, first-out
("FIFO") method of inventory valuation had been used instead of the LIFO method,
merchandise inventories would have been $595 and $679 million higher at January
1, 2000, and January 2, 1999, respectively.
Merchandise inventories of International operations, operations in Puerto
Rico, and certain Sears Automotive Store formats, which in total represent
approximately 13% of merchandise inventories, are recorded at the lower of cost
or market based on the FIFO method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is provided principally by the straight-line method over the
estimated useful lives of the related assets, generally 2 to 10 years for
furniture, fixtures and equipment, and 15 to 50 years for buildings and building
improvements.
LONG-LIVED ASSETS
Long-lived assets, identifiable intangibles and goodwill related to those assets
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable.
GOODWILL
Included in other assets is the excess of purchase price over net assets of
businesses acquired ("goodwill"), which is amortized using the straight-line
method over periods ranging from 10 to 40 years. The Company periodically
assesses the recoverability of the carrying value and the appropriateness of the
remaining life of goodwill.
ADVERTISING
Costs for newspaper, television, radio and other media advertising are expensed
the first time the advertising occurs. The total cost of advertising charged to
expense was $1.63, $1.67 and $1.59 billion in 1999, 1998 and 1997, respectively.
DIRECT-RESPONSE MARKETING
The Company direct markets insurance (credit protection, life and health), clubs
and services memberships, merchandise through specialty catalogs, and impulse
and continuity merchandise. For insurance and clubs and services, deferred
revenue is recorded when the member is billed (upon expiration of any free trial
period), and revenue is recognized over the insurance or membership period. For
specialty catalog, impulse and continuity merchandise, revenue is recognized
when merchandise is shipped.
Membership acquisition and renewal costs, which primarily relate to
membership solicitations, are capitalized since such direct-response advertising
costs result in future economic benefits. Such costs are amortized over the
shorter of the program's life or five years, primarily in proportion to when
revenues are recognized. For specialty catalogs, costs are amortized over the
life of the catalog, not to exceed one year. The consolidated balance sheets
include deferred direct-response advertising costs of $180 and $131 million at
January 1, 2000, and January 2, 1999, respectively. The current portion is
included in prepaid expenses and deferred charges, the long term portion in
other assets.
<PAGE>
32 SEARS, ROEBUCK AND CO.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company utilizes various off-balance sheet financial instruments to manage
the interest rate and foreign currency risk associated with its borrowings. The
counterparties to these instruments generally are major financial institutions
with credit ratings of single-A or better.
Interest rate swap agreements modify the interest characteristics of a
portion of the Company's debt. Any differential to be paid or received is
accrued and is recognized as an adjustment to interest expense in the statement
of income. The related accrued receivable or payable is included in other assets
or liabilities. The fair values of the swap agreements are not recognized in the
financial statements.
Gains or losses on terminations of interest rate swaps are deferred and
amortized to interest expense over the remaining life of the original swap
period to the extent the related debt remains outstanding.
Financial instruments used as hedges must be effective at reducing the type
of risk associated with the exposure being hedged and must be designated as
hedges at inception of the hedge contract. Accordingly, changes in market values
of financial instruments must be highly correlated with changes in market values
of the underlying items being hedged. Any financial instrument designated but
ineffective as a hedge would be marked to market and recognized in earnings
immediately.
EFFECT OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". In May 1999, the
FASB voted to delay the adoption of SFAS No. 133 by one year. This statement is
now required to be adopted in years beginning after June 15, 2000. The Company
is currently evaluating the effect this statement might have on the consolidated
financial position and results of operations of the Company.
NOTE >2 > DISPOSITION OF BUSINESSES
On November 18, 1998, the Company entered into an agreement to exchange its
interest in the Homelife furniture business for $100 million in cash, a $10
million note receivable and a 19% equity ownership in the new Homelife business.
The Company recorded a pretax charge of $33 million ($21 million after-tax) in
the fourth quarter of 1998 related to this transaction. The sale was completed
on January 30, 1999.
On November 2, 1998, the Company completed an Agreement and Plan of Merger
of Western Auto, a wholly owned subsidiary, and Advance Auto Parts, whereby
Sears exchanged its interest in Western Auto for $175 million in cash and
approximately 40% equity ownership in the resulting combined company. Based on
the terms of the sale, the Company recorded a pretax charge of $319 million
($243 million after-tax) in 1998 related to this transaction. In the fourth
quarter of 1999, certain estimates of remaining liabilities under the terms of
the transaction were revised, resulting in $5 million of pretax income being
recorded in the restructuring and impairment line of the income statement.
NOTE >3 > RESTRUCTURING CHARGES
The Company implemented certain cost-reduction strategies during the third
quarter of 1999 resulting in a $46 million pretax restructuring charge. Of the
$46 million charge, $25 million relates to the closing of 33 automotive stores
in three geographic markets and $21 million relates to severance costs for
headquarters staff reductions of approximately 450 employees. The staff
reductions and the closing of the 33 stores both occurred during the third
quarter of 1999. Of the $25 million charge for the 33 closed stores,
approximately $3 million relates to severance costs, $21 million is to reduce
the carrying value of the closed store assets to their estimated fair value,
less costs to sell, and $1 million is for other related costs. As of January 1,
2000, future cash payments to settle restructuring obligations approximate $16
million, which is expected to be paid primarily in the year 2000. The Company
paid $20 million of the restructuring costs during the fourth quarter of 1999
resulting in a restructuring reserve balance of $26 million as of January 1,
2000.
NOTE >4 > INCOME TAXES
Income before income taxes, minority interest and extraordinary loss is as
follows:
millions 1999 1998 1997
- ----------------------------------------------
Domestic $2,189 $1,704 $2,018
Foreign 230 179 120
- ----------------------------------------------
Total $2,419 $1,883 $2,138
- ----------------------------------------------
Federal, state and foreign taxes are as follows:
millions 1999 1998 1997
- ---------------------------------------------
Current
Federal $ 414 $ 472 $ 468
State 24 41 75
Foreign 110 74 97
- ---------------------------------------------
Total 548 587 640
- ---------------------------------------------
Deferred
Federal 332 159 256
State 40 15 18
Foreign (16) 5 (2)
- ---------------------------------------------
Total 356 179 272
- ---------------------------------------------
Income tax provision $ 904 $ 766 $ 912
- ---------------------------------------------
A reconciliation of the statutory federal income tax rate
to the effective rate is as follows:
1999 1998 1997
- -------------------------------------------------
Statutory federal
income tax rate 35.0% 35.0% 35.0%
State income taxes,
net of federal
income tax benefit 1.7 1.9 2.9
Reaffirmation charge -- -- 1.3
Sale of Sears Mexico -- -- 1.3
Sale of Western Auto -- 2.3 --
Other 0.7 1.5 2.2
- -------------------------------------------------
Effective income tax rate 37.4% 40.7% 42.7%
- -------------------------------------------------
<PAGE>
SEARS, ROEBUCK AND CO. 33
Deferred taxes based upon differences between the financial statement and
tax bases of assets and liabilities and available tax carryforwards consists of:
millions 1999 1998
- ---------------------------------------------------------
Deferred tax assets:
Unearned service contract income $ 429 $ 417
Allowance for uncollectible accounts 320 448
State income taxes 149 125
Postretirement benefit liability 933 974
Minimum pension liability 108 165
Loss carryforward acquired 136 --
Other deferred tax assets 478 565
- ---------------------------------------------------------
Total deferred tax assets 2,553 2,694
- ---------------------------------------------------------
Deferred tax liabilities:
Property and equipment 421 399
Prepaid pension 53 78
LIFO 109 123
Deferred gain 279 235
Deferred revenue 137 73
Deferred swap termination loss 173 182
Other deferred tax liabilities 305 241
- ---------------------------------------------------------
Total deferred tax liabilities 1,477 1,331
- ---------------------------------------------------------
Net deferred taxes $1,076 $1,363
- ---------------------------------------------------------
Management believes that the realization of the deferred tax assets is more
likely than not, based on the expectation that the Company will generate the
necessary taxable income in future periods and, accordingly, no valuation
reserve has been provided. Tax benefits from loss carryforwards will expire by
2006.
U.S. income and foreign withholding taxes were not provided on certain
unremitted earnings of international affiliates which the Company considers to
be permanent investments. The cumulative amount of unremitted income for which
income taxes have not been provided totaled $479 million at January 1, 2000. If
these earnings were to be remitted, taxes of $133 million would be due.
Income taxes of $327, $366 and $886 million were paid in 1999, 1998 and
1997, respectively.
NOTE >5 > BENEFIT PLANS
Expenses for retirement and savings-related benefit plans were as follows:
millions 1999 1998 1997
- -------------------------------------------------
Sears 401(k)
Profit Sharing Plan $ 37 $ 31 $ 33
Pension plans 89 88 106
Postretirement benefits (46) (38) (41)
Other plans -- -- 6
- -------------------------------------------------
Total $ 80 $ 81 $ 104
- -------------------------------------------------
SEARS 401(K) PROFIT SHARING PLAN
Most domestic employees are eligible to become members of the Sears 401(k)
Profit Sharing Plan ("the Plan"). Under the terms of the Plan, the Company
matches a portion of the employee contributions. In 1998 and 1997, the Company
matching contribution was based on 6% of consolidated income, as defined, for
the participating companies and was limited to 70% of eligible employee
contributions. In 1999 and future periods, the Plan has been changed and the
Company match is now fixed at 70% of eligible employee contributions. The
Company's matching contributions were $77, $75 and $71 million in 1999, 1998 and
1997, respectively.
The Plan includes an Employee Stock Ownership Plan ("the ESOP") to prefund
a portion of the Company's anticipated contribution. The Company provided the
ESOP with a loan that was used to purchase Sears common shares in 1989. In June
1998, the ESOP refinanced the loan and extended its maturity to 2024. The
purchased shares represent deferred compensation expense, which is presented as
a reduction of shareholders' equity and recognized as expense when the shares
are allocated to employees to fund the Company contribution. The per share cost
of Sears common shares purchased by the ESOP in 1989 was $15.27. The Company
uses the ESOP shares to fund the Company contribution, which thereby reduces
expense.
The ESOP loan bears interest at 6.1% (9.2% prior to refinancing) and is
repaid from dividends on the ESOP shares and additional cash payments provided
by the Company. The Company has contributed cash to the ESOP annually in the
amount equal to the ESOP's required interest and principal payments on the loan,
less dividends received on the ESOP shares. The cash payments amounted to $57,
$24 and $23 million in 1999, 1998 and 1997, respectively. The balance of the
ESOP loan was $210 and $267 million at January 1, 2000 and January 2, 1999,
respectively. Cash on hand in the ESOP at January 1, 2000 was $4 million.
The reported expense is determined as follows:
millions 1999 1998 1997
- -----------------------------------------------
Interest expense
recognized by ESOP $ 13 $ 21 $ 27
Less dividends
on ESOP shares (17) (19) (20)
Cost of shares allocated
to employees and
plan expenses 41 29 26
- -----------------------------------------------
Sears 401(k) Profit
Sharing Plan expense $ 37 $ 31 $ 33
- -----------------------------------------------
At December 31, 1999, total committed to be released, allocated and
remaining unallocated ESOP shares were 2.7, 14.4 and 8.8 million, respectively.
All ESOP shares are considered outstanding in the calculation of earnings per
share.
<PAGE>
34 SEARS, ROEBUCK AND CO.
RETIREMENT BENEFIT PLANS
Certain domestic full-time and part-time employees are eligible to participate
in noncontributory defined benefit plans after meeting age and service
requirements. Substantially all Canadian employees are eligible to participate
in contributory defined benefit plans. Pension benefits are based on length of
service, compensation and, in certain plans, Social Security or other benefits.
Funding for the various plans is determined using various actuarial cost
methods. The Company uses October 31 as the measurement date for determining
pension plan assets and obligations.
In addition to providing pension benefits, the Company provides certain
medical and life insurance benefits for retired employees. Employees may become
eligible for medical benefits if they retire in accordance with the Company's
established retirement policy and are continuously insured under the Company's
group medical plans or other approved plans for 10 or more years immediately
prior to retirement. The Company shares the cost of the retiree medical benefits
with retirees based on years of service. Generally, the Company's share of these
benefit costs will be capped at the Company contribution calculated during the
first year of retirement. The Company's postretirement benefit plans are not
funded. The Company has the right to modify or terminate these plans.
The change in benefit obligation, change in plan assets, funded status,
reconciliation to amounts recognized in the consolidated balance sheets and
weighted average assumptions are as follows:
<TABLE>
<CAPTION>
millions Pension Benefits Postretirement Benefits
- -----------------------------------------------------------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Beginning balance $ 2,872 $ 2,824 $ 1,180 $ 1,270
Benefits earned during the period 95 78 5 7
Interest cost 192 184 74 84
Actuarial loss (gain) (16) 104 (205) (22)
Benefits paid (337) (302) (123) (136)
Foreign exchange impact 22 (38) 2 (4)
Plan amendments -- 22 1 --
Disposition of Western Auto -- -- -- (19)
Other 2 -- -- --
- -----------------------------------------------------------------------------------------------
Ending balance $ 2,830 $ 2,872 $ 934 $ 1,180
- -----------------------------------------------------------------------------------------------
Change in plan assets at fair value:
Beginning balance $ 2,560 $ 2,710 $ -- $ --
Actual return on plan assets 368 176 -- --
Company contributions 50 46 123 136
Benefits paid (337) (302) (123) (136)
Foreign exchange impact 28 (54) -- --
Other 2 (16) -- --
- -----------------------------------------------------------------------------------------------
Ending balance $ 2,671 $ 2,560 $ -- $ --
- -----------------------------------------------------------------------------------------------
Funded status of the plan: $ (159) $ (312) $ (934) $(1,180)
Unrecognized net loss (gain) 410 600 (578) (396)
Unrecognized prior service benefit (21) (25) (668) (770)
- -----------------------------------------------------------------------------------------------
Net amount recognized $ 230 $ 263 $(2,180) $(2,346)
- -----------------------------------------------------------------------------------------------
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost $ 171 $ 164 $ -- $ --
Accrued benefit liability (244) (365) (2,180) (2,346)
Accumulated other comprehensive income 303 464 -- --
- -----------------------------------------------------------------------------------------------
Net amount recognized $ 230 $ 263 $(2,180) $(2,346)
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted average assumptions:
Discount rate 8.00% 7.25% 7.25% 8.00% 7.25% 7.25%
Return on plan assets 9.50% 9.50% 9.50% NA NA NA
Rate of compensation increases 4.00% 4.00% 4.00% NA NA NA
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SEARS, ROEBUCK AND CO. 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of net periodic benefit cost are as follows:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
- ------------------------------------------------------------------------------------------------------------------------------
millions 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Benefits earned during the period $ 95 $ 78 $ 74 $ 5 $ 7 $ 13
Interest cost 192 184 190 74 84 105
Expected return on plan assets (228) (220) (208) -- -- --
Amortization of unrecognized
net prior service benefit (3) (8) (6) (102) (103) (68)
Amortization of unrecognized
transitional asset -- (9) (10) -- -- --
Recognized net loss (gain) 34 47 52 (23) (26) (30)
Elimination of postretirement
life insurance for active associates -- -- -- -- -- (61)
Other (1) 16 14 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 89 $ 88 $ 106 $ (46) $ (38) $ (41)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $2,236, $2,110 and $1,866 million, respectively,
at January 1, 2000, and $2,309, $2,210 and $1,845 million, respectively, at
January 2, 1999. The provisions of SFAS No. 87, "Employers' Accounting for
Pensions," require the recognition of a minimum pension liability for each
defined benefit plan for which the accumulated benefit obligation exceeds plan
assets. The minimum pension liability, net of tax, was $195 million at January
1, 2000 and $299 million at January 2, 1999, and is included in accumulated
other comprehensive income as a reduction of shareholders' equity.
In 1997, the Company announced changes to its postretirement life insurance
benefit plan. Retiree life insurance benefits were eliminated for all active
associates not retired by December 31, 1997. This plan change resulted in a
one-time pretax gain of $61 million. In connection with the elimination of
retirement life insurance benefits for all active associates, the Company also
announced the reduction in life insurance over a 10-year period to a maximum
coverage of $5,000 for all post-1977 retirees.
The weighted average health care cost trend rate used in measuring the
postretirement benefit expense in 2000 is 6.0% for pre-65 retirees and 7.5% for
post-65 retirees. For 2001 and beyond, the trend rates are 5.0% for pre-65
retirees and 6.5% for post-65 retirees. A one percentage point change in the
assumed health care cost trend rate would have the following effects:
ONE PERCENTAGE ONE PERCENTAGE
millions POINT INCREASE POINT DECREASE
- ----------------------------------------------------------------------------
Effect on total service
and interest cost components $ 3 $ (2)
Effect on postretirement
benefit obligation $16 $(14)
- ----------------------------------------------------------------------------
NOTE >6 > BORROWINGS
Short-term borrowings consist of:
millions 1999 1998
- ----------------------------------------------------
Commercial paper $2,824 $4,463
Bank loans 95 91
Promissory note 70 70
Other loans -- --
- ----------------------------------------------------
Total short-term borrowings $2,989 $4,624
Weighted average
interest rate at year end 6.0% 5.3%
Weighted average
interest rate at year end,
including effects of swaps 7.1% 6.3%
- ----------------------------------------------------
At January 1, 2000, SRAC's credit facilities totaled $5.06 billion in
syndicated credit agreements. Sears Canada had credit agreements totaling $553
million. These syndicated and other credit agreements provide for loans at
prevailing interest rates and mature at various dates through April 2003. The
Company pays commitment fees in connection with these credit agreements.
The Company had interest rate swap agreements that established fixed rates
on $1.52 billion and $1.50 billion of short-term variable rate debt at January
1, 2000 and January 2, 1999, respectively, resulting in weighted average
interest rates of 6.7% and 6.8%, respectively. The weighted average maturity of
agreements in effect on January 1, 2000, was approximately 14 years.
<PAGE>
36 SEARS, ROEBUCK AND CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Long-term debt is as follows:
millions Issue 1999 1998
- ----------------------------------------------------------
SEARS, ROEBUCK AND CO.
6.25% Notes, due through 2004 $ 300 $ 500
8.2% Extendable Notes, due 1999 -- 31
9.375% Debentures, due 2011 300 300
5.57% to 10.0% Medium-Term
Notes, due 2000 to 2021 1,215 1,550
SEARS ROEBUCK ACCEPTANCE CORP.
6.125% to 7.51% Notes,
due 2000 to 2038 5,827 5,084
5.53% to 7.26% Medium-Term
Notes, due 2000 to 2013 5,716 5,976
SEARS DC CORP.
8.54% to 9.26% Medium-Term
Notes, due 2001 to 2012 213 332
SEARS CANADA INC.
6.55% to 11.70% Debentures,
due 2000 to 2007 305 392
SEARS CANADA RECEIVABLES TRUST
5.04% to 9.18% Receivables
Trusts, due 2001 to 2006 735 405
Capitalized Lease Obligations 417 453
Other Notes and Mortgages 21 22
- ----------------------------------------------------------
15,049 15,045
Less current maturities 2,165 1,414
- ----------------------------------------------------------
Total long-term debt $12,884 $13,631
- ----------------------------------------------------------
On October 2, 1998, the Company prepaid its 6% debentures with a face value
of $300 million, which were due in May 2000. The transaction generated an
extraordinary loss of $37 million and a related income tax benefit of $13
million, resulting in an after-tax loss of $24 million. The loss resulted
primarily from the write-off of the related unamortized discount. The debt was
refinanced with the issuance of commercial paper.
As of January 1, 2000, long-term debt maturities for the next five years
are as follows:
millions
- ---------------------------------------------------
2000 $2,165
2001 2,458
2002 1,654
2003 2,540
2004 862
- ---------------------------------------------------
The Company paid interest of $1.2, $1.3 and $1.4 billion in 1999, 1998 and
1997, respectively. Interest capitalized was $5, $5 and $3 million in 1999, 1998
and 1997, respectively.
NOTE >7 > LEASE AND SERVICE AGREEMENTS
The Company leases certain stores, office facilities, warehouses, computers and
transportation equipment.
Operating and capital lease obligations are based upon contractual minimum
rates and, for certain stores, amounts in excess of these minimum rates are
payable based upon specified percentages of sales. Contingent rent is accrued
over the lease term, provided that the achievement of the specified sales level
that triggers the contingent rental is probable. Certain leases include renewal
or purchase options. Operating lease rentals were $399, $431 and $439 million,
including contingent rentals of $52, $55 and $57 million in 1999, 1998 and 1997,
respectively.
Minimum lease obligations, excluding taxes, insurance and other expenses
payable directly by the Company, for leases in effect as of January 1, 2000, are
as follows:
CAPITAL OPERATING
millions LEASES LEASES
- ---------------------------------------------------
2000 $ 66 $ 352
2001 60 303
2002 56 253
2003 56 224
2004 54 195
After 2004 714 1,092
- ---------------------------------------------------
Total minimum payments $1,006 $2,419
Less imputed interest 589
- ---------------------------------------------------
Present value of
minimum lease payments 417
Less current maturities 16
- ---------------------------------------------------
Long-term obligations $ 401
- ---------------------------------------------------
The Company has committed to purchase data and voice networking and
information processing services of at least $216 million annually through 2004
from a third-party provider. Total expenses incurred by the Company for these
services during 1999, 1998 and 1997 were $318, $355 and $361 million,
respectively. The Company may also be responsible for certain stores leases that
have been assigned.
NOTE >8 > FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets, incurs various financial liabilities and enters into agreements
involving off-balance sheet financial instruments. The Company's financial
assets and liabilities are recorded in the consolidated balance sheets at
historical cost, which approximates fair value.
To determine fair value, credit card receivables are valued by discounting
estimated future cash flows. The estimated cash flows reflect the historical
cardholder payment experience and are discounted at market rates. Long-term debt
is valued based on quoted market prices when available or discounted cash flows,
using interest rates currently available to the Company on similar borrowings.
<PAGE>
SEARS, ROEBUCK AND CO. 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company is a party to off-balance sheet financial instruments to manage
interest rate and foreign currency risk. These financial instruments involve, to
varying degrees, elements of market, credit, foreign exchange and interest rate
risk in excess of amounts recognized in the balance sheet. In certain
transactions, the Company may require collateral or other security to support
the off-balance sheet financial instruments with credit risk.
DEBT-RELATED
The Company had the following off-balance sheet financial instruments related to
its outstanding borrowings at the end of 1999 and 1998:
1999
- ----------------------------------------------------------------
CONTRACT OR
NOTIONAL FAIR CARRYING
millions AMOUNT VALUE VALUE
- ----------------------------------------------------------------
Interest rate swap agreements:
Pay floating rate,
receive fixed rate $ 83 $ -- $ --
Pay fixed rate,
receive floating rate 1,517 148 --
Foreign currency
hedge agreements 9 (1) --
- ----------------------------------------------------------------
1998
- ----------------------------------------------------------------
CONTRACT OR
NOTIONAL FAIR CARRYING
millions AMOUNT VALUE VALUE
- ----------------------------------------------------------------
Interest rate swap agreements:
Pay floating rate,
receive fixed rate $ 805 $ 9 $ --
Pay fixed rate,
receive floating rate 1,499 (176) --
Foreign currency
hedge agreements 10 (2) --
- ----------------------------------------------------------------
The Company uses interest rate swaps to manage the interest rate risk
associated with its borrowings and to manage the Company's allocation of fixed
and variable-rate debt. For pay floating rate, receive fixed rate swaps, the
Company paid a weighted average rate of 5.21% and received a weighted average
rate of 6.87% in 1999. For pay fixed rate, receive floating rate swaps, the
Company paid a weighted average rate of 6.68% and received a weighted average
rate of 5.21% in 1999. The fair values of interest rate swaps are based on
prices quoted from dealers. If a counterparty fails to meet the terms of a swap
agreement, the Company's exposure is limited to the net amount that would have
been received, if any, over the agreement's remaining life.
Maturity dates of the off-balance sheet financial instruments outstanding
at January 1, 2000 are as follows:
NOTIONAL AMOUNT
- ---------------------------------------------------------
OVER
MILLIONS 1 YEAR 2-5 YEARS 5 YEARS
- ---------------------------------------------------------
Interest rate
swap agreements $ 283 $ 173 $1,144
Foreign currency
hedge agreements 5 4 --
- ---------------------------------------------------------
During 1997, the Company paid $633 million to terminate interest rate
swaps. The deferred loss related to these terminations was $415 million and $441
million at January 1, 2000, and January 2, 1999, respectively, and is being
amortized over the remaining lives of the original swap periods.
CREDIT-RELATED
The Company had outstanding domestic securitized credit card receivables sold of
$6.58 and $6.63 billion at January 1, 2000, and January 2, 1999, respectively,
for which the Company's credit risk exposure is contractually limited to the
investor certificates held by the Company.
OTHER
The Company had a financial guaranty of $89 million at January 1, 2000. This
guaranty represents a commitment by the Company to guarantee the performance of
certain municipal bonds issued in connection with the Company's headquarters
building. No amounts were accrued in the balance sheet for any potential loss
associated with this guaranty at January 1, 2000, and January 2, 1999.
NOTE >9 > SIGNIFICANT GROUP
CONCENTRATIONS OF CREDIT RISK
The Company grants credit to customers throughout North America. The five states
and the respective receivable balances in which the Company had the largest
amount of managed credit card receivables were as follows:
millions 1999 % OF BALANCE 1998 % OF BALANCE
- --------------------------------------------------------------------
California $2,778 10.4% $2,946 10.4%
Texas 2,127 7.9% 2,285 8.1%
Florida 1,943 7.3% 2,069 7.3%
New York 1,592 5.9% 1,689 6.0%
Pennsylvania 1,364 5.1% 1,457 5.1%
- --------------------------------------------------------------------
NOTE >10 > LEGAL PROCEEDINGS
The Company remains a party to two cases arising from the Company's purchase of
garments produced under allegedly illegal labor conditions on the island of
Saipan in the Commonwealth of the Northern Marianas Islands. The two actions
were filed on January 13, 1999, the first on behalf of ten "Doe" plaintiffs in
the United States District Court for the Central District of California against
eighteen domestic
<PAGE>
38 SEARS, ROEBUCK AND CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
clothes retailers and eleven foreign clothing suppliers (which case subsequently
was transferred to the United States District Court for the District of Hawaii),
and the second by various interest groups, purportedly on behalf of the general
public of the State of California, in the San Francisco County Superior Courts.
Plaintiffs in the suits seek various injunctive relief, damages (including
punitive and treble damages), restitution and disgorgement of profits, interest,
and attorney fees and costs. On February 23, 2000, the Company entered into a
settlement agreement with the plaintiffs that provides for the dismissal of both
cases with respect to the Company. While continuing to deny plaintiffs' claims
and contentions, the Company agreed to an immaterial one-time cash payment to
the plaintiffs. The Company further agreed that following the effective date of
the agreement, it would only purchase garments produced in Saipan from factories
that adhere to the terms of a monitoring program provided for in the settlement
agreement. The settlement of the cases is subject to the final approval of both
courts. In the event that the settlement is not approved and the cases continue
against the Company, their consequences are not presently determinable, but in
the opinion of the management of the Company, the ultimate liability is not
expected to have a material effect on the results of operations, financial
position, liquidity or capital resources of the Company.
The Company is subject to various other legal and governmental proceedings,
many involving routine litigation incidental to the business. Other matters
contain allegations that are nonroutine and involve compensatory, punitive or
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.
NOTE >11 > OTHER INCOME
In 1997, the Company sold its 30% equity interest in Advantis, a joint venture
between IBM and the Company, to IBM. This transaction resulted in a pretax gain
of $150 million and is recorded in other income.
Also in 1997, the Company completed the sale of 60% of the outstanding
shares of Sears, Roebuck de Mexico, S.A. de C.V. to Grupo Carso S.A. de C.V. The
sale resulted in a pretax loss of $21 million and is reflected in other income.
NOTE >12 > EARNINGS PER SHARE
The following table sets forth the computations of basic and diluted earnings
per share:
millions, except per share data 1999 1998 1997
- ----------------------------------------------------------------------
Net income available to
common shareholders(1) $1,453 $1,048 $1,188
Average common
shares outstanding 379.2 388.6 391.6
Earnings per share - basic $ 3.83 $ 2.70 $ 3.03
Dilutive effect
of stock options 1.8 3.1 6.2
Average common and
common equivalent
shares outstanding 381.0 391.7 397.8
Earnings per share - diluted $ 3.81 $ 2.68 $ 2.99
- ----------------------------------------------------------------------
(1) Income available to common shareholders is the same for purposes of
calculating basic and diluted EPS.
In each period, certain options were excluded from the computation of
diluted earnings per share because they would have been antidilutive. At January
1, 2000, January 2, 1999 and January 3, 1998, options to purchase 11.9, 5.2 and
4.7 million shares of stock at prices ranging from $40 to $64, $52 to $64 and
$47 to $64 per share were excluded from the 1999, 1998 and 1997 calculations,
respectively.
NOTE >13 > SHAREHOLDERS' EQUITY
DIVIDEND PAYMENTS
Under terms of indentures entered into in 1981 and thereafter, the Company
cannot take specified actions, including the declaration of cash dividends, that
would cause its unencumbered assets, as defined, to fall below 150% of its
liabilities, as defined. At January 1, 2000, approximately $4.5 billion could be
paid in dividends to shareholders under the most restrictive indentures.
SHARE REPURCHASE PROGRAM
On February 3, 1998, the Board of Directors extended, for an additional two
years, the common share repurchase program which is used to acquire shares for
distribution in connection with the expected exercise of stock options, the
grant of restricted shares and the exchange of deferred shares under the
Company's stock plans. The program authorized the Company to acquire up to 20
million Sears common shares on the open market. By the end of the first quarter
of 1999, all 20 million common shares authorized to be purchased under this
repurchase program had been acquired.
On March 10, 1999, the Board of Directors approved a common share
repurchase program to acquire up to $1.5 billion of the Company's common shares
by December 31, 2001. The shares are to be purchased on the open market or
through privately negotiated transactions. As of January 1, 2000, approximately
14.0 million common shares have been acquired under this repurchase program at a
cost of approximately $464 million.
<PAGE>
SEARS, ROEBUCK AND CO. 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE >14 > STOCK-BASED COMPENSATION
STOCK OPTION PLANS
Options to purchase common stock of the Company have been granted to employees
under various plans at prices equal to the fair market value of the stock on the
dates the options were granted. Generally, options vest over a three- or
four-year period and become exercisable either in equal, annual installments
over the vesting period, or at the end of the vesting period. Options generally
expire in 10 or 12 years.
Additionally, certain options were granted in 1997 and 1999 with
performance-based features that required the Company's share price to reach
specified targets at three- and five-year intervals from the grant date to be
earned. In February 1999, the Company extended the period of time allowed to
meet the specified targets for the 1997 grants by one year. The Company had 1.1
million, 1.2 million, and 1.4 million performance-based options outstanding at
the end of 1999, 1998 and 1997, respectively. Subject to the satisfaction of the
performance-based features, these performance-based options vest 50% in year
six, 25% in year seven and 25% in year eight from the time of grant. The Company
did not recognize compensation expense in 1999, 1998 or 1997 related to these
options because the exercise price exceeded the Company share price at each year
end.
The Company measures compensation cost under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and no compensation
cost has been recognized for its fixed stock option plans. In accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation," the fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model. The following assumptions were used during the respective
years to estimate the fair value of options granted:
1999 1998 1997
- ---------------------------------------------------------------------
Dividend yield 2.16% 1.81% 1.59%
Expected volatility 28% 28% 28%
Risk-free interest rate 5.03% 5.82% 6.19%
Expected life of options 6 years 6 years 6 years
- ---------------------------------------------------------------------
Had compensation cost for the Company's stock option plans been determined
using the fair value method under SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
millions, except earnings per share 1999 1998 1997
- ---------------------------------------------------------------------
Net income-- as reported $1,453 $1,048 $1,188
Net income-- pro forma 1,414 1,023 1,174
Earnings per share-- basic
As reported 3.83 2.70 3.03
Pro forma 3.73 2.63 3.00
Earnings per share-- diluted
As reported 3.81 2.68 2.99
Pro forma 3.71 2.61 2.95
- ---------------------------------------------------------------------
Changes in stock options are as follows:
<TABLE>
<CAPTION>
shares in thousands 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning balance 15,251 $39.93 15,155 $34.16 14,389 $25.00
Granted 5,668 40.89 4,171 55.73 4,165 58.23
Exercised (1,084) 22.76 (2,671) 25.00 (2,832) 23.67
Canceled or expired (1,309) 51.11 (1,404) 52.98 (567) 31.17
- --------------------------------------------------------------------------------------------------------
Ending balance 18,526 $40.44 15,251 $39.93 15,155 $34.16
- --------------------------------------------------------------------------------------------------------
Reserved for future
grant at year-end 5,337 9,979 12,840
Exercisable 7,844 $27.92 8,217 $25.43 7,524 $23.89
- --------------------------------------------------------------------------------------------------------
Fair value of options
granted during the year $13.35 $18.61 $17.98
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
40 SEARS, ROEBUCK AND CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about stock options outstanding
at January 1, 2000:
<TABLE>
<CAPTION>
shares in thousands OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------------------------------------------
WEIGHTED AVG.
RANGE OF NUMBER REMAINING WEIGHTED AVG. NUMBER WEIGHTED AVG.
EXERCISE OUTSTANDING CONTRACTUAL LIFE EXERCISE EXERCISABLE EXERCISE
PRICES AT 01/01/00 IN YEARS PRICE AT 01/01/00 PRICE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$10.00 to $20.00 1,336 4.4 $16.41 1,336 $16.41
20.01 to 30.00 4,229 6.5 24.24 4,224 24.23
30.01 to 40.00 1,103 8.8 31.97 989 31.94
40.01 to 50.00 7,239 8.3 42.94 1,177 48.08
50.01 to 64.00 4,619 8.0 60.31 118 55.81
- -------------------------------------------------------------------------------------------------------------------
$10.00 to $64.00 18,526 7.7 $40.44 7,844 $27.92
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
ASSOCIATE STOCK PURCHASE PLAN
On May 8, 1997, the shareholders approved the Company's Associate Stock
Ownership Plan ("ASOP"). The ASOP allows eligible employees the right to elect
to use up to 10% of their eligible compensation to purchase Sears common stock
on a quarterly basis at the lower of 85% of the fair market value at the
beginning or end of each calendar quarter. The maximum number of shares of Sears
common stock available under the ASOP is 10 million. The first purchase period
began January 1, 1998. There were 0.6 million shares issued under the ASOP in
1998 and 0.7 million shares issued in 1999.
NOTE >15 > SUMMARY OF SEGMENT DATA
The Company is a multiline retailer providing a wide array of merchandise and
services, and no single product or service accounted for a significant
percentage of the Company's consolidated revenue. The Company has four domestic
segments, which include the Company's operations in the United States and Puerto
Rico, and one international segment. The domestic segments are Retail, Services,
Credit and Corporate.
The Retail segment includes the operating results of the Company's
Full-line Stores and Specialty Stores; and the Services segment includes the
operating results of the Company's Home Services and Direct Response businesses.
These businesses have been aggregated into their respective reportable segments
based on the management reporting structure and their similar economic
characteristics, customers and distribution channels.
A general description of the merchandise and services offered in each
segment follows:
RETAIL
Full-line Stores, which are located principally in shopping malls, sell apparel,
home fashions and hardlines merchandise. Specialty Stores, consisting of
Hardware, Dealer, The Great Indoors, Auto, Contract Sales, and Homelife
furniture stores sell hardlines, home fashions, auto products and furniture. The
Homelife furniture stores were sold on January 30, 1999.
SERVICES
Associates and third-party licensee partners of the Company provide product
repair services, extended warranty service contracts and home improvement
products. Direct Response consists of direct-response marketing, which markets
insurance (credit protection, life and health), clubs and service memberships,
merchandise through specialty catalogs, and impulse and continuity merchandise.
CREDIT
The Credit business manages the Company's portfolio of credit card receivables
arising from purchases of merchandise and services from domestic operations.
CORPORATE
The Corporate segment includes activities that are of a holding-company nature,
primarily consisting of administrative activities and the Sears Online
investment initiatives related to selling merchandise via the Company Web site,
the costs of which are not allocated to the Company's businesses.
INTERNATIONAL
The International segment consists of retail, credit, services and corporate
operations similar to the Company's domestic operations. International
operations are conducted in Canada through Sears Canada, Inc., a 54.6% owned
subsidiary. International operations were also conducted in Mexico through
Sears, Roebuck de Mexico, S.A. de C.V. ("Sears Mexico") until March 29, 1997,
when the Company sold 60% of the outstanding shares of Sears Mexico. Thereafter,
Sears Mexico's results are no longer included in the Company's consolidated
results.
The segments do not record intersegment revenues and expenses. External
revenues and expenses are allocated between the applicable segments.
The domestic segments participate in a centralized funding program.
Interest expense is allocated to the Credit segment based on its funding
requirements assuming a 9-to-1 debt to equity ratio. Funding includes debt
reflected on the balance sheet and investor certificates related to credit card
receivables sold through securitizations. Services is allocated interest income
based on the after-tax cash flow it generates through the sale of service
contracts. The remainder of net domestic interest expense is reported in the
Retail segment.
The Company's segments are evaluated on a pretax basis, and a stand-alone
income tax provision is not calculated for the individual segments. The Company
includes its deferred income taxes within the Corporate segment. The other
accounting policies of the segments are substantially the same as those
described in the Company's summary of significant accounting policies footnote.
<PAGE>
SEARS, ROEBUCK AND CO. 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
millions RETAIL SERVICES CREDIT INTERNATIONAL CORPORATE CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999
Revenue $ 29,775 $ 3,078 $ 4,085 $ 4,133 $ -- $ 41,071
Depreciation and
amortization expense 659 57 14 76 42 848
Interest revenue -- 59 -- -- -- 59
Interest expense 111 -- 1,116 100 -- 1,327
Operating income (expense) 841 329 1,347 218 (322) 2,413
Equity in net income
of investees accounted
for by the equity method (14) -- -- 9 -- (5)
Noncomparable items--
income (expense), pretax (25) -- -- -- (21) (46)
Total assets 10,130 1,087 20,622 3,324 1,791 36,954
Capital expenditures 711 81 39 143 59 1,033
- ------------------------------------------------------------------------------------------------------------
1998
Revenue $ 30,429 $ 3,113 $ 4,369 $ 3,664 $ -- $ 41,575
Depreciation and
amortization expense 671 49 13 64 33 830
Interest revenue -- 59 -- -- -- 59
Interest expense 133 -- 1,244 105 -- 1,482
Operating income (expense) 382 375 1,144 165 (211) 1,855
Equity in net income
of investees accounted
for by the equity method -- -- -- 5 -- 5
Noncomparable items--
income (expense), pretax (352) -- 58 -- (37) (331)
Total assets 10,046 943 21,605 2,816 2,265 37,675
Capital expenditures 934 50 18 91 119 1,212
- ------------------------------------------------------------------------------------------------------------
1997
Revenue $ 30,086 $ 3,073 $ 4,649 $ 3,766 $ -- $ 41,574
Depreciation and
amortization expense 639 42 13 60 31 785
Interest revenue -- 61 -- -- -- 61
Interest expense 92 -- 1,259 119 -- 1,470
Operating income (expense) 951 361 752 142 (212) 1,994
Equity in net income
of investees accounted
for by the equity method -- -- -- 6 -- 6
Noncomparable items--
income (expense), pretax 23 -- (253) (21) 150 (101)
Total assets 10,732 753 22,250 2,801 2,164 38,700
Capital expenditures 1,114 51 9 108 46 1,328
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Noncomparable items in 1999 were:
Retail: Restructuring charge for NTB store closings
Corporate: Corporate staff reductions
Noncomparable items in 1998 were:
Retail: Impairment loss related to the sales of Western Auto and
Homelife
Credit: SFAS No. 125 accounting
Corporate: Extraordinary loss on debt extinguishment
Noncomparable items in 1997 were:
Retail: Postretirement life insurance curtailment, partially offset by
the Parts America conversion
Credit: Reaffirmation charge, partially offset by SFAS No. 125
accounting
International: Loss on the sale of Sears Mexico
Corporate: Gain on the sale of Advantis
<PAGE>
42 SEARS, ROEBUCK AND CO.
MANAGEMENT'S REPORT
The financial statements, financial analyses and all other information were
prepared by management, which is responsible for their integrity and
objectivity. Management believes the financial statements, which require the use
of certain estimates and judgments, fairly and accurately reflect the financial
position and operating results of Sears, Roebuck and Co. ("the Company") in
accordance with generally accepted accounting principles. All financial
information is consistent with the financial statements.
Management maintains a system of internal controls that it believes
provides reasonable assurance that, in all material respects, assets are
maintained and accounted for in accordance with management's authorizations and
transactions are recorded accurately in the books and records. The concept of
reasonable assurance is based on the premise that the cost of internal controls
should not exceed the benefits derived. To assure the effectiveness of the
internal control system, the organizational structure provides for defined lines
of responsibility and delegation of authority. The Company's formally stated and
communicated policies demand of employees high ethical standards in their
conduct of its business. These policies address, among other things, potential
conflicts of interest; compliance with all domestic and foreign laws, including
those related to financial disclosure; and the confidentiality of proprietary
information. As a further enhancement of the above, the Company's comprehensive
internal audit program is designed for continual evaluation of the adequacy and
effectiveness of its internal controls and measures adherence to established
policies and procedures.
Deloitte & Touche LLP, independent certified public accountants, have
audited the financial statements of the Company, and their report is presented
below. Their audit also includes a study and evaluation of the Company's control
environment, accounting systems and control procedures to the extent necessary
to conclude that the financial statements present fairly the Company's financial
position and results of operations. The independent accountants and internal
auditors advise management of the results of their audits, and make
recommendations to improve the system of internal controls. Management evaluates
the audit recommendations and takes appropriate action.
The Audit Committee of the Board of Directors is comprised entirely of
directors who are not employees of the Company. The committee reviews audit
plans, internal control reports, financial reports and related matters and meets
regularly with the Company's management, internal auditors and independent
accountants. The independent accountants and the internal auditors advise the
committee of any significant matters resulting from their audits and have free
access to the committee without management being present.
/s/ Arthur C. Martinez
Arthur C. Martinez
Chairman, President and Chief Executive Officer
/s/ Julian C. Day
Julian C. Day
Executive Vice President and Chief Operating Officer
/s/ Jeffrey N. Boyer
Jeffrey N. Boyer
Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
SEARS, ROEBUCK AND CO.
We have audited the accompanying Consolidated Balance Sheets of Sears, Roebuck
and Co. as of January 1, 2000 and January 2, 1999, and the related Consolidated
Statements of Income, Shareholders' Equity, and Cash Flows for each of the three
years in the period ended January 1, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Sears, Roebuck and Co. as of
January 1, 2000 and January 2, 1999, and the results of its operations and its
cash flows for each of the three years in the period ended January 1, 2000 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
February 7, 2000
<PAGE>
SEARS, ROEBUCK AND CO. 43
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
millions, except per common share and shareholder data 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues $ 41,071 $ 41,575 $ 41,574 $ 38,064 $ 34,835
Costs and expenses 38,658 39,720 39,580 35,981 33,130
Operating income 2,413 1,855 1,994 2,083 1,705
Other income, net 6 28 144 30 27
Income before income taxes, minority
interest and extraordinary loss 2,419 1,883 2,138 2,113 1,732
Income taxes 904 766 912 834 703
Income from continuing operations 1,453 1,072 1,188 1,271 1,025
Income from discontinued operations -- -- -- -- 776
Extraordinary loss -- 24 -- -- --
Net income 1,453 1,048 1,188 1,271 1,801
FINANCIAL POSITION
Retained interest in transferred
credit card receivables $ 3,144 $ 4,294 $ 3,316 $ 2,260 $ 5,579
Credit card receivables, net 18,033 17,972 19,843 19,303 14,527
Merchandise inventories 5,069 4,816 5,044 4,646 4,033
Property and equipment, net 6,450 6,380 6,414 5,878 5,077
Total assets 36,954 37,675 38,700 36,167 33,130
Short-term borrowings 2,989 4,624 5,208 3,533 5,349
Long-term debt 15,049 15,045 15,632 14,907 11,774
Total debt 18,038 19,669 20,840 18,440 17,123
Percent of debt to equity 264% 324% 356% 373% 391%
Shareholders' equity $ 6,839 $ 6,066 $ 5,862 $ 4,945 $ 4,385
SHAREHOLDERS' COMMON SHARE INVESTMENT
Book value per common share $ 18.53 $ 15.82 $ 15.00 $ 12.63 $ 10.40
Shareholders 220,749 233,494 235,336 243,986 256,624
Average common and
equivalent shares outstanding 381 392 398 399 394
Earnings per common share - diluted
Income from continuing operations $ 3.81 $ 2.74 $ 2.99 $ 3.12 $ 2.53
Income from discontinued operations -- -- -- -- 1.97
Extraordinary loss -- .06 -- -- --
Net income $ 3.81 $ 2.68 $ 2.99 $ 3.12 $ 4.50
Cash dividends declared
per common share $ .92 $ .92 $ .92 $ .92 $ 1.26
Cash dividend payout percent 24.1% 34.3% 30.8% 29.5% 28.0%
Market price -
per common share (high-low) 53 3/16 - 26 11/16 65 - 39 1/16 65 1/4 - 38 3/4 53 7/8 - 38 1/4 60 - 30
- ----------------------------------------------------------------------------------------------------------------------------------
Closing market price at December 31 30 3/8 42 1/2 45 1/4 46 39
- ----------------------------------------------------------------------------------------------------------------------------------
Price/earnings ratio (high-low) 14 - 7 24 - 15 22 - 13 17 - 12 16 - 12
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Operating results and financial position reflect the 1995 dispositions of
Allstate and Homart as discontinued operations.
The percent of debt to equity is calculated using equity from continuing
operations.
The 1995 price/earnings ratio was calculated on a continuing operations basis.
Stock prices have not been restated to reflect the Allstate distribution.
Certain prior year information has been reclassified to conform with current
year presentation.
1996 and 1995 have not been restated to reflect the licensed business
reclassification for Sears Canada.
<PAGE>
44 SEARS, ROEBUCK AND CO.
QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER YEAR
- ----------------------------------------------------------------------------------------------------------------------------
millions, except per
common share data 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 9,037 $ 9,233 $ 9,992 $10,314 $ 9,538 $ 9,803 $12,504 $12,225 $41,071 $41,575
- ----------------------------------------------------------------------------------------------------------------------------
Operating income 245 222 564 566 383 173 1,221 894 2,413 1,855
- ----------------------------------------------------------------------------------------------------------------------------
Net income 146 133 331 336 236 44 740 535 1,453 1,048
- ----------------------------------------------------------------------------------------------------------------------------
Earnings per common
share - diluted 0.38 0.34 0.86 0.85 0.62 0.11 1.98 1.39 3.81 2.68
- ----------------------------------------------------------------------------------------------------------------------------
Excluding impact of
noncomparable items
Operating income 245 188 564 537 429 478 1,221 946 2,459 2,149
- ----------------------------------------------------------------------------------------------------------------------------
Net income 146 112 331 318 265 298 740 572 1,482 1,300
- ----------------------------------------------------------------------------------------------------------------------------
Earnings per common
share - diluted $ 0.38 $ 0.28 $ 0.86 $ 0.80 $ 0.69 $ 0.76 $ 1.98 $ 1.48 $ 3.89 $ 3.32
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1999 noncomparable items consist of restructuring charges related to the
headquarters staff reduction and the sale of 33 Auto Stores, both of which
occurred in the third quarter.
1998 noncomparable items consist of impairment charges related to the sale of
Western Auto and Homelife, an extraordinary loss on the early extinguishment of
debt and the impact of SFAS No. 125 accounting.
The fourth quarter pretax LIFO adjustments were credits of $103 and $64 million
in 1999 and 1998, compared with charges of $30 million for the first nine months
of the respective Years.
Total of quarterly earnings per common share may not equal the annual amount
because net income per common share is calculated independently for each
quarter.
Certain quarterly information has been reclassified to conform with year-end
presentation.
COMMON STOCK MARKET INFORMATION AND DIVIDEND HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER YEAR
- -------------------------------------------------------------------------------------------------------------------------------
dollars 1999 1998 1999 1998 1999 1998 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock price range
High 47 1/8 59 7/8 53 3/16 65 47 3/8 63 9/16 35 1/2 50 3/4 53 3/16 65
Low 39 1/16 42 1/2 41 5/8 55 1/16 29 3/8 40 9/16 26 11/16 39 1/16 26 11/16 39 1/16
Close 44 11/16 58 1/4 47 11/16 62 1/16 32 3/4 41 7/8 30 3/8 42 1/2 30 3/8 42 1/2
Cash dividends declared 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.23 0.92 0.92
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock price ranges are for the New York Stock Exchange (trading symbol - S),
which is the principal market for the Company's common stock.
The number of registered common shareholders at February 29, 2000 was 219,149.
In addition to the New York Stock Exchange, the Company's common stock is listed
on the following exchanges: Chicago; Pacific, San Francisco; London, England;
Amsterdam, The Netherlands; Swiss, EBS; and Dusseldorf, Germany.
<PAGE>
<TABLE>
<S><C>
SEARS, ROEBUCK AND CO. 45
EXECUTIVE OFFICERS
ARTHUR C. MARTINEZ 1998-1999. Chairman and chief ALAN J. LACY
60, chairman, president and chief executive officer of Bradlees, Inc., 46, president, Services since September
executive officer since 1995. Chairman 1994-1997. M.B.A., 1971 and B.A. 1999, president of Sears Credit from
and chief executive officer of the Engineering, 1969, Columbia University. 1997 until 1999 (additionally as chief
former Merchandise Group, 1992-1995. financial officer from 1998 to 1999),
M.B.A., 1965, Harvard University; MARY E. CONWAY and chief financial officer, from 1995
B.S., 1960, Polytechnic University. 51, president, Stores since September until 1997. Executive vice president and
1999. President, Full-line Stores chief financial officer 1995-1997;
M. SHAN ATKINS 1999; senior vice president, Northeast senior vice president of Finance of the
42, executive vice president, Strategic Region 1998-1999; region general former Merchandise Group 1994-1995.
Initiatives since September 1999. manager 1993-1998. 1982, Beaver Vice president of Financial Services
Senior vice president-Corporate Strategy, College; 1980, St. Joseph University. and Systems of Philip Morris Companies
April, 1999; vice president/general Inc. and president of Philip Morris
merchandising manager, Lawn & Garden JULIAN C. DAY Capital Corporation, 1993-1994.
1998-1999; vice president-strategy, 47, executive vice president and chief M.B.A., 1977, Emory University; B.S.,
Merchandise Planning Office, Imports operating officer since September 1975, Georgia Institute of Technology,
1996-1998. Vice president and partner 1999. Executive vice president and
of Bain & Company, 1982-1996. chief financial officer, March 1999 GERALD N. MILLER
M.B.A., 1983 Harvard Business to September 1999. Executive vice 52, senior vice president and
School; Bachelor of Commerce, president and chief financial officer chief information officer since 1998.
1979, Queens University. of Safeway, Inc. 1992-1998. M.B.A., Vice president of Logistics Information
1979, London Business School; M.A., Systems 1995-1998; senior systems,
JEFFREY N. BOYER 1975 and B.A., 1974, Oxford University. director 1994-1995. Vice president
41, chief financial officer since of Information Technology of Bergen
September 1999. Vice president and LYLE G. HEIDEMANN Brunswig Corporation, 1987-1994.
controller, 1998-1999; vice president, 54, president, Hardlines since 1999. B.S.-Finance, 1970, Long Beach State.
finance-Full-line Stores, 1996-1998. Senior vice president, Appliances/
Vice president, business development Electronics, 1998-1999; vice president, WILLIAM G. PAGONIS
of The Pillsbury Co., 1995-1996 and Appliances/Electronics, 1997-1998; 58, executive vice president, Logistics
vice president of Finance-general foods vice president, general merchandise since 1994. Senior vice president,
of Kraft General Foods, 1994-1995. manager--Home Appliances, 1996-1997; 1993-1994. Retired Lieutenant General,
B.S., 1980, University of Illinois; divisional vice president, Lawn and U.S. Army. M.B.A., 1970 and B.S.,
C.P.A., 1980, Illinois. Garden/Sporting Goods, 1992-1996. 1964, Pennsylvania State University.
B.S., 1967, Northern Illinois University.
JAMES R. CLIFFORD JOHN T. SLOAN
54, president and chief operating ANASTASIA D. KELLY 48, executive vice president, Human
officer of Full-line Stores since 1998. 50, executive vice president, general Resources since 1999. Senior vice
Sears Canada, Inc.-president and chief counsel since September 1999. president, Human Resources, 1998-1999.
operating officer, 1996-1998; senior vice Executive vice president, general Vice president-Human Resources,
president and chief financial officer, counsel and secretary, March 1999 to Full-line stores, 1996-1998. Senior vice
1993-1996. M.B.A., 1971, Seattle September 1999. Fannie Mae-senior vice president of administration of Tribune
University; B.B.A. 1968, Cleveland State. president, general counsel and secretary, Company, 1993-1996. M.B.A., 1976,
1996-1999; senior vice president and Fordham University; B.S., 1974,
MARK A. COHEN general counsel, 1996 and senior vice Cornell University.
51, president, Softlines, chief marketing president, deputy general 1995-1996.
officer since September 1999. Executive Partner, Wilmer, Cutler & Pickering,
vice president-Marketing from January 1990-1995. J.D., 1981, George
to August 1999. Senior vice president of Washington University National Law
Cosmetics, Accessories, Fine Jewelry, Center; B.A., 1971, Trinity College.
Footwear and Home Fashions,
</TABLE>
<PAGE>
46 SEARS, ROEBUCK AND CO.
BOARD OF DIRECTORS
a. [PHOTO] ARTHUR C. MARTINEZ 3* a.
ARTHUR C. MARTINEZ
60, chairman, president and chief
executive officer since 1995; chairman
and chief executive officer of the
former Merchandise Group 1992-1995. Vice
chairman and director of Saks Fifth
Avenue 1990-1992. Director, Pepsi Co.,
Inc. Sears director since 1995.
b. [PHOTO] RICHARD C. NOTEBAERT 1,4 b.
RICHARD C. NOTEBAERT
52, chairman, president and chief
executive officer of Ameritech
Corporation from 1994 until his
retirement in December 1999; president
and chief operating officer 1993-1994;
vice chairman 1993. Sears director since
1996.
c. [PHOTO] HALL ADAMS, JR. 1,4 c.
HALL ADAMS
66, chairman and chief executive officer
of Leo Burnett Company, Inc. from 1987
until his retirement in 1992. Director,
The Dun & Bradstreet Corporation and
McDonald's Corporation. Sears director
since 1993.
d.[PHOTO] BRENDA C. BARNES 1,2*,3,4 d.
BRENDA C. BARNES
46, Interim president, chief operating
officer, Starwood Hotels and Resorts
since November 1999; former president
and chief executive officer of
PepsiCola North America 1996-1998;
chief operating officer of PepsiCola
North America 1994-1996. Director, Avon
Products, Inc.; Lucas Digital Ltd. and
Lucas Arts Entertainment Company;
Starwood Hotels & Resorts; and The New
York Times Company. Sears director since
1997.
e.[PHOTO] HUGH B. PRICE 1,4 e.
HUGH B. PRICE
58, president and chief executive
officer of the National Urban League
since 1994; vice president of
Rockefeller Foundation 1988-1994.
Director, Bell Atlantic Corporation, New
England Telephone & Telegraph Co. and
New York Telephone Company. Sears
director since 1997.
f.[PHOTO] WARREN L. BATTS 1*,3,4 f.
WARREN L. BATTS
67, chairman and chief executive officer
of Tupperware Corporation from
1996-1997; chairman of Premark
International, Inc. from 1996-1997;
chairman and chief executive officer of
Premark 1986-1996. Director, The
Allstate Corporation; Cooper Industries,
Inc.; Derby Cycle Corporation and Sprint
Corporation. Sears director since 1986.
g.[PHOTO] PATRICK G. RYAN 2,4 g.
PATRICK G. RYAN
62, chairman and chief executive officer
of Aon Corporation since 1990;
president and chief executive officer
from August 1982 through April 1999.
Director, Tribune Company. Sears
director since 1997.
h.[PHOTO] ALSTON D. CORRELL, JR. 1,2 h.
ALSTON D. CORRELL
58, chairman, chief executive officer
and president of Georgia-Pacific
Corporation since 1993; president and
chief operating officer 1991-1993.
Director, Sun Trust Banks, Inc. and The
Southern Company. Sears director since
1996.
i.[PHOTO] DOROTHY A. TERRELL 1,2 i.
DOROTHY A. TERRELL
54, president, services group and senior
vice president, worldwide sales, Natural
MicroSystems Corporation since 1998;
president of SunExpress, Inc. and
corporate executive officer of Sun
Microsystems, Inc. 1991-1997. Director,
General Mills, Inc.; Herman Miller,
Inc.; and Massachusetts Technology
Development Corporation. Sears director
since 1995.
j.[PHOTO] MICHAEL A. MILES 2,3,4* j.
MICHAEL A. MILES
60, chairman and chief executive officer
of Phillip Morris Companies Inc. from
1991-1994. Director, The Allstate
Corporation; Dell Computer Corporation,
Interpublic Group of Companies, Morgan
Stanley, Dean Witter, Discover & Co. and
Time Warner Inc. Sears director since
1992.
k [PHOTO] W. JAMES FARRELL 1,2 k.
W. JAMES FARRELL
57, chairman and chief executive officer
of Illinois Tool Works Inc. since 1996;
chief executive officer, 1995; executive
vice president 1983-1994. Director, The
Allstate Corporation and The Quaker Oats
Company. Sears director since 1999.
1. Audit Committee
2. Compensation Committee
3. Executive Committee
4. Nominating Committee
* Chairman of Committee
<PAGE>
<TABLE>
<S> <C>
COMPANY INFORMATION
HEADQUARTERS FINANCIAL/SHAREH0LDER The following trademarks and service
Sears, Roebuck and Co. INFORMATION marks appearing in this 1999 Annual
3333 Beverly Road You may call Sears toll-free at Report are the property of Sears,
Hoffman Estates, Illinois 60179 1-800-SEARS-80 (1-800-732-7780) Roebuck and Co.:
847-286-2500 for any of the following:
1-800-4MY-HOME(SM)
ANNUAL MEETING TRANSFER AGENT/SHAREHOLDER RECORDS Apostrophe(R)
The Annual Meeting of Shareholders For information or assistance regarding Canyon River Blues(R)
of Sears, Roebuck and Co. will be held individual stock records, investment Circle of Beauty(R)
at the company's headquarters at plan accounts, dividend checks or stock Craftsman(R)
3333 Beverly Road, Hoffman Estates, certificates, please call the toll-free Crossroads(TM)
Illinois, on May 11, 2000 at 10:00 a.m. number above, or write our registrar: Diehard(R)
Sears, Roebuck and Co. Fieldmaster(R)
INVESTOR INFORMATION c/o First Chicago Trust Co. of New York Kenmore(R)
Financial analysts and investment a division of EquiServe Kenmore Elite (TM)
professionals should direct inquiries to: P.O. Box 2552 KidVantage(R)
Investor Relations 847-286-7385. Jersey City, New Jersey 07303-2552 NTB National Tire & Battery(R)
Orchard Supply & Hardware(SM)
SEARS DIRECT PURCHASE First Chicago Web site: Pulse (TM)
STOCK PLAN INFORMATION http://www.equiserve.com Sears(R)
Prospective shareholders, and e-mail address: Sears Auto Centers(SM)
shareholders whose shares are held [email protected] Sears Canada(SM)
by a broker or bank, should call TDD for hearing impaired: Sears Card(SM)
1-888-SEARS-88 (1-888-732-7788). 201-222-4955 Sears Hardware(SM)
Sears Premier Card(SM)
OTHER INFORMATION Please use the following address Sears.com(SM)
Written requests for information should for items sent by courier: TKS Basics(R)
be addressed to: Public Relations and First Chicago Trust Co. of New York The Good Life at
Communications /Government Affairs a division of EquiServe a Great Price. Guaranteed.(SM)
Sears, Roebuck and Co., 3333 Beverly 14 Wall Street The Great Indoors(R)
Road, Hoffman Estates, Illinois 60179. Mail Suite 4505-8th Floor Tool Territory(SM)
New York, New York 10005 WeatherBeater(R)
CUSTOMER RELATIONS
847-286-5188 MOST RECENT STOCK PRICE INFORMATION
FREE COPIES OF THE COMPANY'S
HOME PAGE FINANCIAL REPORTS
www.sears.com Sears, Roebuck and Co.
1999 Annual Report and
(C) Sears, Roebuck and Co. 2000 interim financial information.
[Printed on recycled paper logo] Audiocassette tape of the 1999
Annual Report, for the visually impaired.
Form 10-K Annual Report filed with the
Securities and Exchange Commission.
</TABLE>
WHEREAS, each year the Company is required, under Section 13 of
the Securities Exchange Act of 1934 ("Exchange Act"), as amended,
and the rules and regulations promulgated thereunder, to file an
annual report on Form 10-K with the Securities and Exchange
Commission and with the national securities exchanges on which
the Company's securities are listed; and
WHEREAS, such annual report must be signed on behalf of the
Company by its principal executive officer or officers, its
principal financial officer, its controller or principal
accounting officer and at least a majority of its directors, as
well as by the Company;
NOW, THEREFORE, BE IT RESOLVED, that the Company and its
directors and officers shall do, or shall cause to be done, all
acts and things deemed necessary or advisable to comply with said
Exchange Act, and any requirements of the Securities and Exchange
Commission in respect thereto, relating to annual reports on Form
10-K including the preparation, execution and filing each year on
behalf of the Company of an annual report on Form 10-K or any
amendment or papers supplemental thereto.
FURTHER RESOLVED, that each director, the Chairman of the Board
of Directors, President and Chief Executive Officer, the Chief
Financial Officer and the Vice President and Controller of the
Company, be and each hereby is authorized and empowered to
execute powers of attorney in such form as they, or any of them,
shall deem appropriate, constituting and appointing ARTHUR C.
MARTINEZ, JEFFREY N. BOYER and GLENN R. RICHTER with full power
to each of them to act alone, as the true and lawful attorneys
and agents of the Company, its directors and such officers, with
full power of substitution and resubstitution to each of said
attorneys, to execute and file with the Securities and Exchange
Commission and such national securities exchanges, in the name
and on behalf of the Company, each such annual report on Form 10-
K or any amendment or papers supplemental thereto.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
being a director or officer, or both, of SEARS, ROEBUCK AND CO.,
a New York corporation (the "Company"), does hereby constitute
and appoint ARTHUR C. MARTINEZ, JEFFREY N. BOYER, and GLENN R.
RICHTER with full power to each of them to act alone, as the true
and lawful attorneys and agents of the undersigned, with full
power of substitution and resubstitution to each of said
attorneys, to execute, file and deliver any and all instruments
and to do any and all acts and things which said attorneys and
agents, or any of them, deem advisable to enable the Company to
comply with the Securities Exchange Act of 1934, as amended, and
any requirements of the Securities and Exchange Commission in
respect thereto, relating to annual reports on Form 10-K,
including specifically, but without limitation of the general
authority hereby granted, the power and authority to sign his or
her name in the name and on behalf of the Company or as a
director or officer, or both, of the Company, as indicated below
opposite his or her signature, to annual reports on Form 10-K or
any amendment or papers supplemental thereto; and each of the
undersigned does hereby fully ratify and confirm all that said
attorneys and agents or any of them, or the substitute of any of
them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed
his or her name, this 8th day of March, 2000.
NAME
TITLE
/S/Arthur C. Martinez
Arthur C. Martinez
Chairman of the Board of
Directors,
President and Chief Executive
Officer Principal Executive
Officer)
/S/Jeffrey N. Boyer
Jeffrey N. Boyer
Chief Financial Officer
(Principal Financial Officer)
/S/Glenn R. Richter
Glenn R. Richter
Vice President and Controller
(Principal Accounting Officer)
/S/Hall Adams, Jr.
Hall Adams, Jr.
Director
/S/Brenda C. Barnes
Brenda C. Barnes
Director
/S/Warren L. Batts
Warren L. Batts
Director
/S/Alston D. Correll, Jr.
Alston D. Correll, Jr.
Director
/S/W. James Farrell
W. James Farrell
Director
/S/Michael A. Miles
Michael A. Miles
Director
/S/Richard C. Notebaert
Richard C. Notebaert
Director
/S/Hugh B. Price
Hugh B. Price
Director
/S/Patrick G. Ryan
Patrick G. Ryan
Director
/S/Dorothy A. Terrell
Dorothy A. Terrell
Director
SEARS 401(k) SAVINGS PLAN
(As Amended and Restated Effective
As of January 1, 2000)
Mayer, Brown & Platt
Chicago
INDEX OF DEFINED TERMS
1.5 - Accounting Date
7.1 - Accounts
7.1(c) - After-Tax Account
4.2 - After-Tax Contributions
8.3 - Annual Additions
11.4 - Beneficiary
2.6 - Benefits Executive
1.1 - Code
1.1 - Common Stock
1.1 - Company
6.1 - Company Stock Fund
4.7 - Compensation
2.1(b) - Computation Period
8.9 - Contribution Percentage
8.7 - Deferral Percentage
11.1(c) - Distribution Date
1.1 - Effective Date
4.7 - Eligible Compensation
3.1 - Eligible Employee
1.2 - Employer
1.2 - Employers
5.1 - Employer Contribution
7.1(a) - Employer Contribution Account
1.3 - ERISA
Supp. A - ESOF
1.1 - ESOP
C-4 - ESOP Common Stock
C-4 - ESOP Loan
5.1 - Fair Market Value
2.1 - full-time employee
6.1 - Funds
10.2 - Hardship
8.11 - Highly Compensated
8.9 - Highly Compensated Group
Contribution Percentage
8.7 - Highly Compensated Group
Deferral Percentage
2.3 - Hour of Service
1.3 - Investment Committee
6.1 - Investment Funds
13.11(e) - Investment Manager
3.5 - Leased Employee
2.5 - Maternity or Paternity Absence
5.3 - Net Income of the Company
8.9 - Non-highly Compensated Group
Contribution Percentage
8.7 - Non-highly Compensated Group
Deferral Percentage
2.5 - One Year Break in Service
3.1 - Participant
2.1 - part-time, temporary or seasonal employee
1.9 - Phone System
1.9 - PIN
1.1 - Plan
1.3 - Plan Administrator
1.4 - Plan Year
7.1(b) - Pre-Tax Account
4.1 - Pre-Tax Contribution
7.1(d) - Qualified Matching Account
5.9 - Qualified Matching Contribution
1.3 - Recordkeeper
1.2 - Related Company
11.3(b) - Required Beginning Date
7.1(e) - Rollover Account
4.6 - Rollover Contribution
8.3 - Section 415 Affiliate
11.5 - Separation from service
1.3 - SIMCO
1.12 - Supplement
C-4 - Suspense Account
9.2 - Termination Date
1.3 - Trust
1.3 - Trust Agreement
1.3 - Trustee
2.1 - Year of Eligibility Service
SEARS 401(k) SAVINGS PLAN
(As Amended and Restated Effective As of January 1, 2000)
SECTION 1
General
1.1 History, Purpose and Effective Date. Sears, Roebuck
and Co. (the "Company"), a New York corporation, has established
the Sears 401(k) Savings Plan formerly known as the Sears 401(k)
Profit Sharing Plan (the "Plan"), formerly known as The Savings
and Profit Sharing Fund of Sears Employees, to encourage eligible
employees to save a portion of their earnings on a regular basis,
to accumulate capital for their future economic security, to
share in the profits of the Company, and to acquire a proprietary
interest in the Company. On December 20, 1989, an employee stock
ownership plan feature (the "ESOP") was added to the Plan. The
Plan consists of a profit sharing plan with a cash-or-deferred
arrangement which is intended to qualify under sections 401(a)
and 401(k) of the Internal Revenue Code of 1986, as amended (the
"Code"), and an employee stock ownership plan which is intended
to qualify (as a stock bonus plan) under sections 401(a) and
4975(e)(7) of the Code. The assets of the ESOP consist of the
stock and cash equivalents described in Supplement C and all
other amounts attributable to Employer Contributions and After-
Tax Contributions, including Employer Contributions and After-Tax
Contributions made with respect to Plan Years beginning before
January 1, 1990. The assets of the ESOP are invested primarily
in common shares of the Company ("Common Stock") which qualify as
"employer securities" within the meaning of section 409(l) of the
Code. Except as expressly designated herein, the following
provisions constitute an amendment, restatement and continuation
of the Plan as in effect immediately prior to January 1, 2000,
generally the "Effective Date" of the Plan as set forth herein.
If a different effective date is set forth herein with respect to
a particular provision, that date shall determine when the
amendment to the Plan is effective with respect to that
provision.
1.2 Related Companies and Employers. The term "Related
Company" means any corporation or trade or business during any
period during which it is, along with the Company, a member of a
controlled group of corporations or a controlled group of trades
or businesses, as described in sections 414(b) and 414(c),
respectively, of the Code. The Company and each Related Company
which adopts the Plan with the consent of the Company are
referred to below collectively as the "Employers" and
individually as an "Employer," provided that only a Related
Company that is a corporation may participate in the ESOP.
1.3 Plan Administration, Trust and Fiduciary
Responsibility. The authority to control and manage the non-
investment operations of the Plan is vested in the Company, as
more fully described in subsection 13.1. Except as otherwise
expressly provided herein, the Company shall have the rights,
duties and obligations of an "administrator" as that term is
defined in section 3(16)(A) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and of a "Plan
Administrator" as that term is defined in section 414(g) of the
Code. A committee comprised of one or more members appointed by
the Company to oversee the investment of the Plan's assets (the
"Investment Committee") has the authority and responsibility to
appoint or select trustees, custodians, investment managers and
insurance companies to handle Plan assets and to allocate assets
to each of them, to determine the advisability of establishing or
modifying any Investment Fund made available under the Plan, to
establish investment guidelines, proxy voting policies and
securities trading procedures, and to monitor the investment
performance of the fiduciaries responsible for the investment of
Plan assets. The Investment Committee has delegated some of the
foregoing authority and responsibility to Sears Investment
Management Co. ("SIMCO"). The Company, the Investment Committee
and SIMCO shall be "named fiduciaries", as described in section
402 of ERISA, with respect to their authority under the Plan.
All assets of the Plan will be held, managed and controlled by
one or more trustees (the "Trustee") acting under a "Trust"
established pursuant to a "Trust Agreement" which forms a part of
the Plan. The Company may also appoint an outside recordkeeper
("Recordkeeper") to maintain the records of Participants'
Accounts under the Plan and to handle other administrative
matters.
1.4 Plan Year. The term "Plan Year" means the twelve-
consecutive-month period beginning on each January 1 and ending
on the following December 31.
1.5 Accounting Dates. The term "Accounting Date" means
each day on which the New York Stock Exchange is open for
business, as determined by the Company in its sole discretion.
1.6 Applicable Laws. The Plan shall be construed and
administered in accordance with the internal laws of the State of
Illinois to the extent that such laws are not preempted by the
laws of the United States of America.
1.7 Gender and Number. Where the context permits, words in
any gender shall include any other gender, words in the singular
shall include the plural and the plural shall include the
singular.
1.8 Notices. Any notice or document required to be filed
with the Company under the Plan will be properly filed if
delivered or mailed, postage prepaid, to the Company (or its
delegate), at its principal executive offices. Any notice
required under the Plan may be waived by the person entitled to
notice.
1.9 Form of Election and Signature. Unless otherwise
specified herein, any election or consent permitted or required
to be made or given by any Participant or other person entitled
to benefits under the Plan, and any permitted modification or
revocation thereof, shall be made in writing or shall be given by
means of such interactive telephone and/or computer system as the
Plan Administrator may designate from time to time as the sole
vehicle for executing regular transactions under the Plan
(referred to generally herein as the "Phone System"). Each
Participant shall have a personal identification number or "PIN"
for purposes of executing transactions through the Phone System,
and entry by a Participant of his PIN (with his Social Security
Number) shall constitute his valid signature for purposes of any
transaction the Company determines should be executed by means of
the Phone System, including but not limited to, enrolling in the
Plan, electing contribution rates, making investment choices,
executing loan documents (if loans are permitted under the Plan),
and consenting to a withdrawal or distribution. Any election
made through the Phone System shall be considered submitted to
the Plan Administrator on the date it is electronically
transmitted, unless such transmission occurs after the applicable
cut off date, as determined by the Company in its sole
discretion, for the Phone System for that day, in which case it
will be considered submitted on the next day on which the New
York Stock Exchange is open for business.
1.10 Evidence. Evidence required of anyone under the Plan
may be by certificate, affidavit, document or other information
which the person acting on it considers pertinent and reliable,
and signed, made or presented by the proper party or parties.
1.11 Action by Employers. Any action required or permitted
to be taken by the Company or any other Employer which is a
corporation shall be by resolution of its Board of Directors or a
duly authorized committee thereof, or by a duly authorized
officer of the Employer. Any action required or permitted to be
taken by any Employer which is a partnership shall be by a
general partner of such partnership or by a duly authorized
officer thereof.
1.12 Plan Supplements. The provisions of the Plan as
applied to any Employer or any group of employees of any Employer
may be modified or supplemented from time to time by the Company
by the adoption of one or more "Supplements". Each Supplement
shall form a part of the Plan as of the Supplement's effective
date. In the event of any inconsistency between a Supplement and
the Plan document, the terms of the Supplement shall govern.
1.13 Defined Terms. Terms used frequently with the same
meaning are defined throughout the Plan. The Index of Defined
Terms attached hereto contains an alphabetical listing of all
such terms and the subsections in which they are defined.
SECTION 2
Eligibility Service
2.1 Year of Eligibility Service.
(a) Effective on and after January 1, 2000, each employee,
regardless of whether he is a full-time, part-time,
seasonal or temporary employee, who has not already
been credited with a Year of Eligibility Service under
paragraph (b) below (or who has been so credited but
who after the Effective Date is treated as a new hire
pursuant to subsection 2.3) will have a Year of
Eligibility Service at the end of the first Computation
Period during which he completes 1,000 Hours of Service
(without having to be employed on the last day of such
Computation Period), with "Computation Period" for
purposes of this paragraph (a) meaning the initial 12-
month period beginning on the date the employee is
first credited with an Hour of Service and each Plan
Year beginning after such date. For purposes of this
paragraph (a), if an employee who terminates employment
with the Employers and related Companies is reemployed,
the Plan year containing his reemployment date will
constitute a Computation Period, and if such employee
is reemployed in a Computation Period that is different
than the Computation Period in which he terminated
employment, the twelve-month period beginning with his
reemployment date will also be a Computation Period (in
addition to the Plan Years beginning after his
reemployment date).
(b) Prior to January 1, 2000, an employee was credited with
a "Year of Eligibility Service" in accordance with the
following, subject to the provisions of subsection 2.3:
(i) A full-time employee had a Year of Eligibility
Service on the anniversary of his date of hire by
the Employers and Related Companies unless he was
absent from their service for more than 12 months;
in the case of a full-time employee who was absent
from service with the Employers and Related
Companies for more than 12 months, a Year of
Eligibility Service equaled an aggregate of 365
days of employment with the Employers and Related
Companies.
(ii) A part-time, seasonal or temporary employee had a
Year of Eligibility Service at the conclusion of a
Computation Period during which he completed at
least 1,000 Hours of Service (without the
necessity of being still employed on the last day
of such period). A "Computation Period" for this
purpose was the initial 12-consecutive-month
period commencing on the date an employee was
first credited with an Hour of Service and each
subsequent 12-month period commencing on the
anniversary of the date he was first credited with
an Hour of Service. An individual's Computation
Period remained the same, notwithstanding an
absence from employment, unless such individual
was treated as a new employee pursuant to
subsection 2.3 (describing the rule of parity).
(c) Notwithstanding the provisions of paragraph (a) above,
the following transition rules will apply to an
employee hired before January 1, 2000 who has not
completed a Year of Eligibility Service before January
1, 2000 (and who is not treated as a new hire under
subsection 2.3):
(i) Such a full-time employee will have a Year of
Eligibility Service on the anniversary of his date
of hire by the Employers and Related Companies if
his employment is uninterrupted (or is interrupted
by an absence of less than 12 months); or, if his
employment is interrupted by an absence greater
than 12 months but not long enough to cause him to
be treated as a new hire under subsection 2.3, he
will be treated under paragraph 2.2(b) as an
individual who has changed employment status; and
(ii) Such a part-time, seasonal or temporary employee
hired before January 1, 2000 will have a Year of
Eligibility Service at the end of the Computation
Period described in subparagraph 2.1(b)(ii) which
overlaps the Effective Date if he is credited with
at least 1,000 Hours of Service in such
Computation Period, or, if he is not credited with
at least 1,000 Hours of Service in such
Computation Period, at the end of the first Plan
Year beginning on or after the Effective Date in
which he is credited with at least 1,000 Hours of
Service.
For purposes of this Section 2, a "full-time employee" is an
employee who is regularly scheduled to work a full work week as
determined by the rules established for his work location, and a
"part-time, seasonal or temporary employee" is an employee who is
not regularly scheduled to work a full week.
2.2 Changes in Employment Status and Application of
Different Service Crediting Rules to the Determination of
Eligibility for Periods Prior to January 1, 2000. For Purposes
of subsections 2.1(b) and 2.1(c) in the event that an individual
changes status from a full-time to a part-time, seasonal or
temporary employee or vice-versa (whether in connection with a
termination of employment or otherwise) the following rules shall
apply, subject to the provisions of subsection 2.3.
(a) an employee who moves from part-time, seasonal or
temporary status to full-time status shall be credited
with the greater of (A) the period of elapsed-time
service that would be credited under subparagraph
2.1(b)(i) during the Computation Period in which the
transfer occurs or (B) the service creditable under
subparagraph 2.1(b)(ii) as of the date of transfer; and
(b) An employee who moves from full-time to part-time,
seasonal or temporary status shall receive credit for
Hours of Service in the Computation Period in which the
transfer occurs, determined by multiplying 45 by the
number of weeks worked in any fractional part of a year
credited under subparagraph 2.1(b)(i) immediately prior
to the transfer.
For purposes of the foregoing, the transfer will be deemed to
have occurred on the date the employee returns to work when the
change in status occurs in connection with an interruption of
active employment.
2.3 Treatment as New Employee After Consecutive One Year
Breaks in Service. If an employee who has never become a
Participant (and therefore does not have a nonforfeitable right
to any benefit under the Plan) terminates employment with the
Employers and Related Companies, and the number of his
consecutive One Year Breaks in Service equals or exceeds seven
(six in the case of an individual whose first 12 months of a
Maternity or Paternity Absence are disregarded under subsection
2.5), then any Year of Eligibility Service (and any eligibility
service not yet constituting a Year of Eligibility Service)
earned prior to the first such One Year Break in Service shall be
erased and, if he is later employed or reemployed by an Employer
or a Related Company, he shall be considered a new employee for
all purposes under the Plan. Notwithstanding the foregoing, an
individual who was employed by the Company or a Related Company
before 1998 and who terminates employment after having earned a
Year of Eligibility Service and attained age 21 but before
becoming a Participant by making contributions to the Plan shall
retain his Year of Eligibility Service regardless of the length
of his absence. The foregoing exception shall not apply to any
individual who was hired before 1998 but who terminates
employment with the Employers and Related Companies without
having earned a Year of Eligibility Service.
2.4 Hour of Service. The term "Hour of Service" means,
with respect to any employee, each hour for which he is paid or
entitled to payment for the performance of duties for an Employer
or a Related Company or for which back pay, irrespective of
mitigation of damages, has been awarded to the employee or agreed
to by an Employer or a Related Company, subject to the following:
(a) An employee or Participant shall be credited with the
number of regularly scheduled working hours included in
the time period on the basis of which payment to the
Employee is calculated (or, if the number of such hours
is not determinable, 8 Hours of Service per day (to a
maximum of 40 Hours of Service per week)) for any
period during which he performs no duties for an
Employer or a Related Company (irrespective of whether
the employment relationship has terminated) by reason
of a vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave
of absence but for which he is directly or indirectly
paid or entitled to payment by an Employer or a Related
Company; provided, however, that an employee or
Participant shall not be credited with more than 501
Hours of Service under this paragraph (a) for any
single continuous period during which he performs no
duties for an Employer or a Related Company. Payments
considered for purposes of the foregoing sentence shall
include payments unrelated to the length of the period
during which no duties are performed but shall not
include payments made solely as reimbursement for
medically related expenses or solely for the purpose of
complying with applicable workmen's compensation,
unemployment compensation or disability insurance laws.
(b) Hours of Service shall be calculated and credited
pursuant to Department of Labor Regulation section
2530.200b-2, which is incorporated herein by reference.
2.5 One Year Break in Service. For an absence beginning
before the Effective Date, the term "One Year Break in Service"
means the 12-consecutive-month period commencing on the day after
the day an employee's employment with the Employers and Related
Companies is terminated for any reason, unless such absence
constitutes a Maternity or Paternity Absence. With respect to
paragraph 2.1(a), any absence of less than 12 months following
such termination of employment shall be disregarded. An
individual who is absent because of service in the U.S. Armed
Forces will begin a One Year Break in Service on the 91st day
following his discharge from military service, if he does not
return to work within 90 days of such discharge. With respect to
an individual whose absence from employment constitutes a
Maternity or Paternity Absence, the term "One Year Break in
Service" means the 12-consecutive-month period commencing on the
second anniversary of the first day of such absence if he is not
paid or entitled to payment for the performance of duties for an
Employer or a Related Company during that 12-consecutive-month
absence. The period between the first and second anniversaries
of the first day of a Maternity or Paternity Absence shall not
constitute a period of continuous Service.
The term "Maternity or Paternity Absence" means an employee's or
Participant's absence from work because of the pregnancy of such
individual, the birth of a child of such individual, the
placement of a child with such individual in connection with the
adoption of a child by such individual, or for purposes of caring
for the child by such individual immediately following such birth
or placement. The Plan Administrator may require the employee or
Participant to furnish such information, as it considers
necessary to establish that such individual's absence was a
Maternity or Paternity Absence.
2.6 Military Absences. Notwithstanding any other provision
of the Plan to the contrary, eligibility service shall be
credited, and make-up contributions shall be permitted (and
made), as required by section 414(u) of the Code.
2.7 Pre-Acquisition Service. By written resolution of the
most senior executive of the Company with primary responsibility
for employee benefit matters, regardless of title (the "Benefits
Executive"), or by the terms of a stock or asset purchase
agreement, merger agreement or other transaction document
executed by the Company, the Company may recognize pre-
acquisition service with, or pre-acquisition eligibility under a
plan similar to the Plan of, a company which becomes a Related
Company or the assets of which are acquired by a Related Company,
for purposes of determining eligibility under the Plan. Such
pre-acquisition service and/or eligibility shall be calculated in
such manner as the Benefits Executive in his sole discretion
shall determine.
SECTION 3
Participation in Plan
3.1 Eligibility for Participation. Subject to the terms
and conditions of the Plan, each Eligible Employee who was a
Participant in the Plan immediately prior to the Effective Date
will continue as such. Each other Eligible Employee will become
a "Participant" in the Plan on the latest of (i) the date he
attains age 21, (ii) the first day following the date on which he
has completed one Year of Eligibility Service, and (iii) the
effective date of his election to participate in the Plan,
provided he is still an Eligible Employee on such date. Each
employee of an Employer is an "Eligible Employee" for any period
in which he satisfies all of the following requirements:
(a) he belongs to a group of employees to whom
participation in the Plan has been extended by the
Company,
(b) he is not a member of a collective bargaining unit,
unless the Plan has been extended to the collective
bargaining unit under a currently effective collective
bargaining agreement,
(c) he is not a person employed outside the United States
who is neither a citizen nor a resident of the United
States, and
(d) he does not perform services for an Employer under a
contract, agreement or arrangement that purports to
treat him as either an independent contractor or the
employee of a leasing organization or agency, even if
he is subsequently determined (by judicial action or
otherwise) to have instead been a common law employee
of such Employer.
For purposes of paragraph (a) above, all employees of an Employer
will be considered to belong to an eligible group unless the
Company by written action of the Benefits Executive designates
certain groups of employees or business units as ineligible to
participate in the Plan.
Except as provided in subsection 2.3, if a Participant ceases to
be an Eligible Employee for any reason, including termination of
employment, and he again becomes an Eligible Employee, he will be
eligible to recommence his participation in the Plan immediately
upon again becoming an Eligible Employee. In the event an
employee of an Employer or a Related Company who was not an
Eligible Employee becomes an Eligible Employee, such employee
will immediately be eligible to commence participation in the
Plan if he has completed a Year of Eligibility Service and is at
least age 21.
3.2 Commencement of Participation. Each Eligible Employee
is required to make an election to participate in the Plan. An
Eligible Employee may elect to commence participation in the Plan
on the first day following the date he has satisfied all of the
eligibility requirements set forth in subsection 3.1. If an
Eligible Employee does not properly elect to commence
participation on such date, he may commence his participation on
any day thereafter. Any such election will be effective with the
first payroll that is administratively feasible following such
election.
3.3 Inactive Participation. If an individual ceases to
meet the eligibility requirements of subsection 3.1, such
individual shall be considered an inactive Participant in the
Plan as long as any amount is credited to his Accounts under the
Plan, and:
(a) no contributions shall be made by or for him under
Section 4 or Section 5; and
(b) except as otherwise expressly provided herein, he may
not make a withdrawal under Section 10 after he ceases
to be an employee of an Employer or a Related Company.
3.4 Plan Not Contract of Employment. The Plan does not
constitute a contract of employment, and participation in the
Plan will not give any employee or Participant the right to be
retained in the employ of any Employer nor any right or claim to
any benefit under the Plan, unless such right or claim has
specifically accrued under the terms of the Plan.
3.5 Leased Employees. If a person satisfies the
requirements of section 414(n) of the Code and applicable
Treasury regulations for treatment as a "Leased Employee", such
Leased Employee shall not be eligible to participate in this Plan
but, to the extent required by section 414(n) of the Code and
applicable Treasury regulations, such person shall be treated as
if the services performed by him in such capacity were performed
by him as an employee of a Related Company which has not adopted
the Plan; provided, however, that no such service shall be
credited for any period during which not more than 20% of the
non-Highly Compensated workforce of the Employers and the Related
Companies consists of Leased Employees and the Leased Employee is
a participant in a money purchase pension plan maintained by the
leasing organization which (i) provides for a non-integrated
employer contribution of at least 10 percent of compensation,
(ii) provides for full and immediate vesting, and (iii) covers
all employees of the leasing organization (beginning with the
date they become employees), other than those employees excluded
under section 414(n)(5) of the Code. For purposes of this
subsection 3.5, "Highly Compensated" shall have the meaning set
forth in subsection 8.11.
SECTION 4
Pre-Tax, After-Tax and Rollover Contributions
4.1 Pre-Tax Contributions. Subject to the limitations set
forth in subsections 4.3 and 4.8 and Section 8 and such
additional rules as the Company from time to time may establish
on a uniform and nondiscriminatory basis, for any payroll period
a Participant may elect to have his Eligible Compensation reduced
by a whole percentage, and a corresponding amount contributed on
his behalf to the Plan by his Employer as a "Pre-Tax
Contribution", which amount shall not be less than 1 percent nor
more than 21 percent of his Eligible Compensation (as defined in
subsection 4.7) for that payroll period. Any election pursuant
to this subsection 4.1 shall be effective as soon after it is
entered into the Phone System as is administratively feasible.
4.2 After-Tax Contributions. Subject to the limitations
set forth in subsections 4.3 and 4.8 and Section 8 and such
additional rules as the Company from time to time may establish
on a uniform and nondiscriminatory basis, for any payroll period
a Participant may elect to make "After-Tax Contributions" to the
Plan through payroll deductions in a whole percentage that is not
less than 1 percent nor more than 10 percent of his Eligible
Compensation for that payroll period. Any election pursuant to
this subsection 4.2 shall be effective as soon after it is
entered into the Phone System as is administratively feasible.
4.3 Total Pre-Tax and After-Tax Contributions.
Notwithstanding the foregoing provisions of this Section 4, Pre-
Tax Contributions made on behalf of a Participant and After-Tax
Contributions made by such Participant for any payroll period may
not together exceed 21 percent of his Eligible Compensation for
such payroll period.
4.4 Payment of Pre-Tax and After-Tax Contributions. Pre-
Tax Contributions and After-Tax Contributions shall be paid to
the Trustee by the Employer on the earliest date on which such
contributions can be reasonably and accurately segregated from
the Employer's general assets with appropriate data confirmation
to ensure proper crediting.
4.5 Modification, Discontinuance and Resumption of Pre-Tax
or After-Tax Contributions. Subject to such rules and
restrictions as the Company may establish on a uniform and
nondiscriminatory basis, a Participant may adjust his Pre-Tax
and/or After-Tax Contributions prospectively by entering into the
Phone System, prior to the time such change is to be effective,
an election to make any of the changes listed below:
(a) change his Pre-Tax and/or After-Tax Contribution rates
within the limits specified above;
(b) discontinue making Pre-Tax and/or After-Tax
Contributions; or
(c) resume making Pre-Tax and/or After-Tax Contributions.
4.6 Rollover Contributions. A Participant may make a
Rollover Contribution (as defined below) to the Plan, in cash,
subject to the determination of the Company that such rollover
satisfies the requirements of this subsection 4.6. Before
approving a rollover, the Company may request from the
Participant any documents which the Company, in its discretion,
deems necessary. The term "Rollover Contribution" means a
rollover contribution of all or part of a distribution which,
under applicable provisions of the Code, is permitted to be
rolled over to a qualified plan. In no event shall a Participant
be permitted to make a Rollover Contribution of any amounts
previously contributed to another plan by the Participant on an
after-tax basis.
4.7 Compensation and Eligible Compensation. The Plan takes
into account different items of compensation paid to Participants
and Eligible Employees for different purposes. Generally, all
items of taxable compensation are divided into the following five
categories:
(a) regular pay, which includes (but is not limited to)
hourly wages, salary, shift differential, standby pay,
normal vacation pay, Sunday premium pay, business
training pay;
(b) special pay, which includes (but is not limited to)
vacation pay paid in a lump sum, taxable moving
allowances and any related tax gross-up, merchandise
and trip awards, cash prizes, tuition reimbursement,
sign-up bonuses, "WOW" bonuses, finder's fees;
(c) annual bonus and regular incentive pay;
(d) deferred compensation, including amounts paid to or
from any nonqualified deferred compensation plan
sponsored by the Employers and Related Companies or any
long-term incentive plan; and
(e) gain from the exercise of a nonqualified stock option
or the lapsing of a restriction on Company stock
awards.
All items in categories (a) and (c) that are paid to a
Participant during a Plan Year or that would have been paid to a
Participant during such Plan Year but for his Pre-Tax
Contribution election under this Plan (or any other cash or
deferred arrangement maintained by the Employers and Related
Companies) or his salary reduction election under a cafeteria
plan (within the meaning of section 125 of the Code) maintained
by an Employer or Related Company, constitute "Eligible
Compensation" for such Plan Year. All items in categories (a),
(b), and (c) (determined prior to any such pre-tax or salary
reduction election) are considered to constitute "Compensation"
within the meaning of Treas. Reg. Sec. 1.415-2(d) and sections
414(s) and 414(q) of the Code for purposes of applying the limits
of Section 8 of the Plan. Items in categories (d) and (e) are
not taken into account for any purpose under the Plan.
Notwithstanding the foregoing, the term Eligible Compensation
shall not include amounts paid after the date shown as the
Participant's termination date on his Employer's payroll records.
4.8 Limitation on Compensation Taken Into Account For Any
Plan Year. Only Eligible Compensation not exceeding for the
relevant Plan Year the limit set forth in section 401(a)(17) of
the Code for such Plan Year may be taken into account under
Section 4 or 5 of the Plan.
4.9 Residents of Puerto Rico. Participants who are
residents of Puerto Rico may not make contributions on a pre-tax
basis. Such Participants may make only After-Tax Contributions
from 1 percent through 10 percent, in whole percentages, of
Eligible Compensation. For purposes of subsections 5.1 and 5.8,
such a Participant's After-Tax Contributions of up to the lesser
of 5 percent of Eligible Compensation or an amount equal to the
maximum amount of Pre-Tax Contributions permitted in accordance
with subsection 4.1 will be treated in the same manner as Pre-Tax
Contributions under the Plan. Any After-Tax Contributions in
excess of the preceding limitations shall be treated as After-Tax
Contributions for all purposes of the Plan. Accounting for such
Participants, and other limitations of the Plan, shall be
adjusted to reflect this fact.
SECTION 5
Employer Contributions
5.1 Amount of Employer Contribution. Subject to the terms
and conditions of the Plan, including subsection 5.5 and
Supplement C hereof, the "Employer Contribution" to the Plan for
the Plan Year commencing January 1, 1999, and for each Plan Year
thereafter shall be an amount equal to 70 percent of the Pre-Tax
Contributions made on behalf of Participants for such Plan Year
that do not exceed 5 percent of their Eligible Compensation,
provided, however, that the Employer Contribution otherwise
required under this subsection 5.1 for any Plan Year shall be
reduced by the Fair Market Value of the ESOP Common Stock
allocated to the Accounts of Participants in accordance with
paragraph C-8(b) of Supplement C. For purposes of calculating
the reduction described in the preceding sentence, the "Fair
Market Value" of the ESOP Common Stock allocated to Participant
Accounts for each quarter of a Plan Year shall be determined as
of the last day of such calendar quarter and shall have the
meaning set forth in subsection C-10 of Supplement C. The
Employer Contribution shall be allocated to Participants'
Accounts in accordance with the provisions of subsection 5.5.
5.2 Medium of Employer Contribution. The Employer
Contribution will be made either in cash or in Common Stock, or
partially in each. Except as provided in subsection 5.1, any
Common Stock comprising a portion of the Employer Contribution
shall be valued at the Fair Market Value thereof at the date or
dates on which any contribution in that form is made.
5.3 Time of Employer Contribution. The Employer
Contribution for a Plan Year will be made no later than the due
date (including extensions thereof) for the filing of the federal
income tax return of the Company for the tax year in which the
last day of such Plan Year occurs.
5.4 Allocation of Employer Contribution To Employers. The
share of each Employer in the Employer Contribution for any
fiscal year shall equal the total sum credited out of such
contributions to the Accounts of all Plan Participants who are
employees of such Employer on the date as of which the
contribution is credited.
5.5 Allocation of Employer Contribution Among Participants.
Subject to the terms and conditions of the Plan, including
paragraph 7.3(b), the Employer Contribution for a Plan Year will
be allocated among and credited to the Accounts of Participants
who made Pre-Tax Contributions during such Plan Year and who
either
(a) were in the employ of the Employers and Related
Companies on December 31 of such Plan Year; or
(b) terminated employment with all Employers and Related
Companies on or after attainment of age 55 and
completion of 10 or more years of continuous service
with the Employers, measured from the service date
shown on the last Employer's payroll records,
provided that the Company, by written action of the Benefits
Executive, may waive the requirement of paragraph (a) above in
the case of Participants who are employed by an Employer or a
business unit which is sold to or merged or combined with another
entity or otherwise disposed of in a business transaction and
whose employment is terminated because of such transaction, as
determined by such Benefits Executive in his sole discretion.
Such allocation shall be made pro rata, according to the amount
of each such Participant's Pre-Tax Contribution (not in excess of
5% of Eligible Compensation) for that Plan Year.
5.6 Qualified Matching Contributions. For each Plan Year
any Employer may, but shall not be required to, contribute an
additional percentage of the Pre-Tax Contributions made on behalf
of Participants employed by such Employer who are not Highly
Compensated (as defined in subsection 8.11). Any contribution
made pursuant to this subsection 5.6 shall be referred to
hereinafter as a "Qualified Matching Contribution". At the
discretion of the Company, Qualified Matching Contributions may
be tested under subsection 8.7 or 8.9 in accordance with
applicable Treasury regulations.
5.7 Limitations on Amount of Employer Contributions. In no
event shall the sum of any Pre-Tax Contributions, Employer
Contributions and Qualified Matching Contributions made by an
Employer for any Plan Year exceed the limitations imposed by
Section 404 of the Code on the maximum amount deductible on
account thereof by the Employer for that year.
5.8 Payment of Employer Contributions. Each Employer's
contributions under the Plan (other than Pre-Tax Contributions)
for any Plan Year shall be paid to the Trustee, without interest,
no later than the time prescribed by law for filing the
Employer's federal income tax return, including any extensions
thereof.
SECTION 6
Investment of the Trust Fund
6.1 Investment Funds. The Investment Committee shall
establish and cause the Trustee to maintain one or more
"Investment Funds" or "Funds" for the investment of Participants'
Accounts. The Investment Committee in its discretion may add
additional Investment Funds, may delete any Investment Fund or
may change the investment strategy or categories of permitted
investments of any Investment Fund without prior notice to
Participants. One of the Investment Funds shall be a "Company
Stock Fund" invested in Common Stock of the Company and cash or
cash equivalents held for liquidity purposes.
6.2 Investment Fund Accounting. The Company shall maintain
or cause to be maintained separate subaccounts for each
Participant in each of the Investment Funds to separately reflect
his interest in each such Fund and the portion of such interest
that is attributable to each of his Accounts. The Company, in
its sole discretion, may establish uniform rules for reporting
the value of each such subaccount, including but not limited to
using a "unit" measurement to reflect each Participant's interest
in an Investment Fund that has the effect of blending the value
of the cash or cash equivalents that comprise part of that Fund
with the value of the securities in which the Fund is primarily
invested.
6.3 Investment Fund Elections. At the time that a
Participant enrolls in the Plan he may specify the percentage, in
increments of 1%, of contributions subsequently credited to his
Accounts that are to be invested in each of the Investment Funds
in accordance with uniform rules established by the Company. Any
such investment direction shall be deemed to be a continuing
direction until changed by the Participant. During any period in
which no such direction has been given in accordance with rules
established by the Company, contributions credited to a
Participant shall be invested in the Investment Funds as
determined by the Company. A Participant may modify his
investment direction prospectively by using the Phone System
prior to the effective time of the change in accordance with
uniform rules established by the Company.
The Plan is intended to satisfy the requirements of section
404(c) of ERISA with respect to Participants' investment
elections. To the extent permitted by law, neither the Company,
the Investment Committee, the Trustee, SIMCO nor any other
fiduciary of the Plan shall be liable for any loss resulting from
a Participant's exercise of his right to direct the investment of
his Accounts.
6.4 Transfers Between Investment Funds. Subject to uniform
rules established by the Company, each Participant may elect to
transfer, prospectively, the value of his Accounts held in any
Investment Fund to any other Investment Fund then made available
to such Participant. Any such election shall be made by entering
it into the Phone System prior to the time it is to be effective
in accordance with uniform rules established by the Company.
Notwithstanding the foregoing, amounts attributable to Employer
Contributions invested in the Company Stock Fund may not be
transferred to any other Investment Fund, except as provided in
subsection C-9, and in no event may Employer Contributions (or
any earnings thereon) be transferred while contingently allocated
under paragraph 7.3(b).
6.5 Liquidity. In order to accommodate investment changes
and other elections by Participants in a timely manner, a certain
portion of each of the Investment Funds may be held in cash or
cash equivalents. The percentage of assets held in each
Investment Fund in cash or cash equivalents may differ from Fund
to Fund and from time to time, as considered appropriate by the
Investment Committee (or its delegate). The rate of return of
each Investment Fund will be a combination of the short term
earnings (or losses) on the cash portion of the Fund and the
earnings (or losses) of the securities or other investments in
which such Fund is primarily invested, determined in accordance
with uniform rules established by the Investment Committee (or
its delegate).
6.6 Voting and Tendering of Common Stock. Notwithstanding
any other provisions of this Plan:
(a) Effective January 1, 1999, Common Stock held by the
Trustee shall be voted as follows:
(i) Before each meeting of the Company's shareholders,
each Participant shall be furnished with a proxy
statement for the meeting, together with an
appropriate form on which the Participant may
provide voting instructions (including
instructions on matters not specified in the proxy
statement which may come before the meeting) for
the Common Stock allocated and contingently
allocated under subsection 7.3(b) to the
Participant's Accounts under the Plan on the
Accounting Date coinciding with or next preceding
the record date for such meeting for which the
number of such shares has been provided to the
Plan Administrator. Upon timely receipt of such
instructions, such shares shall be voted as
instructed.
(ii) Common Stock for which the Trustee does not
receive timely voting instructions, including
those shares which are not allocated to
Participants' Accounts, shall be voted in the same
proportion as all Common Stock held under the Plan
(including shares held in a separate trust fund)
with respect to which directions are received by
the Trustee.
(b) Tender and exchange rights with respect to Common Stock
held by the Trustee shall be exercised as follows:
(i) Each Participant shall be furnished with a notice
of any tender or exchange offer for, or a request
or invitation for tender of, Common Stock,
together with an appropriate form on which such
Participant may instruct the Trustee with respect
to the tender or exchange of Common Stock
allocated and contingently allocated to his
Accounts. Common Stock as to which the Trustee
has received timely instructions shall be tendered
or exchanged in accordance with such instructions.
(ii) Common Stock allocated to Participants' Accounts
for which instructions are not timely received
shall not be tendered or exchanged.
(iii) Shares of Common Stock which are not allocated to
Participants' Accounts shall be tendered or
exchanged by the Trustee in its sole discretion.
(c) The Company and the Trustee shall take all reasonable
steps necessary to assure that Participants' individual
directions shall remain confidential. Notwithstanding
the foregoing, the Trustee shall provide such
information with respect to the tender or exchange of
Company Shares as an independent record keeper may
require for operation of the Plan, if the recipient of
such information agrees to keep such information
confidential.
(d) The Trustee shall execute such ballots, proxies or
other instruments as may be necessary or desirable in
order to effectuate the provisions of this subsection
6.6.
6.7 Sale of Common Stock to the Company. If, because of
distributions, withdrawals or transfers involving Common Stock in
the Company Stock Fund, it is necessary or desirable for the Plan
to sell Common Stock, the Trustee shall notify the Company. At
the timely direction of an Investment Manager, the Trustee shall
sell such Common Stock to the Company for cash. The sales price
for the shares of Common Stock sold to the Company shall be no
less than Fair Market Value as defined in subsection C-10 of
Supplement C, and no commission shall be charged on such sale.
The Company and the Trustee shall establish in writing such rules
and procedures regarding such sales as are required to meet
applicable laws.
SECTION 7
Plan Accounting
7.1 Participants' Accounts. The Company shall maintain the
following "Accounts" in the name of each Participant:
(a) an "Employer Contribution Account," which shall reflect
Employer Contributions, if any, made on his behalf and
the income, losses, appreciation and depreciation and
expenses attributable thereto;
(b) a "Pre-Tax Account," which shall reflect Pre-Tax
Contributions, if any, made on his behalf and the
income, losses, appreciation, depreciation and expenses
attributable thereto;
(c) an "After-Tax Account," which shall reflect After-Tax
contributions made by the Participant and the income,
losses, appreciation, depreciation and expenses
attributable thereto;
(d) a "Qualified Matching Account," which shall reflect
Qualified Matching Contributions, if any, made on his
behalf, and the income, losses, appreciation,
depreciation and expenses attributable thereto;
(e) a "Rollover Account," which shall reflect Rollover
Contributions, if any, made by him and the income,
losses, appreciation, depreciation and expenses
attributable thereto.
In addition, the Company may maintain subaccounts within the Pre-
Tax and After-Tax Accounts to distinguish contributions (and the
earnings thereon) eligible to be matched from contributions (and
the earnings thereon) above the matching limit, as well as
subaccounts to reflect balances transferred to this Plan from
another qualified plan that are subject to special rules. The
Accounts and subaccounts provided for in this subsection 7.1
shall be for accounting purposes only, and there shall be no
segregation of assets within the Investment Funds among the
separate Accounts. Reference to the "balance" in a Participant's
Accounts means the aggregate of the balances in the subaccounts
maintained in the Investment Funds attributable to those
Accounts.
7.2 Allocation of Fund Earnings and Changes in Value. As
of each Accounting Date, interest, dividends and changes in value
in each Investment Fund since the preceding Accounting Date shall
be allocated to each Participant's subaccounts invested in such
Investment Fund by adjusting upward or downward the balance of
his subaccounts invested in such Investment Fund in the ratio
which the subaccounts of such Participant invested in such
Investment Fund bears to the total of the subaccounts of all
Participants invested in such Investment Fund as of such
Accounting Date, excluding therefrom, for purposes of this
allocation only, all Pre-Tax, After-Tax, Employer, Qualified
Matching and Rollover Contributions received since the preceding
Accounting Date, so that the total of the subaccounts of all
Participants in each Investment Fund shall equal the total value
of such fund (exclusive of such contributions) as determined by
the Trustee in accordance with uniform procedures consistently
applied. The Plan will use a daily valuation system, which
generally shall mean that Accounts will be updated each business
day to reflect activity for that day, such as new contributions
received by the Trustee, changes in Participants' investment
elections, and changes in the unit value of the Investment Funds
under the Plan. Such daily valuation is dependent upon the
Plan's recordkeeper receiving complete and accurate information
from a variety of different sources on a timely basis. Since
events may occur that cause an interruption in this process,
affecting a single Participant or a group of Participants, there
shall be no guarantee by the Plan that any given transaction will
be processed on the anticipated day. In the event of any such
interruption, any affected transaction will be processed as soon
as administratively feasible and no attempt shall be made to
reconstruct events as they would have occurred absent the
interruption, regardless of the cause, unless the Company in its
sole discretion directs the Plan's recordkeeper to do so.
7.3 Allocation of Contributions. Subject to the provisions
of Section 8, contributions shall be allocated as follows:
(a) Pre-Tax, After-Tax, and Rollover Contributions made on
behalf of a Participant shall be allocated to that
Participant's appropriate Accounts as of the Accounting
Date coinciding with the paycheck date to which such
contribution relates.
(b) Employer Contributions described at subsection 5.1 for
a Plan Year shall be allocated as of the last day of
such Plan Year; provided, however, that
(i) Employer Contributions expected to be due with
respect to Pre-Tax Contributions made for a
calendar quarter (based on year to date
information); reduced by
(ii) the Fair Market Value (as defined at subsection C-
10 of Supplement C and determined on the last day
of the calendar quarter) of any allocation
described at paragraph C-8(b) of Supplement C for
such calendar quarter
shall be contingently allocated to Participants' Accounts as
of the last day of such calendar quarter. If a Participant
receiving such a contingent quarterly allocation during a
Plan Year fails to meet the requirements of subsection 5.5
as of the last day of the Plan Year, any amounts
contingently allocated during such Plan Year shall reduce
Employer contributions required at subsection 5.1 and shall
be allocated in accordance with subsection 5.5, and any
corresponding dividends (or dividend replacements under
Supplement C) shall be forfeited.
(c) Any Qualified Matching Contributions made by an
Employer for a Plan Year shall be allocated as of the
last day of that year by such Employer in accordance
with subsection 5.6.
Notwithstanding the foregoing, unless the Company establishes
uniform rules to the contrary, contributions made to the Plan
shall share in the gains and losses of the Investment Funds only
when received by the Trustee with verified data.
7.4 Correction of Error. In the event of an error in the
adjustment of a Participant's Accounts, the Company, in its sole
discretion, may correct such error by either crediting or
charging the adjustment required to make such correction to or
against income and expenses of the Trust for the Plan Year in
which the correction is made or the Employer may make an
additional contribution to permit correction of the error.
Except as provided in this subsection 7.4, the Accounts of other
Participants shall not be readjusted on account of such error.
7.5 Statement of Plan Interest. As soon as practicable
after the last day of each Plan Year and at such other intervals
as the Company may determine, the Company shall provide each
Participant with a statement reflecting the balances of his
Accounts. Each Participant is responsible for reviewing his
statement and any Participant who discovers an error shall bring
it to the attention of the Company within 90 days of receipt of
the statement. If a Participant does not bring errors in his
statement to the attention of the Company within 90 days of
receipt of his statement, the Participant will be deemed to have
confirmed the accuracy of the statement.
SECTION 8
Limitations on Compensation, Contributions and Allocations
8.1 Reduction of Contribution Rates. To conform the
operation of the Plan to sections 401(a)(4), 401(k)(3),
401(m)(2), 402(g) and 415(c) of the Code, the Company may
establish limits on the Pre-Tax and After-Tax Contribution rates
that may be elected by Participants, may unilaterally modify or
revoke any Pre-Tax or After-Tax Contribution election made by a
Participant pursuant to subsections 4.1 and 4.2, and may reduce
the share of the Employer Contribution (even to zero) allocable
to any Participant as a match pursuant to subsection 5.8. In the
event that the Company determines, prior to the end of a Plan
Year, that the limits it has imposed on Highly Compensated
Participants to ensure compliance with sections 401(k)(3) and
401(m)(2) are more restrictive than necessary based upon
preliminary testing results, the Company in its discretion may
modify such limits prospectively and may also permit affected
Participants to make additional contributions from Eligible
Compensation payable during the remainder of such year, provided
that no such Participant may contribute more, on an annual basis,
than the effective annual rate of contribution permitted for
Highly Compensated Participants as a group, applied against the
maximum amount of Eligible Compensation permitted to be taken
into account for that Plan Year under section 401(a)(17) of the
Code.
8.2 Compensation for Limitation/Testing Purposes.
Compensation as defined in subsection 4.7 shall be used in
applying the limits set forth in this Section 8, provided that
for purposes of subsections 8.3 and 8.11 Compensation for the
entire Plan Year shall be used, but for purposes of subsection
8.7 and 8.9 only Compensation paid after an individual becomes
eligible to participate in the Plan shall be used.
8.3 Limitations on Annual Additions. Notwithstanding any
other provisions of the Plan to the contrary, a Participant's
Annual Additions (as defined below) for any Plan Year shall not
exceed an amount equal to the lesser of:
(a) $30,000 (as adjusted for cost-of-living increases under
section 415(d) of the Code); or
(b) 25 percent of the Participant's Compensation for that
Plan Year, determined without regard to the limitation
under section 401(a)(17) of the Code, and calculated as
if each Section 415 Affiliate (defined below) were a
Related Company,
reduced by any Annual Additions for the Participant for the Plan
Year under any other defined contribution plan of an Employer or
a Related Company or Section 415 Affiliate, provided that, if any
other such plan has a similar provision, the reduction shall be
pro rata. The term "Annual Additions" means, with respect to any
Participant for any Plan Year, the sum of all contributions
allocated to a Participant's Accounts under the Plan for such
year, excluding Rollover Contributions and any Pre-Tax
Contributions that are distributed as excess deferrals in
accordance with subsection 8.6, but including any Pre-Tax, After-
Tax or Employer Contributions treated as excess contributions or
excess aggregate contributions under subsections 8.8 and 8.10. A
Participant's Annual Additions with respect to Supplement C
allocations shall be determined solely on the basis of
contributions thereto without regard to the value of ESOP Common
Stock released from the Suspense Account and, if no more than one
third of the Employer Contributions which are deductible under
section 404(a)(9) of the Code by reason of their application to
make payments on an ESOP Loan are allocated to Highly-Compensated
Participants, a Participant's Annual Additions shall not include
any share of an Employer Contribution which is deductible under
section 404(a)(9)(B) of the Code by reason of its application to
the payment of interest on an ESOP Loan. The term Annual
Additions shall also include employer contributions allocated for
a Plan Year to any individual medical account (as defined in
section 415(l) of the Code) of a Participant and any amount
allocated for a Plan Year to the separate account of a
Participant for payment of post-retirement medical benefits under
a funded welfare benefit plan (as described in section 419A(d)(2)
of the Code), which is maintained by an Employer or a Related
Company or Section 415 Affiliate. "Section 415 Affiliate" means
any entity that would be a Related Company if the ownership test
of section 414 of the Code was "more than 50%" rather than "at
least 80%".
8.4 Excess Annual Additions. If, as a result of a
reasonable error in estimating a Participant's Compensation, a
reasonable error in determining the amount of Pre-Tax
Contributions that may be made with respect to a Participant
under the limits of section 415 of the Code or such other
mitigating circumstances as the Commissioner of Internal Revenue
shall prescribe, the Annual Additions for a Participant for a
Plan Year exceed the limitations set forth in subsection 8.3, the
excess amounts shall be treated, as necessary, in accordance with
Treas. Reg. Sec. 1.415-6(b)(6)(ii), after any After-Tax
Contributions, and then any Pre-Tax Contributions, and any
income, losses, appreciation or depreciation attributable to the
foregoing, are first returned to the Participant to reduce the
excess amount.
8.5 Combined Plan Limitation. If a Participant also
participates in any defined benefit plan (as defined in section
415(k) of the Code) maintained by an Employer or a Related
Company or Section 415 Affiliate, the aggregate benefits payable
to, or on account of, the Participant under such plan together
with this Plan will be determined in a manner consistent with
section 415(e) of the Code, to the extent applicable for Plan
Years before January 1, 2000. The benefit provided for the
Participant under the defined benefit plan shall be adjusted to
the extent necessary so that the sum of the "defined benefit
fraction" and the "defined contribution fraction" (as such terms
are defined in section 415(e) of the Code and applicable
regulations thereunder) calculated with regard to such
Participant does not exceed 1.0. For purposes of this subsection
8.5, all qualified defined benefit plans (whether or not
terminated) of the Employers, Related Companies and Section 415
Affiliates shall be treated as one defined benefit plan.
8.6 Annual Limit on 401(k) Deferrals. In no event shall
the Pre-Tax Contributions for a Participant under the Plan and
any other elective deferrals (as defined in section 402(g)(3) of
the Code) under any other cash-or-deferred arrangement maintained
by an Employer or a Related Company for any taxable year exceed
the maximum amount as may be permitted under section 402(g) of
the Code. If during any taxable year a Participant is also a
participant in any other cash-or-deferred arrangement, and if his
elective deferrals made under such other arrangements together
with his Pre-Tax Contributions made under the Plan exceed the
maximum amount permitted for the Participant for that year under
section 402(g) of the Code, the Participant, not later than March
1 following the close of such taxable year, may request the
Company to direct the Trustee to distribute all or a portion of
such excess to him, with any gains or losses allocable thereto
for that Plan Year determined in accordance with any reasonable
method adopted by the Company for that Plan Year that either (i)
conforms to the accounting provisions of Section 7 and is
consistently applied to the distribution of excess contributions
under this subsection 8.6 and subsections 8.8 and 8.10 to all
affected Participants, or (ii) satisfies any alternative method
set forth in applicable Treasury regulations. Any such request
shall be in writing and shall include adequate proof of the
existence of such excess, as determined by the Company in its
sole discretion. If the Company is so notified, such excess
amount shall be distributed to the Participant no later than the
April 15 following the close of the Participant's taxable year.
In addition, if the applicable limitation for a Plan Year happens
to be exceeded with respect to this Plan alone, or this Plan and
another plan or plans of the Employers and Related Companies, the
Company shall direct such excess Pre-Tax Contributions (with
allocable gains or losses) to be distributed to the Participant
as soon as practicable after the Plan Administrator is notified
of the excess deferrals by an Employer or the Participant, or
otherwise discovers the error (but no later than the April 15
following the close of the Participant's taxable year).
Notwithstanding the foregoing provisions of this subsection 8.6,
the dollar amount of any distribution due hereunder shall be
reduced by the dollar amount of any Pre-Tax Contributions
previously distributed to the same Participant pursuant to
subsection 8.8; provided, however, that for purposes of
subsections 8.3 and 8.7, the correction under this subsection 8.6
shall be deemed to have occurred before the correction under
subsection 8.8.
8.7 Section 401(k)(3) Testing. For any Plan Year beginning
on or after January 1, 1997, the amount by which the average of
the Deferral Percentages (as defined below) for that Plan Year of
each eligible employee who is Highly Compensated for that Plan
Year (the "Highly Compensated Group Deferral Percentage") exceeds
the average of the Deferral Percentages for that Plan Year of
each eligible employee who is not Highly Compensated for that
Plan Year (the "Non-highly Compensated Group Deferral
Percentage"), shall be less than or equal to either (i) a factor
of 1.25 or (ii) both a factor of 2 and a difference of 2.The
"Deferral Percentage" for any eligible employee for a Plan Year
shall be determined by dividing his Pre- Tax Contributions (and
Qualified Matching Contributions, if applicable) for that Plan
Year by his Compensation for that Plan Year (measured from the
date he first becomes eligible to participate in the Plan and not
the date he actually becomes a Participant), subject to the
following special rules:
(a) any employee eligible to participate in the Plan at any
time during a Plan Year in accordance with subsection
3.1 (without regard to any suspension imposed by any
other provision hereunder) shall be counted, whether or
not any Pre-Tax Contributions are made on his behalf
for the year;
(b) the Deferral Percentage for any Highly Compensated
Participant who is eligible to participate in the Plan
and who is also eligible to make elective deferrals
under one or more other arrangements described in
section 401(k) of the Code that are maintained by an
Employer or a Related Company for a plan year that ends
with or within the same calendar year as the Plan Year
(other than a plan subject to mandatory disaggregation
under applicable Treasury regulations) shall be
determined as if all of such elective deferrals were
made on his behalf under the Plan;
(c) Pre-Tax Contributions distributed to a Participant as
excess deferrals under subsection 8.6 shall be counted
in determining such Participant's Deferral Percentage,
except in the case of a distribution to a Non-highly
Compensated Participant required to comply with section
401(a)(30) of the Code;
(d) if this Plan is aggregated with one or more other plans
for purposes of section 410(b) of the Code (other than
the average benefit percentage test), this subsection
8.7 shall be applied as if all such plans were a single
plan; provided, however, that for Plan Years beginning
after 1989, such aggregated plans must all have the
same plan year,
(e) all Participants who are members of collective
bargaining units shall be tested separately under this
subsection 8.7.
8.8 Correction Under Section 401(k) Test. In the event
that the Highly Compensated Group Deferral Percentage for any
Plan Year does not initially satisfy one of the tests referred to
in subsection 8.7, the Company shall direct the Trustee to
distribute to Highly Compensated Participants enough of their
Pre-Tax Contributions under the leveling method (first reducing
the Participant with the highest dollar contribution and then the
next highest, and so forth) described in applicable Treasury
regulations and notices, along with allocable income determined
in accordance with such notices or regulations, so that the
Highly Compensated Group Deferral Percentage meets one of the
tests referred to in subsection 8.7. The amounts to be
distributed to any Participant pursuant to this subsection 8.8
shall be reduced by the amount of any Pre-Tax Contributions
distributed to him for the taxable year ending with or within
such Plan Year pursuant to subsection 8.6. The Company shall
take such actions and cause any distribution to be made no later
than the close of the Plan Year following the Plan Year for which
the excess contributions were made.
8.9 Section 401(m)(2) Testing. For any Plan Year beginning
on or after January 1, 1997, the amount by which the average of
the Contribution Percentages (as defined below) for that Plan
Year of each eligible employee who is Highly Compensated for that
Plan Year (the "Highly Compensated Group Contribution
Percentage") exceeds the average of the Contribution Percentages
for that Plan Year of each eligible employee who is not Highly
Compensated for that Plan Year (the "Non-highly Compensated Group
Contribution Percentage") shall be less than or equal to either
(i) a factor of 1.25 or (ii) both a factor of 2 and a difference
of 2. The "Contribution Percentage" for any eligible employee
for a Plan Year shall be determined by dividing his total After-
Tax Contributions and Employer Contributions (and, if applicable,
Qualified Matching Contributions) for that Plan Year by his
Compensation for that Plan Year (measured from the date he first
becomes eligible to join the Plan and not the date he actually
becomes a Participant), subject to the following special rules:
(a) any employee eligible to participate in the Plan at any
time during a Plan Year in accordance with subsection
3.1 (without regard to any suspension imposed by any
other provision hereunder) shall be counted, regardless
of whether any After-Tax, Employer or Qualified
Matching Contributions are made by him for the year;
(b) the Contribution Percentage for any Highly Compensated
Participant who is eligible to participate in the Plan
and who is also eligible to participate in one or more
other qualified plans maintained by an Employer or a
Related Company with a plan year that ends with or
within the same calendar year as the Plan Year (other
than a plan subject to mandatory disaggregation under
applicable Treasury regulations) with after-tax or
matching contributions shall be determined as if all
such contributions were made under the Plan;
(c) if this Plan is aggregated with one or more other plans
for purposes of section 410(b) of the Code (other than
the average benefit percentage test), this subsection
8.9 shall be applied as if all such plans were a single
plan; provided, however, that such aggregated plans
must all have the same plan year; and
(d) members of collective bargaining units shall be
excluded from testing under this subsection 8.9.
8.10 Correction Under Section 401(m) Test. In the event
that the Highly Compensated Group Contribution Percentage for any
Plan Year does not initially satisfy one of the tests referred to
in subsection 8.9, the Company shall direct the Trustee to
distribute to the Highly Compensated Participants enough of their
After-Tax Contributions and Employer Contributions under the
leveling method (first reducing the Participant with the highest
dollar amount of contributions, and then the next highest and so
forth) described in applicable Treasury notices and regulations,
along with allocable income determined in accordance with such
notices or regulations, so that the Highly Compensated Group
Contribution Percentage meets one of the tests referred to in
subsection 8.9. Any such corrective distribution shall be made
first from any Employer Contribution attributable to Pre-Tax
Contributions that have to be returned pursuant to subsections
8.4, 8.6 or 8.8, second from After-Tax Contributions, then (if
necessary) from any other Employer Contributions. The Company
shall make any necessary distribution no later than the close of
the Plan Year following the Plan Year in which such excess
aggregate contributions were contributed.
8.11 Highly Compensated. An employee or Participant shall
be "Highly Compensated" for any Plan Year beginning on or after
January 1, 1997 if he:
(a) was at any time a 5 percent owner of an Employer or a
Related Company during that or the preceding Plan Year;
or
(b) received Compensation in excess of $80,000 (indexed for
cost-of-living adjustments under section 415(d) of the
Code) for the preceding Plan Year.
8.12 Forfeiture of "Orphan" Matching Employer
Contributions. In the event that any Pre-Tax Contributions are
distributed to a Participant to correct a situation where there
are excess annual additions, excess deferrals, excess
contributions or excess aggregate contributions pursuant to
subsections 8.4, 8.6, 8.8 or 8.10, any Employer Contributions
allocated as a match with respect to such Pre-Tax Contributions
and not already returned in accordance with subsection 8.10 shall
be forfeited and used to reduce future Employer Contributions
required at subsection 5.1 and shall be allocated in accordance
with subsection 5.5.
SECTION 9
Vesting and Termination Dates
9.1 Vested Interest. Except as provided in paragraph
7.3(b) or subsection 8.12 a Participant at all times shall have a
fully vested, nonforfeitable interest in all of this Accounts.
9.2 Termination of Employment. If a Participant's
employment is terminated for any reason, his "Termination Date"
generally will be the last day for which he is paid wages or
salary for services performed for an Employer or Related Company,
unless he is terminated while on an unpaid leave of absence, in
which case his Termination Date will be the day as of which he is
notified by his Employer of his termination or he resigns
(whichever is applicable).
SECTION 10
Withdrawals While Employed
10.1 Partial Withdrawals from the Plan Without Terminating
Employment. No more frequently than once in any six month
period, a Participant may elect to withdraw from the Plan,
without terminating employment, an amount specified by him, which
amount shall be no less than $250 (or the remaining balance
available for withdrawal in the Participant's account if less
than $250) and shall not exceed the balance of such Participant's
Accounts reduced by the following:
(a) Any Employer Contributions (and the earnings thereon)
contingently allocated under paragraph 7.3(b);
(b) If he has not participated in the Plan for at least 5
years, an amount equal to the Employer Contributions
credited to his Accounts for the last two Plan Years;
and
(c) If he has not attained age 59 1/2 , all Pre-Tax
Contributions and any earnings attributable thereto.
In addition, a Participant who has not attained age 59 1/2 and is
confronted by a Hardship (as defined below) may withdraw his Pre-
Tax Contributions (up to the amount required by such Hardship),
but not the earnings on his Pre-Tax Contributions, provided he
has first withdrawn all other amounts then available under the
Plan. In the event that a Participant becomes "permanently and
totally disabled," such Participant may at any time withdraw his
Accounts under the Plan. A Participant is "permanently and
totally disabled" if he is unable to perform each of the material
duties of his regular occupation with Sears as determined by the
Committee on the basis of a written opinion by a licensed
physician selected by the Committee.
10.2 Hardship. For purposes of subsection 10.1 above, a
withdrawal will not be considered to be made on account of
"Hardship" unless the withdrawal is requested because of an
immediate and heavy financial need of the Participant caused by
one of the following:
(a) medical expenses described in section 213(d) of the
Code incurred by the Participant, his spouse, or any
dependents of the Participant (as defined in section
152 of the Internal Revenue Code) or necessary for such
persons to obtain such medical care;
(b) purchase (excluding mortgage payments) of a principal
residence for the Participant;
(c) payment of tuition (and related expenses) for the next
12 months of postsecondary education for the
Participant, his spouse, children or dependents;
(d) the need to prevent the eviction of the Participant
from his principal residence or foreclosure on the
mortgage of the Participant's principal residence;
(e) expenses directly related to serious damage to the
principal residence of the Participant caused by a
catastrophic event such as fire, flood, hurricane or
earthquake;
(f) funeral expenses of a family member; or
(g) such other deemed immediate and heavy financial need
established from time to time by the Commissioner of
Internal Revenue.
To be considered a Hardship withdrawal under subsection 10.1, the
withdrawal must also be necessary to satisfy the immediate and
heavy financial need of the Participant, and will be so deemed if
the Participant represents to the Company (or its delegate) in
writing that the need cannot be relieved:
(h) through reimbursement or compensation by insurance or
otherwise;
(i) by reasonable liquidation of the Participant's assets,
to the extent such liquidation would not itself give
rise to an immediate and heavy financial need;
(j) by ceasing to make contributions to the Plan (or any
other deferred compensation plan); or
(k) by borrowing on reasonable commercial terms.
10.3 Sources of Withdrawals. Any partial withdrawal will
be made from, and will be charged to, the withdrawing
Participant's Accounts, subject to the limits on amounts
available for partial withdrawals set forth in subsection 10.1:
first, from the portion of the Participant's Accounts reflecting
his After-Tax Contributions made prior to January 1, 1987; next,
from the portions of the Participant's Accounts reflecting his
After-Tax Contributions made after December 31, 1986 and
reflecting the earnings on such After-Tax Contributions; next,
from the portion of the Participant's Accounts reflecting the
earnings on his After-Tax Contributions made prior to January 1,
1987 and from the portion of the Participant's Accounts
reflecting Employer Contributions; and, finally, from the portion
of the Participant's Accounts reflecting his Pre-Tax
Contributions. Unless otherwise requested by the Participant,
his various investment subaccounts will be charged in the order
and in such proportions as the Plan Administrator may specify. A
Participant who makes a withdrawal may elect to have any
specified amounts which would otherwise be payable to him in cash
used by the Trustee to purchase and distribute whole shares of
Common Stock to the Participant at a price determined in
accordance with subsection 5.1. Requests for payment in Common
Stock may be required to be processed as two separate
transactions within the Phone System, the first being an
investment transfer and the second being the actual withdrawal;
both transactions may occur on the same Accounting Date.
10.4 Method of Making Elections, Revocations, etc. All
actions required of, or permitted to be taken by, Participants
under this Section 10 shall be made through the Phone System, and
in the case of a Hardship withdrawal, shall be followed by
whatever written forms and documentation the Company deems
appropriate.
SECTION 11
Withdrawals After Termination of Employment
11.1 Withdrawals by and Distributions to Participants After
Termination of Employment. When a Participant's Termination Date
occurs (for a reason other than his death), his Accounts shall be
distributed or withdrawn in accordance with the following
provisions of this Section 11.
(a) If the value of the Participant's Accounts does not
exceed $5,000, and did not exceed $5,000 at the time of
any prior distribution or withdrawal, his Accounts will
be distributed to him in a lump sum payment as soon as
practicable after the Plan's Recordkeeper is notified
of his termination of employment.
(b) If the value of the Participant's Accounts exceeds
$5,000, the Participant may withdraw his Accounts on
the Distribution Date (as defined in paragraph (c)
below) he elects, in a lump sum; provided, however,
that such a Participant may make a partial withdrawal
of a portion of his Accounts during the first fifteen
months following his termination of employment,
deferring payment of the rest of his Accounts until
such later Distribution Date as he elects (within the
limits set forth in this Section 11). In the case of
all Participants, other than a Participant who retired
prior to January 1, 2000, a partial withdrawal under
this paragraph 11.1(b) may be made no more frequently
than once in any six months period and may be in an
amount no less than $250 (or the balance available for
withdrawal if less).
(c) A Participant's "Distribution Date" shall mean the date
as of which a payment is made to him pursuant to this
Section 11, without regard to any administrative delay.
A Participant may elect that his Distribution Date
occur on any Accounting Date occurring after his
Termination Date (but not later than the date on which
he attains age 70), provided that no election of a
Distribution Date will be valid if it is made more than
90 days prior to such date.
11.2 Distributions to Beneficiaries. If a Participant dies
while his Accounts remain undistributed, payment of his Accounts
will be made to his Beneficiary or Beneficiaries as soon as
practicable after the Recordkeeper receives confirmation of his
death.
11.3 Limits on Commencement and Duration of Distributions.
The following distribution rules shall be applied in accordance
with sections 401(a)(9) and 401(a)(14) of the Code and applicable
regulations thereunder, including the minimum distribution
incidental benefit requirement of Treas. Reg. Sec. 1.401(a)(9)-2,
and shall supersede any other provision of the Plan to the
contrary:
(a) Unless the Participant elects otherwise, in no event
shall distribution commence later than 60 days after
the close of the Plan Year in which the latest of the
following events occurs: the Participant's attainment
of age 65, or the Participant's Termination Date. The
failure of a Participant to consent to a distribution
is deemed to be an election to defer commencement of
payment for purposes of the preceding sentence.
(b) Notwithstanding any other provision herein to the
contrary, distribution of a Participant's Accounts
shall be made to him (or on his behalf) in the form of
a lump sum distribution on or before his Required
Beginning Date (as defined below). A Participant's
"Required Beginning Date" is April 1 of the calendar
year following the calendar year in which he attains
age 701/2 or terminates employment, whichever is later.
11.4 Beneficiary Designations. The term "Beneficiary"
shall mean the Participant's surviving spouse. However, if the
Participant is not married, or if the Participant is married but
his spouse consents (as provided below) to the designation of a
person other than the spouse, the term Beneficiary shall mean
such person or persons as the Participant designates to receive
his Accounts upon his death. Such designation may be made,
revoked or changed (without the consent of any previously-
designated Beneficiary except his spouse) only by an instrument
signed by the Participant and filed with the Recordkeeper prior
to his death. A spouse's consent to the designation of a
Beneficiary other than the spouse shall be in writing, shall
acknowledge the effect of such designation, shall be witnessed by
a notary public and shall be effective only with respect to such
consenting spouse. In default of such designation, or at any
time when there is no surviving spouse and no surviving
Beneficiary designated by the Participant, his Beneficiary shall
be his estate. For purposes of the Plan, "spouse" means the
person to whom the Participant is legally married at the relevant
time. Notwithstanding the foregoing provisions of this
subsection 11.4, no spousal consent to the designation of a
person other than, or in addition to, the spouse as Beneficiary
shall be required if it is established to the satisfaction of the
Plan Administrator that the spouse's consent cannot be obtained
because there is no spouse, because the spouse cannot be located
or because of such other circumstances as may be prescribed in
applicable Treasury regulations.
11.5 Distribution Only Upon Separation From Service.
Notwithstanding any other provision of the Plan to the contrary,
a Participant may not commence distribution of the portion of his
Accounts attributable to his Pre-Tax Contributions pursuant to
this Section 11 prior to the date he attains age 59 1/2, even though
his employment with the Employers and Related Companies has
terminated, unless or until he also has a "separation from
service" within the meaning of section 401(k)(2)(B) of the Code.
The foregoing restriction shall not apply, however, if the
Participant's termination of employment occurs in connection with
either (a) the sale by an Employer or a Related Company to an
unrelated corporation of at least 85% of the assets of a trade or
business or (b) the disposition of its interest in a subsidiary
to an unrelated entity, and the requirements for distribution
under applicable Treasury regulations on account of such sale or
disposition are met.
11.6 Form of Payment. Distributions from the Company Stock
Fund shall be made in cash unless the Participant elects to have
all or a portion of his interest in such fund distributed in
shares of Common Stock. Distributions from the other Investment
Funds shall be made in cash, unless the Participant elects that
some or all of such cash be converted to Common Stock.
11.7 Facility of Payment. Notwithstanding the provisions
of subsections 11.1 and 11.2, if, in the Company's opinion, a
Participant or other person entitled to benefits under the Plan
is under a legal disability or is in any way incapacitated so as
to be unable to manage his financial affairs, the Plan
Administrator may direct the Trustee to make payment to a
relative or friend of such person for his benefit until claim is
made by a conservator or other person legally charged with the
care of his person or his estate. Thereafter, any benefits under
the Plan to which such Participant or other person is entitled
shall be paid to such conservator or other person legally charged
with the care of his person or his estate.
11.8 Interests Not Transferable. The interests of
Participants and other persons entitled to benefits under the
Plan are not subject to the claims of their creditors and may not
be voluntarily or involuntarily assigned, alienated or
encumbered, except in the case of a properly documented levy of
the Internal Revenue Service, required tax withholding or
qualified domestic relations orders that relate to the provision
of child support, alimony or marital rights of a spouse, child or
other dependent and which meet such other requirements as may be
imposed by section 414(p) of the Code or regulations issued
thereunder. Notwithstanding any other provision of the Plan to
the contrary, distribution of the entire portion of a
Participant's Accounts awarded to his alternate payee may be made
in a lump sum payment, as soon as practicable after the Company
(or its delegate) determines that such order is qualified,
without regard to whether the Participant would himself be
entitled under the terms of the Plan to withdraw or receive a
distribution of such lump sum amount at that time, but only if
the terms of the order provide for such immediate distribution
either specifically or by general reference to any manner of
distribution permitted under the Plan.
11.9 Absence of Guaranty. None of the Company, the
Trustee, or the Employers in any way guarantee the assets of the
Plan from loss or depreciation, or guarantee any payment to any
person. The liability of the Trustee to make any payment is
limited to the available assets of the Plan held under the Trust.
11.10 Missing Participants or Beneficiaries. Each
Participant and each designated Beneficiary must file with the
Recordkeeper from time to time in writing his post office address
and each change of post office address. Any communication,
statement or notice addressed to a Participant or designated
Beneficiary at his last post office address filed with the
Recordkeeper, or, in the case of a Participant, if no address is
filed with the Recordkeeper, then at his last post office address
as shown on the Employers' records, will be binding on the
Participant and his designated Beneficiary for all purposes of
the Plan. None of the Company, the Employers, or the Trustee
will be required to search for or locate a Participant or
designated Beneficiary.
11.11 Direct Rollover Option. In accordance with uniform
rules established by the Company, each Participant, surviving
spouse of a Participant or alternate payee under a qualified
domestic relations order within the meaning of section 414(p) of
the Code who is due to receive an eligible rollover distribution
from the Plan may direct the Plan Administrator to transfer all
or a portion of such distribution directly to another eligible
retirement plan. For purposes of this subsection, the terms
"eligible rollover distribution" and "eligible retirement plan"
as applied to any such individual shall have the meaning accorded
such terms under section 401(a)(31) of the Code (or any successor
provision thereto) and applicable regulations thereunder.
SECTION 12
No Reversion to Employers
No part of the corpus or income of the Trust shall revert to
the Employers or be used for, or diverted to, purposes other than
the exclusive benefit of Participants and Beneficiaries, subject
to the following:
(a) Employer contributions under the Plan are conditioned
upon the deductibility of the contributions under
section 404 of the Code, and, to the extent any such
deduction is disallowed, the Trustee shall, upon
written request of the Employer, return the amount of
any contribution (to the extent disallowed), reduced by
the amount of any losses thereon, to the Employer
within one year after the date the deduction is
disallowed.
(b) If a contribution or any portion thereof is made by an
Employer by a mistake of fact, the Trustee shall, upon
written request of that Employer, return the amount of
such contribution or portion, reduced by the amount of
any losses thereon, to that Employer within one year
after the date of payment.
(c) If, upon termination of the Plan, any amounts are held
under the Plan in a suspense account pursuant to Treas.
Reg. Sec. 1.415-6(b)(6)(ii) and such amounts may not be
credited to the Accounts of Participants, such amount
will be returned to the Employers as soon as
practicable after the termination of the Plan.
SECTION 13
Administration
13.1 Administrative Authority. The Company shall be the
Plan Administrator of the Plan and shall have the following
discretionary authority, powers, rights and duties in addition to
those vested in it elsewhere in the Plan or Trust Agreement:
(a) to adopt such rules of procedure and regulations as, in
its opinion, may be necessary for the proper and
efficient administration of the Plan and as are
consistent with the provisions of the Plan;
(b) to enforce the Plan in accordance with its terms and
with such applicable rules and regulations it may
adopt;
(c) to determine conclusively all questions arising under
the Plan, including the power to determine the
eligibility of employees and the rights of Participants
and other persons entitled to benefits under the Plan
and their respective benefits, to make factual findings
and to remedy ambiguities, inconsistencies or omissions
of whatever kind;
(d) to maintain and keep adequate records concerning the
Plan and concerning its proceedings and acts in such
form and detail as the Company may decide;
(e) to direct all payments of benefits under the Plan;
(f) to perform the functions of a "plan administrator", as
defined in section 414(g) of the Code, for all purposes
of the Plan, including for purposes of establishing and
implementing procedures to determine the qualified
status of domestic relations orders (in accordance with
the requirements of section 414(p) of the Code) and to
administer distributions under such qualified orders;
(g) to employ agents, attorneys, accountants or other
persons (who may also be employed by or represent the
Employers) for such purposes as the Company considers
necessary or desirable to discharge its duties;
(h) to establish a claims procedure in accordance with
section 503 of ERISA; and
(i) to furnish the Employers, the Investment Committee and
the Trustee with such information with respect to the
Plan as may be required by them for tax or other
purposes.
The certificate of an officer of the Company that the Company has
taken or authorized any action shall be conclusive in favor of
any person relying on the certificate.
13.2 Delegation of Administrative Responsibilities and
Powers. In exercising its authority to control and manage the
operation and administration of the Plan, the Company may
delegate all or any part of its responsibilities and powers to
any person or persons selected by it. Any such allocation or
delegation may be revoked at any time.
13.3 Uniform Rules. In managing the Plan, the Company
shall uniformly apply rules and regulations adopted by it to all
persons similarly situated.
13.4 Information to be Furnished to Company. The other
Employers and Related Companies shall furnish the Company such
data and information as may be required for it to discharge its
duties. The records of the Employers and Related Companies as to
an employee's or Participant's period of employment, termination
of employment and the reason therefor, leave of absence,
reemployment and Eligible Compensation shall be conclusive on all
persons unless the Participant satisfactorily demonstrates that
such records are incorrect. Participants and other persons
entitled to benefits under the Plan must furnish to the Company
such evidence, data or information as the Company considers
desirable to carry out the Plan.
13.5 Company's Decision Final. Any interpretation of the
Plan and any decision on any matter within the discretion of the
Company made by the Company (or its delegate) shall be binding on
all persons. A misstatement or other mistake of fact shall be
corrected when it becomes known, and the Company shall make such
adjustment on account thereof as it considers equitable and
practicable.
13.6 Exercise of Company's Duties As Plan Administrator.
Notwithstanding any other provisions of the Plan, the Company
shall discharge its duties hereunder solely in the interests of
the Participants and other persons entitled to benefits under the
Plan, and:
(a) for the exclusive purpose of providing benefits to
Participants and other persons entitled to benefits
under the Plan; and
(b) with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting
in a like capacity and familiar with such matters would
use in the conduct of an enterprise of a like character
and with like aims.
13.7 Administrative Expenses. Except as otherwise
determined by the Company, the reasonable expenses of
administering the Plan and the fees and expenses incurred in
connection with the collection, administration, management,
investment, protection and distribution of the Plan assets under
the Trust shall be paid directly by the Trust out of Plan assets
or, if paid by one or more Employers, reimbursed by the Trust, to
the maximum extent permitted by law, and shall be allocated to
Participant's accounts in accordance with rules established by
the Company in its sole discretion.
13.8 Indemnification of Individuals Acting on Behalf of the
Company. To the extent not reimbursed by any applicable
insurance policy, any person acting on behalf of the Company with
respect to the Plan shall be indemnified by the Employers against
any and all liabilities, losses, costs and expenses (including
legal fees and expenses) of whatsoever kind and nature which may
be imposed on, incurred by or asserted against any of them by
reason of the performance of such function if the individual did
not act dishonestly or in willful violation of the law or
regulation under which such liability, loss, cost or expense
arises.
13.9 The Trustee. Title to all assets of the Plan will be
held in trust by one or more trustees appointed by the Company
for the uses and purposes set forth herein. The powers, duties
and responsibilities of the trustees are set forth more fully in
one or more trust agreements between the Company and the
trustees.
13.10 The Investment Committee. Except as otherwise
provided in the trust agreement between the Company and the
Trustee, all of the assets of the Plan shall be managed and
controlled by the Investment Committee, which shall consist of
one or more individuals, none of whom shall be a Trustee. The
members of the Investment Committee shall be appointed by the
Company and shall serve at the pleasure of the Company. The
powers, duties and responsibilities of the Investment Committee
are set forth more fully in the trust agreement between the
Company and the Trustee.
13.11 General Powers, Rights and Duties of the Investment
Committee. Except as otherwise specifically provided and in
addition to the powers, rights and duties specifically given to
the Investment Committee elsewhere herein and in the trust
agreement, the Investment Committee shall have the following
rights, powers and duties:
(a) To direct the Trustee to the extent required under the
terms of any trust agreement with respect to the
acquisition, retention and disposition of Plan assets
and with respect to the exercise of investment powers,
authorities and discretions relating to such assets;
provided, however, that subject to the other provisions
of the Plan (including Supplement C), the Trustee shall
invest that portion of the assets of the Plan
consisting of Employers' Contributions and earnings
thereon in Common Stock to the end that, in the largest
measure possible, Participants may share in the
earnings of the Company and acquire a proprietary
interest therein.
(b) To furnish the Trustee and the Company with such
information as may be required by them for any purpose
related to the Plan.
(c) To adopt such rules of procedure and regulations as in
the Investment Committee's opinion may be necessary for
the proper and efficient performance of the Committee's
duties and responsibilities.
(d) To appoint an Executive Director--Investments, and a
Secretary, who may, but need not, be members of the
Investment Committee, and to employ such other agents,
attorneys, accountants, investment advisors and other
persons and to delegate to them and allocate among
them, in writing, such powers, rights and duties as the
Investment Committee may consider necessary or
advisable to properly carry out the Investment
Committee's responsibilities, and in the same manner to
revoke such delegation and allocation; the acceptance
of such written allocation or delegation shall also be
in writing; any action of the delegate or person to
whom responsibilities have been allocated shall have
the same force and effect for all purposes hereunder as
if such action had been taken by the Investment
Committee; neither the Investment Committee nor any of
its members shall be liable for the acts or omissions
of such delegates or persons to whom responsibilities
have been allocated except as required by law.
(e) Without limiting the generality of (d) above, to
appoint one or more investment managers as defined in
section 3(38) of ERISA ("Investment Manager") to manage
(with power to acquire and dispose of) the assets of
the Plan, any of which Investment Managers may or may
not be a subsidiary of the Company, and to delegate to
any such Investment Manager all of the powers,
authorities and discretions granted to the Investment
Committee hereunder or under the trust agreement
(including the power to delegate and, in the case of
SIMCO, the power, with prior notice to the Investment
Committee, to appoint an Investment Manager), in which
event any direction to the Trustee from any duly
appointed Investment Manager with respect to the
acquisition, retention or disposition of Plan assets
shall have the same force and effect as if such
direction had been given by the Investment Committee,
and to remove any Investment Manager; provided,
however, that the power and authority to manage,
acquire, or dispose of any asset of the Plan shall not
be delegated except to an Investment Manager, and
provided further that the acceptance by any Investment
Manager of such appointment and delegation shall be in
writing, and the Investment Committee shall give notice
to the Trustee, in writing, of any appointment of,
delegation to or removal of an Investment Manager.
13.12 Manner of Action by Investment Committee. In the
performance of the Investment Committee's duties, the following
provisions shall apply where the context admits:
(a) An Investment Committee member, by written instrument,
may delegate any or all of his rights, powers, duties
or discretions to any other Committee member, with the
consent of the latter.
(b) The Investment Committee may act by meeting or by a
written instrument signed without meeting and may
execute any document by signing one document or
concurrent documents. Actions of the Investment
Committee may be communicated by telephone by the
Secretary of the Investment Committee, a majority of
the members of the Investment Committee or any member
of the Investment Committee designated by a majority of
the members of the Investment Committee.
(c) An action or decision of a majority of the members of
the Investment Committee as to a matter shall be as
effective as if taken or made by all members of the
Investment Committee, but, except to the extent
otherwise expressly provided by law, no member of the
Investment Committee who dissents from any action or
decision of the majority of the Investment Committee
shall be liable or responsible for such action.
(d) If, because of the number qualified to act, there is an
even division of opinion among the members of the
Investment Committee as to any matter, a disinterested
party selected by the Investment Committee shall decide
the matter and his decision shall control.
(e) The certificate of the Secretary of the Investment
Committee or of a majority of the members of the
Investment Committee that the Investment Committee has
taken or authorized any action shall be conclusive in
favor of any person relying on the certificate.
13.13 Liabilities and Responsibilities of the Trustee,
Investment Committee and Employers. Any final judgment or decree
which may be rendered against the Plan, the Trustee, the
Investment Committee or any other fiduciary with respect to the
Plan which is not predicated upon a breach of fiduciary
responsibility shall be satisfied from the Plan's assets, and not
from the individual assets of the Trustee, the members of the
Investment Committee or other fiduciaries. No Employer shall
have any responsibility or liability whatsoever with reference to
the management or conduct of the business of the Plan, or for any
act or failure to act on the part of the Trustee, any member of
the Investment Committee, any Investment Manager or any other
fiduciary or their agents and employees, except that the Company
shall be responsible for the acts it performs (or fails to
perform) in its capacity as Plan Administrator (unless any such
responsibility has been delegated to another person in accordance
with the provisions of subsection 13.2).
SECTION 14
Amendment and Termination
14.1 Amendment. While it is expected that the Plan will be
continued, either the Company or a duly authorized committee or
officer thereof may terminate the Plan or amend it from time to
time, except that no amendment will reduce a Participant's
interest in the Plan to less than an amount equal to the amount
he would have been entitled to receive if he had resigned from
the employ of the Employers and the Related Companies on the day
of the amendment, and no amendment will eliminate an optional
form of benefit with respect to a Participant except as otherwise
permitted by law.
14.2 Termination. The Plan will terminate as to all of the
Employers on any day specified by the Company upon advance
written notice of the termination given to the Employers.
Employees of an Employer shall cease active participation in the
Plan (and will be treated as inactive Participants in accordance
with subsection 3.3) on the first to occur of the following:
(a) the date on which that Employer ceases to be an
Employer by appropriate action taken by the Company or
by such Employer;
(b) the date that Employer is judicially declared bankrupt
or insolvent; or
(c) the dissolution, merger, consolidation, reorganization
or sale of that Employer, or the sale of all or
substantially all of the assets of an Employer, except
that, subject to the provisions of subsection 14.3,
with the consent of the Company, in any such event
arrangements may be made whereby the Plan will be
continued by any successor to that Employer or any
purchaser of all or substantially all of that
Employer's assets, in which case the successor or
purchaser will be substituted for the Employer under
the Plan.
14.3 Merger and Consolidation of the Plan, Transfer of Plan
Assets, Acceptance of Transfers from Other Plans. The Company in
its discretion may direct the Trustee to transfer all or a
portion of the assets of this Plan to another defined
contribution plan of the Employers or Related Companies which is
qualified under section 401(a) of the Code or, in the event of
the sale of stock of an Employer or all or a portion of the
assets of an Employer, to a qualified plan of an employer which
is not a Related Company. The Benefits Executive by written
resolution may permit the Plan to accept a transfer of assets and
liabilities to this Plan from another defined contribution plan
that is qualified under section 401(a) of the Code, may direct
the Trustee accordingly, and may adopt such amendment or
Supplement to the Plan as such Benefits Executive considers
necessary to reflect the terms of such transfer, including
provision for any protected rights that may not be eliminated by
reason of such transfer under section 411(d)(6) of the Code. In
the case of any merger or consolidation with, or transfer of
assets and liabilities to or from, any other plan, provisions
shall be made so that each affected Participant in the Plan on
the date thereof (if the Plan or the other plan, as applied to
that Participant, then terminated) would receive a benefit
immediately after the merger, consolidation or transfer which is
equal to or greater than the benefit he would have been entitled
to receive immediately prior to the merger, consolidation or
transfer if the Plan or such other plan, as applied to him, had
then terminated.
14.4 Distribution on Termination and Partial Termination.
Upon termination or partial termination of the Plan, all benefits
under the Plan shall continue to be paid in accordance with
Sections 10 and 11 as those sections may be amended from time to
time.
14.5 Notice of Amendment, Termination or Partial
Termination. Affected Participants will be notified of an
amendment, termination or partial termination of the Plan as
required by law.
EXECUTED this ____ day of ________________, 2000, to be
effective as indicated herein.
SEARS, ROEBUCK AND CO.
By
Its
SUPPLEMENT A
SEARS 401(k) SAVINGS PLAN
Tax Credit Employee Stock Ownership Feature
Effective as of January 1, 1983 a tax credit employee stock
ownership feature (the "ESOF") was added to the Plan in the form
of Supplement A thereto. ESOF "Stock Ownership Contributions"
were made in accordance with such Supplement A for plan years
ending after December 31, 1982 and before January 1, 1987. The
ESOF was terminated as of December 20, 1989 and the Supplement A
Shares Fund, to which Company stock held under the ESOF was
credited, was merged into and made part of the Company Stock
Fund.
If because of distributions, withdrawals or transfers
involving Common Stock which was held at any time in the
Supplemental A Shares Fund, it is necessary or desirable for the
Plan to sell Common Stock, the Trustee shall notify the Company.
At the direction of an Investment Manager, the Trustee shall sell
such Common Stock to the Company for cash. The sales price for
the shares of Common Stock sold to the Company shall be no less
than Fair Market Value on the date of sale as defined in
subsection C-10 of Supplement C, and no commission shall be
charged on such sale. The Company and Trustee shall establish in
writing such rules and procedures regarding such sales as are
required to meet applicable laws.
SUPPLEMENT B
SEARS 401(k) SAVINGS PLAN
Top-Heavy Provisions
B-1 Application. This Supplement B to the Sears 401(k)
Savings Plan shall be applicable on and after the date on which
the Plan becomes Top-Heavy (as described in subsection B-5).
B-2 Effective Date. The Effective Date of the top-heavy
provisions as set forth in this Supplement B is January 1, 1998.
B-3 Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement B.
B-4 Affected Participant. For purposes of this Supplement
A, the term "Affected Participant" means each Participant who is
employed by an Employer or a Related Company during any Plan Year
for which the Plan is Top-Heavy; provided, however, that the term
"Affected Participant" shall not include any Participant who is
covered by a collective bargaining agreement if retirement
benefits were the subject of good faith bargaining between his
Employer and his collective bargaining representative.
B-5 Top-Heavy. The Plan shall be "Top-Heavy" for any Plan
Year if, as of the Determination Date for that year (as described
in paragraph (a) next below), the present value of the benefits
attributable to Key Employees (as defined in subsection B-6)
under all Aggregation Plans (as defined in subsection B-9)
exceeds 60% of the present value of all benefits under such
plans. The foregoing determination shall be made in accordance
with the provisions of section 416 of the Code. Subject to the
preceding sentence:
(a) The Determination Date with respect to any plan for
purposes of determining Top-Heavy status for any plan
year of that plan shall be the last day of the
preceding plan year or, in the case of the first plan
year of that plan, the last day of that year. The
present value of benefits as of any Determination Date
shall be determined as of the accounting date or
valuation date coincident with or next preceding the
Determination Date. If the plan years of all
Aggregation Plans do not coincide, the Top-Heavy status
of the Plan on any Determination Date shall be
determined by aggregating the present value of Plan
benefits on that date with the present value of the
benefits under each other Aggregation Plan determined
as of the Determination Date of such other Aggregation
Plan which occurs in the same calendar year as the
Plan's Determination Date.
(b) Benefits under any plan as of any Determination Date
shall include the amount of any distributions from that
plan made during the plan year which includes the
Determination Date (including distributions under a
terminated plan which, if it had not been terminated,
would have been included in an aggregation group) or
during any of the preceding four plan years, but shall
not include any amounts attributable to employee
contributions which are deductible under section 219 of
the Code, any amounts attributable to employee-
initiated rollovers or transfers made after December
31, 1983 from a plan maintained by an unrelated
employer, or, in case of a defined contribution plan,
any amounts attributable to contributions made after
the Determination Date unless such contributions are
required by section 412 of the Code or are made for the
plan's first plan year.
(c) Benefits attributable to a participant shall include
benefits paid or payable to a beneficiary of the
participant, but shall not include benefits paid or
payable to any participant who has not performed
services for an Employer or Related Company during any
of the five plan years ending on the applicable
Determination Date; provided, however, that if a
participant performs no services for five years and
then performs services, the benefits attributable to
such participant shall be included.
(d) The accrued benefit of any participant who is a Non-Key
Employee with respect to a plan but who was a Key
Employee with respect to such plan for any prior plan
year shall not be taken into account.
(e) The accrued benefit of a Non-Key Employee shall be
determined under the method which is used for accrual
purposes for all plans of the Employer and Related
Companies; or, if there is no such method, as if the
benefit accrued not more rapidly than the slowest
accrual rate permitted under section 411(b)(1)(C) of
the Code.
(f) The present value of benefits under all defined benefit
plans shall be determined on the basis of a 7.5% per
annum interest factor and the 1951 Group Annuity
Projected Mortality Table for Males, with a one-year
setback.
B-6 Key Employee. The term "Key Employee" means an
employee or deceased employee (or beneficiary of such deceased
employee) who is a Key Employee within the meaning ascribed to
that term by section 416(i) of the Code. Subject to the
preceding sentence, the term Key Employee includes any employee
or deceased employee (or beneficiary of such deceased employee)
who at any time during the plan year which includes the
Determination Date or during any of the four preceding plan years
was:
(a) an officer of any Employer or Related Company with
Compensation for that year in excess of 50 percent
of the amount in effect under section 415(b)(1)(A)
of the Code for the calendar year in which that
year ends; provided, however, that the maximum
number of employees who shall be considered Key
Employees under this paragraph (a) shall be the
lesser of 50 or 10% of the total number of
employees of the Employers and the Related
Companies disregarding any excludable employees
under Code section 414(q)(8).
(b) one of the 10 employees owning the largest
interests in any Employer or any Related Company
(disregarding any ownership interest which is less
than 1/2 of one percent), excluding any employee for
any plan year whose Compensation for that year did
not exceed the applicable amount in effect under
section 415(c)(1)(A) of the Code for the calendar
year in which that year ends;
(c) a 5% owner of any Employer or of any Related
Company; or
(d) a 1% owner of any Employer or any Related Company
having Compensation for that year in excess of
$150,000.
B-7 Compensation. The term "Compensation" for purposes of
this Supplement B generally means compensation within the meaning
of section 415(c)(3) for that year, not exceeding the maximum
amount permitted for any year under Code section 401(a)(17).
However, for Plan Years beginning on or after January 1, 1989,
solely for purposes of determining who is a Key Employee, the
term "Compensation" means compensation as defined in Code section
414(q)(7).
B-8 Non-Key Employee. The term "Non-Key Employee" means
any employee (or beneficiary of a deceased employee) who is not a
Key Employee.
B-9 Aggregation Plan. The term "Aggregation Plan" means
the Plan and each other retirement plan (including any terminated
plan) maintained by an Employer or Related Company which is
qualified under section 401(a) of the Code and which:
(a) during the plan year which includes the applicable
Determination Date, or during any of the preceding four
plan years, includes a Key Employee as a participant;
(b) during the plan year which includes the applicable
Determination Date or, during any of the preceding four
plan years, enables the Plan or any plan in which a Key
Employee participates to meet the requirements of
section 401(a)(4) or 410 of the Code; or
(c) at the election of the Employer, would meet the
requirements of sections 401(a)(4) and 410 if it were
considered together with the Plan and all other plans
described in paragraphs (a) and (b) next above.
B-10 Required Aggregation Plan. The term "Required
Aggregation Plan" means a plan described in either paragraph (a)
or (b) of subsection B-9.
B-11 Permissive Aggregation Plan. The term "Permissive
Aggregation Plan" means a plan described in paragraph (c) of
subsection B-9.
B-12 Vesting. For any Plan Year during which the Plan is
Top-Heavy, the Account balances of each Affected Participant who
has completed at least three Years of Service shall be 100%
vested. If the Plan ceases to be Top-Heavy for any Plan Year,
the provisions of this subsection B-12 shall continue to apply to
any Affected Participant who had completed at least 3 Years of
Service prior to such Plan Year.
B-13 Minimum Contribution. For any Plan Year during which
the Plan is Top-Heavy, the minimum amount of Employer
contributions, excluding elective contributions as defined in
Code section 401(k), allocated to the Accounts of each Affected
Participant who is employed by an Employer or Related Company on
the last day of that year who is a Non-Key Employee and who is
not entitled to a minimum benefit for that year under any defined
benefit Aggregation Plan which is top-heavy nor is entitled to a
minimum contribution for that year under any other defined
contribution Aggregation Plan maintained by the Employer shall,
when expressed as a percentage of the Affected Participant's
Compensation for that year, be equal to the lesser of:
(a) 3%; or
(b) the percentage at which Employer contributions
(including Employer contributions made pursuant to a
cash or deferred arrangement) are allocated to the
Accounts of the Key Employee for whom such percentage
is greatest.
For purposes of the preceding sentence, compensation
earned while a member of a group of employees to whom
the Plan has not been extended shall be disregarded.
Paragraph (b) next above shall not be applicable for
any Plan Year if the Plan enables a defined benefit
plan described in paragraph B-9(a) or B-9(b) to meet
the requirements of section 401(a)(4) or 410 for that
year. Employer contributions for any Plan Year during
which the Plan is Top-Heavy shall be allocated first to
Non-Key Employees until the requirements of this
subsection B-13 have been met and, to the extent
necessary to comply with the provisions of this
subsection B-13, additional contributions shall be
required of the Employers.
B-14 Aggregate Benefit Limit. For any Plan Year during
which the Plan is Top-Heavy, paragraphs (2)(B) and (3)(B) of
section 415(e) of the Code shall be applied by substituting "1.0"
for "1.25".
SUPPLEMENT C
SEARS 401(k) SAVINGS PLAN
Employee Stock Ownership Plan (ESOP) Portion of the Plan
C-1 Purpose. The purpose of this Supplement C to the Plan
is to set forth the terms of the Plan as applied to the portion
of the ESOP attributable to ESOP Loans as described in subsection
C-4.
C-2 Effective Date. The effective date of this Supplement
C is December 20, 1989.
C-3 Participation. Each Participant in the Plan on the
Effective Date of this Supplement C shall immediately become a
Participant in this Supplement C. Every other person who
thereafter becomes a Participant in the Plan shall at the same
time become a Participant in this Supplement C.
C-4 ESOP Loans. The Trustee is authorized to incur debt
(an "ESOP Loan") for the purpose of acquiring Common Stock or for
the purpose of repaying all or any portion of any outstanding
ESOP Loan. The terms of any ESOP Loan shall be subject to the
conditions and restrictions set forth in the applicable
provisions of the trust agreement or agreements between the
Company and the Trustee. Common Stock acquired with the proceeds
of an ESOP Loan ("ESOP Common Stock") shall be credited to a
"Suspense Account" within the Company Stock Fund until released
in accordance with subsection C-7. The Plan Administrator shall
maintain or cause to be maintained a subaccount for each
Participant to reflect his interest in the Company Stock Fund
which is attributable to each ESOP Loan.
C-5 ESOP Cash Equivalents. All cash dividends on Common
Stock held in the ESOP which are not allocated to Participants'
Accounts or, in the case of allocated shares, which the Company
directs, are to be used to make payments on ESOP Loans, and all
Employer Contributions made under subsection C-6 with respect to
Plan Years beginning on or after January 1, 1990 shall be
credited to a cash equivalents account pending their application
to ESOP Loan payments. All such dividends and earnings shall be
used to make principal payments on outstanding ESOP Loans to the
extent then due. In the event that the amount of such dividends
and earnings exceeds the amount of principal payable on that
date, the excess shall be applied until exhausted to interest
payable on that date, and principal and interest payments due
thereafter. Notwithstanding the preceding sentences of this
subsection C-5, in lieu of making payments on outstanding ESOP
Loans, the Investment Committee may direct that all or any amount
of cash dividends received with respect to Common Stock held in
the ESOP allocated to Participants' Accounts shall be credited
proportionately to such Participants' Accounts pending investment
in the Company Stock Fund. Any amount that is applied to make a
payment on an outstanding ESOP Loan after the last day of a Plan
Year (the "prior Plan Year"), but on or before the due date
(including extensions thereof) for the filing of the federal
income tax return of the Company for the tax year in which the
last day of such prior Plan Year occurs, may be designated by the
Employers as a payment with respect to such prior Plan Year.
C-6 Employer Contribution. For each Plan Year beginning on
or after January 1, 1990, the Employers shall make contributions
under this subsection C-6 which, after taking into account the
use of dividends and earnings in accordance with subsection C-5,
are sufficient to meet all scheduled payments of principal and
interest on outstanding ESOP Loans. In addition to the foregoing
contributions, in any Plan Year, the Employers may make
supplemental contributions to be used by the Trustee to prepay
any ESOP Loan, to pay expenses of the Plan and any related trust
and to satisfy the dividend-replacement requirements for that
year with respect to ESOP Common Stock allocated to Participants'
Accounts. All Employer Contributions for Plan Years beginning on
or after January 1, 1990 shall be used to make payments on ESOP
Loans to the extent required to meet any scheduled payments of
principal and interest after taking into account the use of
dividends and earnings in accordance with subsection C-5.
C-7 Release of ESOP Common Stock From Suspense Account. As
of the last day of each calendar quarter throughout the duration
of an ESOP Loan, a portion of the ESOP Common Stock acquired with
the proceeds of such ESOP Loan shall be withdrawn from the
Suspense Account. Such ESOP Common Stock released for a Plan
Year shall be allocated to eligible Participants' Accounts in
accordance with the provisions of subsection C-8.
(a) Subject to the provisions of paragraph (b) below,
the number of shares of ESOP Common Stock which
shall be released from the Suspense Account for
any Plan Year (calculated separately with respect
to each ESOP Loan) shall be equal to the product
of:
(i) the number of shares of ESOP Common Stock
acquired with the proceeds of the ESOP Loan
which are then held in the Suspense Account;
MULTIPLIED BY
(ii) a fraction, the numerator of which is the
amount of principal and interest paid on that
loan for that Plan Year and the denominator
of which is the amount of principal and
interest paid or payable on that loan for
that Plan Year and for all future years.
For purposes of determining the fraction in
(ii), if the interest rate under the ESOP
Loan is variable, the interest rate to be
paid in future years shall be assumed to be
equal to the interest rate applicable as of
the last day of the Plan Year, and if an ESOP
Loan is refinanced, the numerator in such
fraction shall not include the proceeds of
the second loan used to make principal and
interest payments on the first loan (that is,
the loan being refinanced).
(b) Notwithstanding the provisions of paragraph (a)
above, if provided by the terms of an ESOP Loan or
directed by the Investment Committee prior to the
first payment of principal or interest on any ESOP
Loan, the number of shares of ESOP Common Stock
attributable to such ESOP Loan which are withdrawn
from the Suspense Account for any Plan Year shall
be proportionate to principal payments only,
provided that:
(i) such withdrawal is consistent with the
provisions of the ESOP Loan with respect to
the release of shares of ESOP Common Stock as
collateral, if any, for such loan;
(ii) the ESOP Loan provides for annual payments of
principal and interest at a cumulative rate
that is not less rapid at any time than level
annual payments of such amounts for ten
years;
(iii) interest is disregarded for purposes of
determining such release only to the extent
that it would be determined to be interest
under standard loan amortization tables; and
(iv) the term of the ESOP Loan, together with any
renewal, extension or refinancing thereof,
does not exceed ten years.
In the event that more than one ESOP Loan is outstanding at any
time, the number of shares of Common Stock that are released from
encumbrance at any time under this Section shall be based solely
on the repayment of the ESOP Loan to which such shares of Common
Stock are attributable. In addition, if an ESOP Loan is
refinanced, the numerator in the fraction described in paragraph
(a) above shall not include the proceeds from the second ESOP
Loan used to make payments of principal and interest on the first
ESOP Loan.
C-8 Allocation and Crediting of ESOP Common Stock to
Participants' Accounts and Application to Plan Limitations.
Shares of ESOP Common Stock released from the Suspense Account
during any Plan Year shall be allocated and credited as follows:
(a) To the extent that dividends on Common Stock
previously allocated to the Accounts of a
Participant have been used to make payments on an
ESOP Loan, such Accounts shall be credited with
newly-released shares of ESOP Common Stock with a
Fair Market Value determined as of the last day of
the month preceding the month of the dividend
payment date equal to the amount of such dividend.
(b) As of the last day of each calendar quarter within
a Plan Year, any shares of ESOP Common Stock
released from the Suspense Account that are
attributable to payments made on ESOP Loans that
are designated as payments with respect to that
calendar quarter pursuant to subsection C-5 and
not credited in accordance with paragraph (a)
shall be contingently allocated to the Accounts of
eligible Participants as of the last day of such
calendar quarter in proportion to the allocation
described in the first sentence of paragraph
7.3(b) (without regard to the reduction described
at clause 7.3(b)(ii)), provided that if a
Participant receiving such a contingent quarterly
allocation during the Plan Year fails to meet the
requirements of subsection 5.5 as of the last day
of the Plan Year, any amounts contingently
allocated hereunder during such Plan Year shall
further reduce Employer Contributions required at
subsection 5.1 and shall be allocated in
accordance with subsection 5.5 and any
corresponding dividends (or dividend replacements
under this Supplement C) shall be forfeited.
(c) For purposes of subsection 8.3 of the Plan, the
Employer Contribution for any Plan Year which is
utilized to make any payment of principal or
interest on an ESOP Loan shall be deemed to have
been allocated among Participants in the same
ratios as the number of shares of ESOP Common
Stock released from the Suspense Account are
credited in accordance with paragraph (b) above,
without regard to the value of the shares of ESOP
Common Stock released from the Suspense Account.
(d) All ESOP Common Stock allocated to Participants in
accordance with paragraph (b) above shall be
treated as Employer Contributions for purposes of
subsection 5.1 and 8.9 and as matching
contributions for purposes of section 401(m) of
the Code.
C-9 Transfer Elections by Participants. Notwithstanding
any more restrictive provision of the Plan to the contrary, a
qualified Participant (as defined below) may make the elections
as set forth in this subsection C-9.
(a) A qualified Participant during each of his
qualified election periods (as defined below), may
elect to transfer not more than 25 percent (50
percent in the case of his last qualified election
period) of the sum of his entire interest in the
ESOP portion of the Plan plus his prior transfers
(or, prior to January 1, 1998, withdrawals) under
this subsection C-9, excluding any Employer
Contributions (or the earnings thereon)
contingently allocated under paragraph 7.3(b);
provided, however, that the portion of a
Participant's ESOP interest that is subject to
election under this paragraph for any qualified
election period shall be reduced by the portion of
his ESOP interest that was previously transferred
(or withdrawn) pursuant to this subsection C-9.
(b) Any election made in accordance with the
provisions of paragraph (a) next above with
respect to any qualified election period shall be
given effect not later than 90 days after the end
of that qualified election period.
(c) Any election required under this subsection shall
be made in such manner as the Plan Administrator
may require.
(d) For purposes of this subsection, the term
"qualified Participant" means an employee who has
completed at least ten years of participation in
the ESOP, commencing on or after January 1, 1983,
and has attained at least age 55.
(e) For purposes of this subsection, "qualified
election periods" shall include the 90-day period
immediately following the last day of the first
Plan Year in which the Participant becomes a
qualified Participant, and the 90-day period
following each of the five subsequent Plan Years.
(f) The provisions of this subsection C-9 shall not
apply to any Participant if the value of the
Common Stock allocated to such Participant in the
ESOP portion of the Plan (determined as of the end
of the month immediately preceding the first day
on which the participant would otherwise be
entitled to make an election under this
subsection) is $500 or less.
C-10 Fair Market Value. For purposes of this Supplement C,
the Fair Market Value of a share of Common Stock as of any date
means the closing price of a share of such stock on that date as
reported on the New York Stock Exchange, unless such date is not
a trading date, in which case it means the closing price as
reported on the next preceding trading date.
C-11 Sale of ESOP Common Stock to the Company. If, because
of distributions, withdrawals or transfers involving ESOP Common
Stock, it is necessary or desirable for the Plan to sell Common
Stock, the Trustee shall notify the Company. At the timely
direction of an Investment Manager, the Trustee shall sell such
Common Stock to the Company for cash. The sales price for the
shares of Common Stock sold to the Company shall be no less than
Fair Market Value on the date of sale as defined in subsection C-
10, and no commission shall be charged on such sale. The Company
and Trustee shall establish in writing such rules and procedures
regarding such sales as are required to meet applicable laws.
SUPPLEMENT D
SEARS 401(k) SAVINGS PLAN
Spray-Tech, Inc.
D-1 Application. This Supplement D to the Sears 401(k)
Savings Plan (the "Plan") describes the special provisions
relating to employees of Spray-Tech, Inc. that have been adopted
by the Company as a part of its extension of the Plan to Spray-
Tech, Inc. ("Spray-Tech") employees. Pursuant to this Supplement
D, Spray-Tech is a participating Employer in the Plan as of the
Effective Date defined at subsection D-2.
D-2 Effective Date. The Effective Date of this Supplement
shall be October 1, 1998, except as otherwise indicated.
D-3 Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement D.
D-4 Immediate Eligibility. Each employee of Spray-Tech on
the Effective Date who (I) was an active participant in the
Spray-Tech, Inc. 401(k) Plan immediately prior to its termination
in April of 1998 or (ii) was eligible to participate in the
Spray-Tech, Inc. 401(k) Plan prior to its termination and had
attained age 21 as of the Effective Date.
D-5 Past Service Credit for Eligibility. As of October 1,
1998, each Spray-Tech employee who is actively employed by Spray-
Tech on that date and who was actively employed by Spray-Tech
immediately after the date of acquisition of Spray-Tech by the
Company, shall be credited for purposes of eligibility to
participate in the Plan with his service from his date of hire by
Spray-Tech. An employee's service with Spray-Tech prior to its
acquisition by the Company shall be calculated in accordance with
the provisions of Section 2 of the Plan, as if applicable to
Spray-Tech prior to the acquisition
SUPPLEMENT E
SEARS 401(k) SAVINGS PLAN
Sears Carpet and Upholstery Care, Inc.
E-1 Application. This Supplement E to the Sears 401(k)
Savings Plan (the "Plan") describes the special provisions
relating to employees of Sears Carpet and Upholstery Care, Inc.
("Sears Carpet") that have been adopted by the Company as part of
its extension of the Plan to Sears Carpet. Pursuant to this
Supplement E, Sears Carpet is a participating Employer in the
Plan as of the Effective Date as defined at subsection E-2
hereof.
E-2 Effective Date. The Effective Date of this Supplement
shall be January 1, 1999.
E-3 Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement E.
E-4 Past Service Credit for Eligibility. As of the
Effective Date, each Employee who is actively employed by Sears
Carpet on that date and who was actively employed by Sears Carpet
immediately after the date of the acquisition of Sears Carpet by
the Company, shall be credited for purposes of eligibility to
participate in the Plan with his service from date of hire with
Sears Carpet. An employee's service with Sears Carpet prior to
its acquisition by the Company shall be calculated in accordance
with the provisions of Section 2 of the Plan, as if applicable to
Sears Carpet prior to the acquisition.
SUPPLEMENT F
SEARS 401(k) SAVINGS PLAN
MaxServ, Inc.
F-1 Application. This Supplement F to the Sears 401(k)
Savings Plan (the "Plan") describes the special provisions
relating to employees of MaxServ, Inc. ("MaxServ") that have been
adopted by the Company as part of its extension of the Plan to
MaxServ. Pursuant to this Supplement F, MaxServ is a
participating Employer in the Plan as of the Effective Date as
defined at subsection F-2 hereof.
F-2 Effective Date. The Effective Date of this Supplement
shall be January 1, 1999.
F-3 Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement F.
F-4 Immediate Eligibility. On the Effective Date, each
MaxServ employee who was eligible to participate in the MaxServ,
Inc. Retirement Savings Plan immediately after the date of
acquisition of MaxServ by the Company, and who is an employee of
the Company on December 1, 1998, shall be eligible to participate
in the Plan on January 1, 1999.
F-5 Past Service Credit for Eligibility. As of the
Effective Date, each Employee who is actively employed by MaxServ
on that date and who was actively employed by MaxServ immediately
after the acquisition of MaxServ by the Company shall be credited
for purposes of eligibility to participate in the Plan with his
service with MaxServ from his date of hire (or January 1, 1997 if
later). An employee's service with MaxServ prior to its
acquisition by the Company shall be calculated in accordance with
the provisions of Section 2 as if applicable to MaxServ prior to
the acquisition.
F-6 Merger. Effective as of March 31, 2000 (the "Merger
Date"), the MaxServ, Inc. Retirement Savings Plan will be merged
into the Plan. The accounts transferred from the MaxServ, Inc.
Retirement Savings Plan and earnings attributable thereto (the
"MaxServ Accounts") will be accounted for separately under the
Plan. Spousal consent shall not be required with respect to any
distribution or withdrawal from the MaxServ Accounts under the
Plan.
F-7 Vesting, Forfeitures and Repayments. In the case of a
Participant who is employed by MaxServ on the Merger Date or who
terminated employment with MaxServ within five years prior to the
Merger Date and had not yet taken a distribution of any portion
of his accounts under the MaxServ, Inc. Retirement Savings Plan,
his entire accounts under the MaxServ, Inc. Retirement Savings
Plan that were transferred to the Plan shall be 100% vested upon
the date of transfer. In the case of a Participant whose
employment with MaxServ terminated prior to the Merger Date, who
was partially vested at that time and who elected to take a
distribution of the vested portion of his accounts, the balance
of his accounts under the MaxServ, Inc. Retirement Savings Plan
shall continue to be subject to the vesting schedule of the
MaxServ, Inc. Retirement Savings Plan and those provisions
relating to vesting, forfeitures and the restoration of
forfeitures, (as in effect on the date of the individual's
termination of employment) subject to the modification described
in the following paragraph.
In the event that a Participant who (i) terminated
employment prior to the Merger Date and (ii) received a
distribution of the then vested portion of his account balance,
is rehired by the Company prior to the fifth anniversary of his
separation from service date, the Participant will have
recredited to his accounts the balance without interest (if any)
which he forfeited on his prior termination of employment and
shall be immediately 100% vested in such restored amounts but
only if the Participant repays the full amount, if any,
distributed to him before the earlier of five (5) years after the
date the Participant is rehired or the close of the first period
of five (5) consecutive 1-year Breaks in Service starting after
the distribution.
F-8 Loans. All outstanding loans made to participants
under the MaxServ, Inc. Retirement Savings Plan prior to the
Merger Date will be transferred to the Plan and participants
shall continue to make repayments under the loans. No new loans
will be permitted under the terms of the Plan.
SUPPLEMENT G
SEARS 401(k) SAVINGS PLAN
Sears Logistics Services, Inc.
Subsidiaries
G-1 Application. This Supplement G to the Sears 401(k)
Savings Plan (the "Plan") applies to employees of the following
subsidiaries of Sears Logistics Services, Inc. (the "SLS
subsidiaries") which are participating Employers in the Plan as
of the Effective Date (as defined at subsection G-2): Customized
Delivery Services, Delano Logistics Services, Inc., Optimum Home
Delivery Service, Inc., STG Logistics, Inc., Wilkes Barr
Logistics Services, Inc. and Focus Distribution, Inc. and
describes the special provisions relating to employees of the SLS
subsidiaries that have been adopted by the Company as part of its
extension of the Plan to the SLS subsidiaries.
G-2 Effective Date. The Effective Date of this Supplement
shall be January 1, 1999.
G-3 Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement G.
G-4 Waiver of Age Eligibility Requirement. Each employee
of the SLS subsidiaries who (i) was an active participant in the
Sears Logistics Services, Inc. 401(k) Plan for Participating
Subsidiaries (the "SLS 401(k) Plan") on December 31, 1998, or
(ii) was eligible to participate in the SLS 401(k) Plan and had
attained age 21 as of the Effective Date, shall be immediately
eligible to participate in the Plan on the Effective Date.
G-5 Past Service Credit for Eligibility. As of the
Effective Date, each Employee who is actively employed by an SLS
subsidiary on that date and who was actively employed by an SLS
subsidiary immediately after the date of acquisition of the SLS
subsidiaries by the Company, shall be credited for purposes of
eligibility to participate in the Plan with his service from his
date of hire with the SLS subsidiaries. An employee's service
with the SLS subsidiaries prior to their acquisition by the
Company shall be calculated in accordance with the provisions of
Section 2 of the Plan, as if applicable to the SLS subsidiaries
prior to the acquisition.
G-6. Merger. Effective February 29, 2000, the ("the Merger
Date") the SLS 401(k) Plan will be merged into the Plan. The
accounts transferred from the SLS 401(k) Plan and any earnings
attributable thereto ("the SLS Accounts") shall be separately
accounted for under the Plan and the following distribution
provisions shall apply thereto. The provisions of this
subsection G-6 shall not apply to any amounts under the Plan
except the SLS Accounts.
a) Unless a qualified election of an optional form of
benefit has been made within the election period, the
automatic form of benefit for an SLS Account payable to
or on behalf of a Participant is determined as follows:
(i) The automatic form of retirement benefit for a
Participant who does not die before his Annuity
Starting Date shall be the Qualified Joint and
Survivor Form. Qualified Joint and Survivor Form
means, for a Participant who has a spouse, an
immediate survivorship life annuity with installment
refund purchased from an insurance company with the
Participant's vested SLS Accounts, where the
survivorship percentage is 50% and the Contingent
Annuitant is the Participant's spouse. A former
spouse will be treated as the spouse to the extent
provided under a qualified domestic relations order
as described in Code Section 414(p). If a
Participant does not have a spouse, the Qualified
Joint and Survivor Form means a single life annuity
purchased from an insurance company with the
Participant's vested SLS Accounts.
The amount of benefit payable under the Qualified
Joint and Survivor Form shall be the amount of
benefit which may be provided by the Participant's
vested SLS Accounts.
(ii) The automatic form of death benefit for a
Participant who dies before his Annuity Starting Date
shall be:
(i) A Qualified Preretirement Survivor
Annuity (sometimes referred to as a "QPSA") for a
Participant who has a spouse to whom he has been
continuously married throughout the one-year
period ending on the date of his death. The
spouse may elect to start receiving the death
benefit on any first day of the month on or after
the Participant dies and before the date the
Participant would have been age 70 1/2. Qualified
Preretirement Survivor Annuity means a single life
annuity with installment refund purchased from an
insurance company with the Participant's vested
SLS Accounts payable to the surviving spouse of a
Participant who dies before his Annuity Starting
Date. A former spouse will be treated as the
surviving spouse to the extent provided under a
qualified domestic relations order and described
in Code Section 414(p).
(ii) A single-sum payment to the
Participant's Beneficiary for a Participant who
does not have a spouse who is entitled to a
Qualified Preretirement Survivor Annuity or for
whom the QPSA has been waived.
b) The optional forms of retirement benefit shall be the
following: a straight life annuity; single life
annuities with periods certain of five, ten or fifteen
years: a single life annuity with installment refund:
survivorship life annuities with installment refund and
survivorship percentages of 50, 66 2/3, or 100: and
fixed period annuities for any period of whole months
which is not less than 60 and does not exceed the life
expectancy of the Participant and the named Beneficiary
where the life expectancy is not recalculated. The
foregoing forms of payment are available only in the
form of an annuity contract purchased from an insurance
company with the Participant's account balance. A
Participant may also elect a series of installments
chosen by the Participant with a minimum payment each
year beginning with the year the Participant turns age
70 1/2. The payment for the first year in which a
minimum payment is required will be made by April 1 of
the following calendar year. The payment for the second
year and each successive year will be made by December
31 of that year. The minimum payment will be based on a
period equal to the joint and last survivor expectancy
of the Participant and the Participant's spouse, if any,
where the joint and last survivor expectancy is
recalculated. The balance of the Participant's vested
SLS Account, if any, will be payable on the
Participant's death to his Beneficiary in a single sum.
The participant may also elect to receive his vested
account in a single-sum payment. Election of an
optional form is subject to the qualified election
provisions of paragraph (f) below.
Any annuity contract distributed shall be
nontransferable. The terms of any annuity contract
purchased and distributed by the Plan to a participant
or spouse shall comply with the requirements of this
Plan.
c) If a Participant's Beneficiary is his spouse, his
account balance shall be paid to his spouse in the form
of a QPSA unless the spouse elects to receive a lump sum
distribution. The form of death benefit for all other
Beneficiaries is a lump sum distribution.
d) The requirements of this subsection G-6 shall apply to
any distribution of a Participant's interest in an SLS
Account and will take precedence over any inconsistent
provisions of this Plan. All distributions required
under this section shall be determined and made in
accordance with the proposed regulations under Code
Section 401(a)(9), including the minimum distribution
incidental benefit requirement of section 1.401(a)(9)-2
of the proposed regulations.
e) Death distribution provisions:
i) Distribution beginning before death. If the
Participant dies after distribution of his interest
has begun, the remaining portion of such interest
will continue to be distributed at least as rapidly
as under the method of distribution being used prior
to the Participant's death.
ii) Distribution beginning after death. If the
Participant dies before distribution of his interest
begins, distribution of the Participant's entire
interest shall be made in a lump sum to the
Participant's Beneficiary as soon as practicable
after the Participant's death subject to the
following exception:
If the Designated Beneficiary is the Participant's
surviving spouse, the date distributions are required
to begin shall not be earlier than the later of
1) December 31 of the calendar year immediately
following the calendar year in which the
Participant died and
2) December 31 of the calendar year in which the
Participant would have attained age 70 1/2.
f) Qualified Election. With respect to retirement
benefits, the Participant may (i) elect to waive the
Qualified Joint and Survivor Form and/or (ii) designate
a Beneficiary other than his spouse at any time during
the relevant election period subject to the provisions
below. With respect to death benefits, the Participant
may waive the QPSA (in favor of another Beneficiary) at
any time during the relevant election period subject to
and in accordance with the relevant provisions below.
The Participant may revoke the election made (or make a
new election) at any time and any number of times during
the election period. An election is effective only if
it meets the consent requirements below.
If the Participant's vested SLS Account has at any time
exceeded $3,500, any benefit which is (1) immediately
distributable or (2) payable in a form other than a
Qualified Joint and Survivor Form, requires the consent
of the Participant and the Participant's spouse. The
consent to waive the Qualified Joint and Survivor Form
shall not be made more than 90 days before the Annuity
Starting Date. Spousal consent is not required for a
benefit which is immediately distributable in a
Qualified Joint and Survivor Form. Neither the consent
of the Participant nor the Participant's spouse shall be
required to the extent that a distribution is required
to satisfy the Code Section 401(a)(9) or Code Section
415. If the Qualified Joint and Survivor Form is
waived, the spouse has the right to consent only to a
specific Beneficiary or a specific form of benefit. The
spouse can relinquish one or both such rights. Such
consent shall be made in writing.
A Participant may make an election as to death benefits,
with his spouse's consent, designating a Beneficiary
other than his spouse at any time before he dies but not
before the date he is provided with the notice of the
ability to waive the Qualified Preretirement Survivor
Annuity. A Participant's election to waive the
Qualified Preretirement Survivor Annuity which is made
before the first day of the Plan Year in which he
reaches age 35 shall become invalid on such date. If
the Qualified Preretirement Survivor Annuity is waived
by the Participant, the spouse has the right to limit
consent only to a specific Beneficiary. Such consent
shall be in writing.
For purposes of both retirement benefits and death
benefits, the spouse's consent shall be witnessed by a
plan representative or notary public. The spouse's
consent must acknowledge the effect of the election,
including that the spouse had the right to limit consent
only to a specific Beneficiary or a specific form of
benefit, if applicable, and that the relinquishment of
one or both such rights was voluntary. Unless the
consent of the spouse expressly permits designations by
the Participant without a requirement of further consent
by the spouse, the spouse's consent must be limited to
the form of benefit, if applicable and the Beneficiary
(including any Contingent Annuitant), class of
Beneficiaries, or contingent Beneficiary named in the
election. Spousal consent is not required, however, if
the Participant establishes to the satisfaction of the
plan representative that the consent of the spouse
cannot be obtained because there is no spouse or the
spouse cannot be located. A spouse's consent under this
paragraph shall not be valid with respect to any other
spouse. A Participant may revoke a prior election
without the consent of the spouse. Any new election
will require a new spousal consent unless the consent of
the spouse expressly permits such election by the
Participant without further consent by the spouse. A
spouse's consent may be revoked at any time within the
Participant's election period.
G-7. Loans. All outstanding loans made to participants under the
SLS 401(k) plan (or any plan merged into the SLS 401(k)
plan) prior to the Merger Date will be transferred to the
Plan and participants shall continue to make repayments
under the terms of the loans. No new loans will be
permitted under the terms of the Plan.
SUPPLEMENT H
SEARS 401(k) SAVINGS PLAN
Sears Home Improvement Products
H-1 Application. This Supplement H to the Sears 401(k)
Savings Plan (the "Plan") describes the special provisions
relating to employees of Sears Home Improvement Products that
have been adopted by the Company as part of the extension of the
Plan to Sears Home Improvement Products. Pursuant to this
Supplement H, Sears Home Improvement Products is a participating
Employer in the Plan as of the Effective Date as defined at
subsection H-2 hereof).
H-2 Effective Date. The Effective Date of this Supplement
shall be July 1, 1999.
H-3 Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement H.
H-4 Past Service Credit for Eligibility. As of the
Effective Date, each employee who is actively employed by Sears
Home Improvement Products on that date and who was actively
employed by Sears Home Improvement Products immediately after the
date of its acquisition by the Company, shall be credited for
purposes of eligibility to participate in the Plan with his
service from his date of hire with Sears Home Improvement
Products. An employee's service with Sears Home Improvement
Products prior to its acquisition by the Company shall be
calculated in accordance with Section 2 of the Plan, as if
applicable to Sears Home Improvement Products prior to the
acquisition.
SUPPLEMENT I
SEARS 401(k) SAVINGS PLAN
Orchard Supply Hardware Stores Corporation
I-1 Application. This Supplement I to the Sears 401(k)
Savings Plan (the "Plan") describes the special provisions
relating to employees of Orchard Supply Hardware Stores
("Orchard") that have been adopted by the Company as a part of
the extension of the Plan to Orchard. Pursuant to this
Supplement I, Orchard is a participating Employer in the Plan as
of the Effective Date (as defined at subsection I-2 hereof). On
September 1, 1999, the Orchard Savings Plan was merged into the
Plan. All account balances in the Orchard Savings Plan,
including account balances of individuals not yet eligible to
participate in the Plan were transferred to the Plan.
I-2 Effective Date. The Effective Date of this Supplement
shall be July 1, 1999, except as otherwise indicated.
I-3 Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement I.
I-4 Loans. All outstanding loans made to participants
under the Orchard Savings Plan prior to July 1, 1999, were
transferred to the Plan, and participants shall continue to make
repayments under the terms of the loans. No new loans will be
permitted under the terms of the Plan.
I-5 Vesting, Forfeitures and Repayments. In the case of a
Participant who was employed by Orchard on the date that the
Orchard Savings Plan was merged into the Plan, or who had
terminated employment with Orchard within five years prior to the
merger of the Plans and had not yet taken a distribution of any
portion of his accounts under the Orchard Savings Plan, his
entire accounts under the Orchard Savings Plan that were
transferred to the Plan shall be 100% vested upon the date of
transfer. In the case of a Participant whose employment with
Orchard terminated prior to the date that the Orchard Savings
Plan was merged into the Plan, who was partially vested at that
time and who elected to take a distribution of the vested portion
of his accounts, the balance of his accounts transferred from the
Orchard Savings Plan to the Plan shall continue to be subject to
the vesting, schedule of the Orchard Savings Plan and those
provisions relating to vesting, forfeitures and the restoration
of forfeitures, (as in effect on the date of the individual's
termination of employment) subject to the following modification:
In the event that a Participant who (i) terminated
employment prior to the merger of the Orchard Savings Plan into
the Plan and (ii) received a distribution of the then vested
portion of his account balance, is rehired by the Company prior
to the fifth anniversary of his separation from service date, the
Participant will have recredited to his accounts the balance
without interest (if any) which he forfeited on his prior
termination of employment and shall be immediately 100% vested in
such restored amounts but only if the Participant repays the full
amount, if any, distributed to him before the earlier of five (5)
years after the date the Participant is rehired or the close of
the first period of five (5) consecutive 1-year Breaks in Service
starting after the distribution.
I-6 Final Matching Contribution. A special matching
contribution shall be made to the Plan to be allocated under the
Plan to individuals employed by Orchard Supply Hardware Stores on
June 30, 1999 with respect to their pre-tax contributions for the
period January 1, 1999, through June 30, 1999, in accordance with
the terms of the Orchard Savings Plan, as in effect immediately
prior to the Effective Date, as if June 30, 1999 were the last
day of the plan year of that plan.
I-7 Past Service Credit for Eligibility. As of the
Effective Date, each Employee who is actively employed by Orchard
on that date and who was actively employed by Orchard immediately
after the date of its acquisition by the Company, shall be
credited for purposes of eligibility to participate in the Plan
with his service from his date of hire with Orchard. An
employee's service with Orchard prior to its acquisition by the
Company shall be calculated in accordance Section 2 of the Sears
Plan, as if applicable to Orchard prior to the acquisition.
I-8 Immediate Eligibility. Each employee of Orchard who
has eligible to participate in the Orchard Supply Hardware Stores
401(k) Plan prior to its merger into the Plan and who is employed
by Orchard on the Effective Date shall be immediately eligible to
participate in the Plan on the Effective Date.
THIRD AMENDMENT TO THE
SEARS 401(k) PROFIT SHARING TRUST AGREEMENT
This Third Amendment (the "Amendment") dated as of March 31, 1999 by
and between Sears, Roebuck and Co., a New York corporation (the "Company"),
and State Street Bank and Trust Company, a Massachusetts trust company (the
"Trustee"), amends the Sears 401 (k) Profit Sharing Trust Agreement (as
amended and restated as of January 1, 1998) between the Company and the
Trustee (the "Trust Agreement"). WHEREAS, the amendment to the Trust
Agreement dated as of December 1, 1998, a copy of which is attached hereto
(the "December Amendment"), was erroneously identified as the "First
Amendment to the Sears 401(k) Profit Sharing Trust Agreement" when in fact
the Company and the Trustee had executed a prior First Amendment to the Sears
401 (k) Profit Sharing Plan on June 26, 1998, with an effective date of
January 1, 1998;
WHEREAS, the Company and the Trustee desire to clarify
that the December Amendment is the second amendment to the
Trust Agreement; and
WHEREAS, the Company and the Trustee also desire to
amend subsection 4.5(m) of the Trust Agreement to authorize
the Trustee to sell Common Stock in private sales to the
Company;
NOW, THEREFORE, the Company and the Trustee hereby
agree as follows:
1) The December Amendment is hereby renamed "Second
Amendment to the Sears 401(k) Profit Sharing Trust
Agreement" and the word "First" in the first sentence of
the December Amendment is hereby deleted and replaced
with the word "Second".
2) Subsection 4.5 (m) of the Trust Agreement is hereby
deleted and replaced in its entirety by the following:
(m) At the direction of an Investment Manager, and
otherwise to the extent permitted by Section 6.1, to
purchase or sell Common Stock in the open market or
by private purchase from any source, including a
private purchase from the Company of treasury stock
or newly-issued shares, or private sale to the
Company, provided that (i) any such purchase which is
from a party-in-interest (as defined in Section 3(14)
of ERISA) or a disqualified person (as defined in
Section 4975 of the Code) shall be without payment of
any commissions and for an amount which is no greater
than adequate consideration for such Common Stock (as
defined in Section 3(18) of ERISA), and (ii) any such
sale which is to a party-in-interest or disqualified
person shall be without the payment of any
commissions and for an amount which is no less than
adequate consideration for such Common Stock. The
Company and the Trustee shall establish such rules
and procedures regarding such purchases and sales as
are required to meet applicable laws."
3) In all other respects, the Trust Agreement shall remain
in full force and effect and shall continue unaffected by
this Amendment.
IN WITNESS WHEREOF, the undersigned have duly
executed this Amendment as of the date first above written.
SEARS, ROEBUCK AND CO.
By: /S/John T. Sloan
__________________________
John T. Sloan
Senior Vice President,
Human Resources
STATE STREET BANK AND TRUST
COMPANY
By: /S/John Scott Feely
Name: John Scott Feely
Title: Vice President
Sears Pension Plan
(As Amended and Restated
Effective as of January 1, 2000)
Mayer, Brown & Platt
Chicago
I, __________________________________, Secretary of the
Employee Benefits Administration Committee of Sears, Roebuck and
Co. hereby certify that the attached document is a full, true and
complete copy of the SEARS PENSION PLAN as in effect as of
January 1, 2000.
Dated this _____ day of ___________________, ____.
Secretary as
Aforesaid
(Seal)
INDEX OF DEFINED TERMS
5.1 - Accrued Benefit
8.5 - Actuarial Equivalent
8.5(a)(i)(A) - Annual PBGC Rate
2.2(c) - Allstate Group Employee
2.2(c) - Allstate Group
2.2 (c) - Allstate Distribution Rate
5.1(b) - Career Pay Benefit
5.1(b)(i) - Career Pay Base Benefit
5.1(b)(ii) - Career Pay Additional Benefit
4.3 - Annuity Starting Date
5.1(a)(iii) - Base Benefit
5.1(a)(iii) - Additional Benefit
8.8 - Beneficiary
2.8 - Benefits Executive
5.1(b) - Career Pay Benefit
5.1(b)(i) - Career Pay Base Benefit
5.1(b)(ii) - Career Pay Additional Benefit
8.8 - Coannuitant
1.1 - Code
1.1 - Company
5.2(c) & 5.2(d)- Compensation
2.1 - Computation Period
2.2 - Continuous Service
Supp. E - Contributory Group
5.2(a) - Covered Compensation
2.3 - Credited Service
10.3(A) - Death Beneficiary
6.1 - Deferred Vested Benefit
4.2 - Early Retirement Date
1.1 - Effective Date
3.1 - Eligible Employee
8.15 - Eligible Distribution
8.15 - Eligible Retirement Plan
1.3 - Employer
1.3 - Employers
1.4 - ERISA
5.2(b) - Final Average Monthly Compensation
5.1(A) - Final Average Pay Benefit
2.1 - Full-Time Employee
2.5 - Hour of Service
5.1(a)(i) - Immediate Credit Benefit
1.4 - Investment Committee
12.7(e) - Investment Manager
3.3 - Leased Employee
8.3(e) - Lump Sum
2.6 - Maternity or Paternity Absence
13.3 - Merged Plan
1.4 - Named Fiduciaries
5.1(b) - Minimum Benefit
4.1 - Normal Retirement Age
4.1 - Normal Retirement Date
2.6 - One Year Break in Service
2.1 - Part-Time, Seasonal or Temporary Employee
3.1 - Participant
1.1 - Plan
1.5 - Plan Year
1.1 - Predecessor Plan
10.2 - Qualified Preretirement Survivor Annuity
8.1, 10.2 - Qualified Spouse
1.3 - Related Company
4.4 - Retirement Income
4.4 - Retirement Date
Section 7 - Section 415 Affiliate
8.1(a) - Single Life Annuity
8.8 - Spousal Consent
1.12 - Supplements
8.1(b) - Surviving Spouse Annuity
1.4 - Trust
1.4 - Trust Agreement
1.4 - Trust Fund
1.4 - Trustee
2.1 - Year of Eligibility Service
2.3 - Year of Vesting Service
Sears Pension Plan
(As Amended and Restated
Effective as of January 1, 2000)
SECTION 1.
General
1.1. History, Purpose and Effective Date. The Sears
Pension Plan (the "Plan") is maintained by Sears, Roebuck and
Co., a New York corporation (the "Company"), to enable it to
provide retirement and other benefits for its eligible employees
and the eligible employees of Related Companies adopting the
Plan. The Plan has been amended from time to time since its
adoption and the following provisions constitute an amendment,
restatement and continuation of the Plan (whether this version or
an earlier restatement) as in effect immediately prior to January
1, 2000, the "Effective Date" of the Plan as set forth herein.
To the extent that any provision of the Plan as set forth herein
specifically provides for an effective date other than January 1,
2000, such provision will constitute an amendment of the Plan as
in effect on such date. The Plan is intended to be qualified
under section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code").
1.2. Benefits Under the Plan as in Effect Prior to
Effective Date. Except as otherwise specifically provided
herein, the provisions of the Plan as set forth in this
restatement will apply only to individuals who are employed by
the Employers and Related Companies on or after the Effective
Date. If an employee's employment with the Employers and all
Related Companies last terminated prior to the Effective Date,
his right to benefits, if any, and the amount thereof, will be
determined in accordance with the provisions of the Plan as in
effect on the date of such termination of employment. If a
Participant's spouse or other beneficiary was eligible for a
benefit under the Plan as in effect prior to the Effective Date,
he or she will continue to be eligible for a benefit determined
under the Plan as then in effect. If an individual is not, at
any time on or after the Effective Date, an Eligible Employee,
the amount of his benefits under the Plan will be determined in
accordance with the provisions of the Plan as in effect on the
date he last was an Eligible Employee.
1.3. Related Companies and Employers. The term "Related
Company" means any corporation or trade or business during any
period during which it is, along with the Company, a member of a
controlled group of corporations or a controlled group of trades
or businesses, as described in sections 414(b) and 414(c),
respectively, of the Code. The Company and each Related Company
which, with the consent of the Company, adopts the Plan, are
referred to below collectively as the "Employers" and
individually as an "Employer".
1.4. Plan Administration, Trust and Fiduciary
Responsibility. The authority to control and manage the
operations and administration of the Plan is vested in the
Company. The Company will be the administrator of the Plan (the
"Plan Administrator") and will have the
rights, duties and obligations of an "administrator" as that term
is defined in section 3(16)(A) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and of a "plan
administrator" as that term is defined in section 414(g) of the
Code. The Company also has the authority to consent to the
adoption of the Plan by other employers and to amend and
terminate the Plan. The authority and responsibility to
establish a funding policy, to appoint or select trustees,
custodians, investment managers and insurance companies to manage
the Plan's assets and the allocation of assets to each of them,
to determine the plan asset mixes, to establish investment
guidelines, proxy voting policies and securities trading
procedures, and to monitor the performance of the fiduciaries
responsible for investment of the Plan's assets is vested in a
committee appointed by the Company (the "Investment Committee").
The Company and the Investment Committee will be "named
fiduciaries", as described in section 402 of ERISA, with respect
to their respective authority under the Plan. The benefits to be
provided under the Plan will be funded pursuant to a trust (the
"Trust") which forms part of the Plan. The term "Trustee", as
used herein, means the individual or corporate trustee which, at
the time of reference, is acting under the terms of a trust
agreement (the "Trust Agreement") entered into for purposes of
holding the assets of the Plan, the terms of which Trust
Agreement will be incorporated herein by reference. The fund for
payment under the Plan is herein called the "Trust Fund". The
assets in the Trust Fund held by the Trustee may be commingled
for investment purposes with the funds of other employee pension
benefit plans qualified under section 401(a) of the Code.
1.5. Plan Year. The term "Plan Year" means the twelve-
consecutive-month period beginning on each January 1 and ending
on the following December 31.
1.6. Applicable Laws. The Plan will be construed and
administered in accordance with the internal laws of the State of
Illinois to the extent that such laws are not preempted by the
laws of the United States of America.
1.7. Gender and Number. Where the context permits, words
in any gender will include any other gender, words in the
singular will include the plural and the plural will include the
singular.
1.8. Notices. Any notice or document required to be filed
with the Plan Administrator under the Plan will be properly filed
if delivered or mailed postage prepaid, to the Plan Administrator
in care of the Company at its principal executive offices. Any
notice required under the Plan may be waived by the person
entitled to notice.
1.9. Form and Time of Elections. Unless otherwise
specified herein, each election permitted to be made by any
Participant or other person entitled to benefits under the Plan,
and any permitted modification or revocation thereof, will be in
writing filed with the Plan Administrator at such times and in
such form as the Plan Administrator will require.
1.10. Evidence. Evidence required of anyone under the Plan
may be by certificate, affidavit, document or other information
which the person acting on it considers pertinent and reliable,
and signed, made or presented by the proper party or parties.
1.11. Action by Employers. Except as otherwise
specifically provided herein, any action required or permitted to
be taken by any Employer (including the Company) which is a
corporation, will be by resolution of its Board of Directors, by
a duly authorized committee appointed by the Board of Directors,
or by a duly authorized officer of the Employer. Any action
required or permitted to be taken by any Employer which is a
partnership, will be by a general partner of such partnership or
by a duly authorized officer thereof.
1.12. Plan Supplements. The provisions of the Plan as
applied to any Employer or any group of employees of any Employer
may be modified or supplemented from time to time by the Company
by the adoption of one or more "Supplements". Each Supplement
will form a part of the Plan as of its effective date. In the
event of any inconsistency between a Supplement and the Plan
document, the terms of the Supplement will govern.
1.13. Defined Terms. Terms used frequently with the same
meaning are indicated by initial capital letters, and are defined
throughout the Plan. Appendix A contains an alphabetical listing
of such terms and the subsections in which they are defined.
SECTION 2.
Eligibility, Vesting and Benefit Service
2.1. Year of Eligibility Service.
(a) Effective on and after January 1, 2000, except as
provided in paragraph (c) below, each employee,
regardless of whether he is a full-time, part-time,
seasonal or temporary employee, who has not already
been credited with a Year of Eligibility Service
under paragraph (b) below (or who has been so
credited but who is treated as a new hire pursuant to
subsection 2.5) will have a Year of Eligibility
Service at the end of the first Computation Period
during which he completes 1,000 Hours of Service
(without having to be employed on the last day of
such Computation Period), with "Computation Period"
for purposes of this paragraph (a) meaning the
initial 12-month period beginning on the date the
employee is first credited with an Hour of Service
and each Plan Year beginning after such date. For
purposes of this paragraph (a), if an employee who
terminates employment with the Employers and Related
Companies is reemployed, the Plan Year containing his
reemployment date will constitute a Computation
Period, and if such employee is reemployed in a
Computation Period that is different than the
Computation Period in which he terminated employment,
the twelve-month period beginning with his
reemployment date will also be a Computation Period
(in addition to the Plan Years beginning after his
reemployment date).
(b) Prior to January 1, 2000, an employee was credited
with a "Year of Eligibility Service" in accordance
with the following, subject to the provisions of
subsection 2.5:
(i) A full-time employee had a Year of Eligibility
Service on the anniversary of his date of hire by
the Employers and Related Companies unless he was
absent from their service for more than 12 months;
in the case of a full-time employee who was absent
from service with the Employers and Related
Companies for more than 12 months, a Year of
Eligibility Service equaled an aggregate of 365
days of employment with the Employers and Related
Companies.
(ii) A part-time, seasonal or temporary employee
had a Year of Eligibility Service at the
conclusion of a Computation Period during which he
completed at least 1,000 Hours of Service (without
the necessity of being still employed on the last
day of such period). A "Computation Period" for
this purpose was the initial 12-consecutive-month
period commencing on the date an employee was
first credited with an Hour of Service and each
subsequent 12 month period commencing on the
anniversary of the date he was first credited with
an Hour of Service. An individual's Computation
Period remained the same, notwithstanding an
absence from employment, unless such individual
was treated as a new employee pursuant to
subsection 2.5 (describing the rule of parity).
(c) Notwithstanding the provisions of paragraph (a)
above, the following transition rules will apply to
an employee hired before January 1, 2000 who has not
completed a Year of Eligibility Service before
January 1, 2000 (and who is not treated as a new hire
under subsection 2.5):
(i) Such a full-time employee will have a Year of
Eligibility Service on the anniversary of his date
of hire by the Employers and Related Companies if
his employment is uninterrupted (or is interrupted
by an absence of less than 12 months); or, if his
employment is interrupted by an absence greater
than 12 months but not long enough to cause him to
be treated as a new hire under subsection 2.5, he
will be treated under paragraph 2.2(b) as an
individual who has changed employment status; and
(ii) Such a part-time, seasonal or temporary
employee hired before January 1, 2000 will have a
Year of Eligibility Service at the end of the
Computation Period described in subparagraph
2.1(b)(ii) which includes the Effective Date if he
is credited with at least 1,000 Hours of Service
in such
Computation Period, or, if he is not credited with
at least 1,000 Hours of Service in such
Computation Period, at the end of the first Plan
Year beginning on or after the Effective Date in
which he is credited with at least 1,000 Hours of
Service.
For purposes of this Section 2, a "full-time employee" is an
employee who is regularly scheduled to work a full work week as
determined by the rules established for his work location, and a
"part-time, seasonal or temporary employee" is an employee who is
not regularly scheduled to work a full week.
2.2. Changes in Employment Status and Application of
Different Service Crediting Rules. In the event that an
individual changes status from a full-time to a part-time,
seasonal or temporary employee or vice versa (whether in
connection with a termination of employment or otherwise), as
recognized by the Company's payroll system, the following rules
shall apply, subject to the provisions of subsection 2.5:
(a) An employee who moves from part-time, seasonal or
temporary to full-time status shall be credited with
the greater of (A) the period of elapsed-time service
that would be credited under subparagraph 2.1(b)(i)
during the Computation Period in which the transfer
occurs or (B) the service creditable under
subparagraph 2.1(b)(ii) as of the date of transfer,
in addition to any Years of Eligibility Service
already earned before the Computation Period in which
the transfer occurs; and
(b) An employee who moves from full-time to part-time,
seasonal or temporary status shall receive credit, in
the Computation Period in which the transfer occurs,
for 45 Hours of Service for each week (or part
thereof) worked in any fractional part of a year
credited under subparagraph 2.1(b)(i) immediately
prior to the transfer, and with actual Hours of
Service counted after the transfer, in addition to
any full Years of Eligibility Service earned prior to
the transfer.
For purposes of the foregoing, in connection with an interruption
of active employment, the transfer will be deemed to have
occurred on the date the employee returns to work when the change
in status occurs.
2.3. Continuous Service and Vesting Service.
(a) For an employee hired prior to the Effective Date, a
"Year of Vesting Service" is equal to a year of
Continuous Service. Except as provided in subsection
2.5, "Continuous Service" means all service for an
Employer or Related Company commencing on date of
hire (or rehire) and ending on the day a One Year
Break in Service begins, subject to the following:
(i) In the case of an employee who terminated
employment prior to January 1, 1978 and who, on
that date, was not employed by an Employer or a
Related Company, but who thereafter is employed
by an Employer or a Related Company, such
employee's Continuous Service for any period
prior to January 1, 1978 shall be determined in
accordance with the Employer's or Related
Company's personnel policy, or the predecessor
plan which applied to him, as the case may be,
in effect at the time of termination.
(ii) Continuous Service shall not include any period
or periods of part-time employment with the
Employers and Related Companies prior to January
2, 1971.
(iii) Service by a DWDC Group Employee with the
DWDC Group after the DWDC Distribution Date, and
service by an Allstate Group Employee with the
Allstate Group after the Allstate Distribution
Date, shall be credited as continuous service
under the Plan solely for purposes of
determining whether any such DWDC or Allstate
Group Employee is vested in his Accrued Benefit
under the Plan pursuant to subsection 2.8. For
purposes of the foregoing, the terms "DWDC Group
Employee", "DWDC Group" and "DWDC Distribution
Date" shall have the meanings given the same (or
comparable) terms in the Employee Benefits
Allocation Agreement of February 8, 1993 between
the Company and Dean Witter, Discover & Co., and
the terms "Allstate Group Employee", "Allstate
Group" and "Allstate Distribution Date" shall
have the meanings given the same (or comparable)
terms in the Employment and Agency-Related
Matters Allocation Agreement of May, 1993 among
the Company, Allstate Corporation and Allstate
Insurance Company.
(iv) In the case of an individual for whom periods of
service must be aggregated (because of an
absence of more than 12 months), a year of
Continuous Service will be determined on the
basis of 365 days of employment.
(b) For an employee hired after the Effective Date (or
rehired after the Effective Date and treated as a new
employee under subsection 2.5), a Year of Vesting
Service is a Plan Year in which the employee is
credited with at least 1,000 Hours of Service.
2.4. Credited Service. Subject to subsection 2.5 and
subsection 9.5, for purposes of paragraph 5.1(a)(i)(C) a
Participant shall have a number of complete and partial years of
"Credited Service" equal to the portion of his years of
Continuous Service earned after December 31, 1988 and before
January 1, 2000 as an Eligible Employee after completion of his
Year of Eligibility Service. (Credited Service for periods prior
to January 1, 1989 is determined under Supplement B to the Plan.)
Generally, periods of Credited Service shall be aggregated in
the case of a Participant whose service as an Eligible Employee
is interrupted, except that Credited Service will not be
aggregated in the case of a Participant who terminates employment
with the Employers and Related Companies, receives a Lump Sum
distribution and subsequently is reemployed as an Eligible
Employee, unless such Participant is entitled to, and actually
does, repay such Lump Sum in accordance with subsection 9.5. For
purposes of the foregoing, a Participant who receives a Lump Sum
payment on account of termination of employment who is reemployed
within 12 months and who would otherwise be credited with
Continuous Service for the period of his absence shall not
receive Credited Service for the same period unless the Credited
Service earned prior to his termination of employment is restored
on account of his repayment of such Lump Sum in accordance with
subsection 9.5. Any Participant who had a Year of Eligibility
Service prior to January 1, 1989 but who was not credited with an
Accrued Benefit under the Plan as of December 31, 1988 under the
terms of the Plan as in effect on such date, will have Credited
Service from the day following completion of his Year of
Eligibility Service.
2.5. Treatment as New Employee After Consecutive One Year
Breaks in Service. If an employee or Participant terminates
employment with the Employers and Related Companies before
earning five full years of Continuous Service (if he was hired
before January 1, 2000) or five Years of Vesting Service (if he
was hired or rehired on or after January 1, 2000), or otherwise
becoming vested in an Accrued Benefit and the number of his
consecutive One Year Breaks in Service equals or exceeds seven
(six in the case of an individual whose first 12 months of a
Maternity or Paternity Absence are disregarded under subsection
2.7), then his Year of Eligibility Service and any Continuous and
Credited Service earned prior to such consecutive One Year Breaks
in Service of seven or more years shall be erased and, if he is
later employed or reemployed by an Employer or a Related Company,
he shall be considered a new employee for all purposes under the
Plan.
2.6. Hour of Service. The term "Hour of Service" means,
with respect to any employee, each hour for which he is paid or
entitled to payment for the performance of duties for an Employer
or a Related Company or for which back pay, irrespective of
mitigation of damages, has been awarded to the employee or agreed
to by an Employer or a Related Company, subject to the following:
(a) An employee or Participant shall be credited with the
number of regularly scheduled working hours included
in the time period on the basis of which payment to
the Employee is calculated (or, if the number of such
hours is not determinable, 8 Hours of Service per day
(to a maximum of 40 Hours of Service per week)) for
any period during which he performs no duties for an
Employer or a Related Company (irrespective of
whether the employment relationship has terminated)
by reason of a vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military
duty or leave of absence but for which he is directly
or indirectly paid or entitled to payment by an
Employer or a Related
Company; provided, however, that an employee or
Participant shall not be credited with more than 501
Hours of Service under this paragraph (a) for any
single continuous period during which he performs no
duties for an Employer or a Related Company. Payments
considered for purposes of the foregoing sentence
shall include payments unrelated to the length of the
period during which no duties are performed but shall
not include payments made solely as reimbursement for
medically related expenses or solely for the purpose
of complying with applicable workmen's compensation,
unemployment compensation or disability insurance
laws.
(b) For any employee for whom hourly records are not
maintained for any period, Hours of Service shall be
determined in accordance with equivalencies
prescribed under applicable regulations published by
the Department of Labor in accordance with rules
established by the Plan Administrator.
(c) Hours of Service shall be calculated and credited
pursuant to Department of Labor Regulation section
2530.200b-2, which is incorporated herein by
reference.
2.7. One Year Break in Service. The term "One Year Break
in Service" means the 12-consecutive-month period commencing on
the day after the day an employee's employment with the Employers
and Related Companies is terminated for any reason, unless such
absence constitutes a Maternity or Paternity Absence. An absence
of less than 12 months following such termination of employment
shall be disregarded in determining whether a One Year Break in
Service has occurred. An individual who is absent because of
service in the U.S. Armed Forces will begin a One Year Break in
Service on the 91st day following his discharge from military
service, if he does not return to work within 90 days of such
discharge. With respect to an individual whose absence from
employment constitutes a Maternity or Paternity Absence, the term
"One Year Break in Service" means the 12-consecutive-month period
commencing on the day after the second anniversary of the first
day of such absence if he is not paid or entitled to payment for
the performance of duties for an Employer or a Related Company
during that 12-consecutive-month period. The period between the
first and second anniversaries of the first day of a Maternity or
Paternity Absence shall not constitute a period of Continuous
Service. The term "Maternity or Paternity Absence" means an
employee's or Participant's absence from work because of the
pregnancy of such individual, the birth of a child of such
individual, the placement of a child with such individual in
connection with the adoption of a child by such individual, or
for purposes of caring for the child by such individual
immediately following such birth or placement. The Plan
Administrator may require the employee or Participant to furnish
such information as it considers necessary to establish that such
individual's absence was a Maternity or Paternity Absence.
2.8. Vested Interest in Accrued Benefit. The interest of
a Participant in his Accrued Benefit under the Plan will become
fully vested and nonforfeitable in accordance with the following
schedule:
Years of Vesting Service Vested
Percentage
Less than 5 0%
5 or more 100%
Notwithstanding the foregoing provisions of this subsection 2.8,
a Participant will have a fully vested, nonforfeitable interest
in his Accrued Benefit under the Plan upon his attaining Normal
Retirement Age or, if such individual was a Participant before
January 1, 1989, age 63, while employed by an Employer or Related
Company. In addition, in the event of the Plan's termination (in
accordance with subsection 13.2) or partial termination (as
determined under applicable law and regulations), each affected
Participant will be fully vested in his Accrued Benefit under the
Plan, but only to the extent such benefit is then funded (as
determined under applicable regulations).
2.9. Pre-Acquisition Service. By written resolution of
the most senior executive of the Company with primary
responsibility for employee benefit matters, regardless of title
(the "Benefits Executive"), or by the terms of a stock or asset
purchase agreement, merger agreement or other transaction
document executed by the Company, the Company may recognize pre-
acquisition service with, or pre-acquisition eligibility under a
plan similar to the Plan of, a company which becomes a Related
Company or the assets of which are acquired by a Related Company,
for purposes of determining eligibility under the Plan. Such
pre-acquisition service and/or eligibility shall be calculated in
such manner as the Benefits Executive in his sole discretion
shall determine.
SECTION 3.
Participation in Plan
3.1. Eligibility for Participation. Subject to the terms
and conditions of the Plan, each Eligible Employee who was a
Participant in the Plan immediately prior to the Effective Date
will continue as such. Each other Eligible Employee will become
a "Participant" in the Plan on the later of (i) the date he
attains age 21 or (ii) the first day following the date on which
he has completed one Year of Eligibility Service, provided he is
still an Eligible Employee on such date. Each employee of an
Employer is an "Eligible Employee" for any period in which he
satisfies all of the following requirements:
(a) he belongs to an identifiable group of employees of
an Employer or business unit of an Employer to which
participation in the Plan has been extended by the
Company,
(b) he is not a member of a collective bargaining unit,
unless the Plan has been extended to the collective
bargaining unit under a currently effective
collective bargaining agreement,
(c) he is not a person employed outside the United States
who is neither a citizen nor a resident of the United
States, and
(d) he does not perform services for an Employer under a
contract, agreement or arrangement that purports to
treat him as either an independent contractor or the
employee of a leasing organization agency or other
similar entity, even if he is subsequently determined
(by judicial action or otherwise) to have instead
been a common law employee of such Employer.
Except as provided in subsection 2.4, if a Participant ceases to
be an Eligible Employee for any reason, including termination of
employment, and he again becomes an Eligible Employee, he will
recommence his participation in the Plan immediately upon again
becoming an Eligible Employee. In the event an employee of an
Employer or a Related Company who was not an Eligible Employee
becomes an Eligible Employee, such employee will immediately
commence participation in the Plan if he has completed a Year of
Eligibility Service and is at least age 21. If an employee whose
eligibility is determined under paragraph 2.1(a) terminates
employment before the anniversary of his date of hire but returns
to employment with the Employers and Related Companies after such
anniversary date and within 12 months, such individual shall
become a Participant on the first day coincident with or
following such reemployment on which he is again an Eligible
Employee.
3.2. Plan Not Contract of Employment. The Plan does not
constitute a contract of employment, and participation in the
Plan will not give any employee or Participant the right to be
retained in the employ of any Employer nor any right or claim to
any benefit under the Plan, unless such right or claim has
specifically accrued under the terms of the Plan.
3.3. Leased Employees. If a person satisfies the
requirements of section 414(n) of the Code and applicable
Treasury regulations for treatment as a "Leased Employee", such
Leased Employee will not be eligible to participate in this Plan,
or in any other plan maintained by an Employer which is qualified
under section 401(a) of the Code, but, to the extent required by
section 414(n) of the Code and applicable Treasury regulations,
such person will be treated as if the services performed by him
in such capacity were performed by him as an employee of a
Related Company which has not adopted the Plan; provided,
however, that no such service will be credited for any period
during which not more than 20% of the non-highly compensated
workforce of the Employers and the Related Companies consists of
Leased Employees and the Leased Employee is a Participant in a
money purchase pension plan maintained by the leasing
organization which (i) provides for a nonintegrated employer
contribution of at least 10 percent of compensation, (ii)
provides for full and immediate vesting, and (iii) covers all
employees of the leasing organization (beginning with the date
they become employees), other than those employees excluded under
section 414(n)(5) of the Code. For purposes of this subsection
3.3, a highly compensated employee will mean an individual
described in section 414(q) of the Code and the regulations
thereunder.
SECTION 4.
Retirement Dates
4.1. Normal Retirement Date. The "Normal Retirement Date"
for a Participant is the date on which he terminates employment
with the Employers and Related Companies on or after his
attainment of Normal Retirement Age. A Participant's "Normal
Retirement Age" is age 65. The Retirement Income of a
Participant who retires on a Normal Retirement Date will be his
Accrued Benefit.
4.2. Early Retirement Date. The "Early Retirement Date"
for a Participant is the date on which he terminates employment
with the Employers and Related Companies before attaining Normal
Retirement Age and after his attainment of age 55 with at least
ten (10) years of Continuous Service or, in the case of an
individual who was a Participant prior to January 1, 1989, after
attainment of age 63. The Retirement Income of a Participant who
retires on an Early Retirement Date will be his Accrued Benefit
and will commence as of the first day of the month following his
65th birthday, unless the Participant elects to have his
Retirement Income (reduced in accordance with subsection 5.4)
commence as of the first day of any calendar month following his
Early Retirement Date; provided, however, that payment of such
Retirement Income must commence no later than the first day of
the month following his 65th birthday.
4.3. Retirement Date, Retirement Income and Annuity
Starting Date. The "Retirement Date" for a Participant is one of
the Retirement Dates described in the foregoing subsections of
this Section 4 on which he actually terminates his employment
with the Employers and Related Companies, regardless of when
benefit payments to such Participant commence. The "Retirement
Income" of a Participant is the benefit payable to a Participant
on or after his Normal or Early Retirement Date determined in
accordance with Section 5 and adjusted, as appropriate, for an
optional form of payment elected under Section 8. Retirement
Income shall be paid to a Participant as of the first day of the
month next following his Retirement Date, or, if a delay in
payment is permitted by the terms of the Plan, the first day of
the month selected for the commencement of benefits by the
Participant. The Participant's "Annuity Starting Date" shall be
the first day of the first period for which payment of a
Retirement Income or Deferred Vested Benefit (described in
Section 6) is made in any form.
SECTION 5.
Amount of Participant's Accrued Benefit and Retirement Income
5.1. Accrued Benefit. Subject to the other terms and
conditions of the Plan, a Participant's "Accrued Benefit" as of
any date is a monthly amount payable to the Participant for his
life commencing on the first day of the month following his
attainment of age 65 or, if later, his termination of employment,
in an amount equal to the sum of his monthly Final Average Pay
Benefit and his monthly Career Pay Benefit, each as defined
below:
(a) A Participant's monthly "Final Average Pay Benefit"
is the benefit accrued by the Participant as of
December 31, 1999, as though he terminated employment
on the earlier of December 31, 1999 or his actual
termination date, calculated as a monthly amount
equal to the greater of (i) or (ii) below:
(i) the sum of
(A) The Participant's monthly "Immediate Credit
Benefit", equal to the portion of the monthly
benefit accrued by the Participant under the
Plan as of December 31, 1988 determined under
paragraph (a) of subsection B-14 of
Supplement B.
(B) The Participant's monthly "Pre-1989 Adjusted
Benefit", equal to the portion of the monthly
benefit accrued by the Participant under the
Plan as of December 31, 1988 determined under
paragraph (b) of subsection B-14 of
Supplement B, subject to the following:
(I) the amount determined under paragraph
(b) of subsection B-14 of Supplement B
will be adjusted, if necessary, in order
to be no less than fifty percent (50%)
of the benefit that would have been
accrued by the Participant as of
December 31, 1988 if there had been no
offset for the Estimated Projected
Primary Social Security Benefit (as
defined in subsection B-12 of Supplement
B); and
(II) the amount initially determined under
the preceding provisions of this
paragraph (ii) will be adjusted as of
the Participant's Annuity Starting Date
(or, if earlier, December 31, 1999) by
multiplying such amount by a fraction,
which shall not be less than one (1),
the numerator of which is the
Participant's Final Average Monthly
Compensation as determined under
paragraph 5.2(b) subject to applicable
limitations under section 401(a)(17) of
the Code, and the denominator of which
is the Participant's final average
monthly compensation as actually
determined under subsection B-11 of
Supplement B as of December 31, 1988.
(C) The Participant's monthly "Post-1988
Benefit", equal to the sum of
(I) a "base benefit" determined by
multiplying .85 percent (.85%) of the
Participant's Final Average Monthly
Compensation by his period of Credited
Service, and
(II) an "additional benefit" determined by
multiplying .65 percent (.65%) of his
Final Average Monthly Compensation in
excess of his monthly Covered
Compensation by the lesser of
(a) the excess, if any, of 35 years
over the sum of his period of
credited past service (as defined
in subsection B-7 of Supplement B)
and his period of credited future
service (as defined in subsection
B-8 of Supplement B but excluding
any Credited Service taken into
account under subsection 2.4 for
any period prior to January 1,
1989), or
(b) his period of Credited Service;
provided that with respect to any individual who on
December 31, 1988 was both employed by an Employer
and a Participant, 1 percent (1%) will be substituted
for .85 percent (.85%) as the base benefit factor in
subparagraph (I) of this paragraph (C) for each year
of his Credited Service not exceeding the lesser of
11 years or the number of his years of credited
future service (as defined in subsection B-8 of
Supplement B), with all such years calculated to the
third decimal point.
(ii) a "Minimum Benefit" equal to the product of 7
times his period of Credited Service under
subsection 2.4 earned beginning on or after
January 1, 1994 and on or before December 31,
1999.
(b) A Participant's monthly "Career Pay Benefit" is the
aggregate of the following yearly accruals for each
Plan Year during which the Participant is credited
with at least 1,000 Hours of Service commencing on
and after January 1, 2000, divided by 12:
(i) a "Career Pay Base Benefit", equal to the
Participant's Compensation received as a
Participant for the Plan Year (or any portion
thereof) multiplied by .85 percent (.85%), plus
(ii) a "Career Pay Additional Benefit", equal to the
Participant's Compensation received as a
Participant for the Plan Year (or any portion
thereof) in excess of his Covered Compensation
for that year multiplied by .65 percent (.65%);
provided that no accruals shall be earned under
this subparagraph (ii) for more than 35 years,
reduced by the number of complete and partial
years of Credited Service taken into account
under this subsection 5.1 for periods prior to
January 1, 2000; and provided further that the
accrual under this subparagraph for the 35th
year shall be prorated, if necessary, to reflect
a partial year of Credited Service taken into
account under subparagraph (a)(i)(C)(II) of this
subsection 5.1.
For purposes of the foregoing, the 1,000 Hours of Service
requirement for a Career Pay Benefit accrual will not apply for
the Plan Year in which the Participant terminates his employment
with the Employers and Related Companies (although such
Participant must still be credited with at least 1,000 Hours of
Service in the Plan Year in which he terminates employment if
that year is to constitute a year of Vesting Service), provided,
however, that if the Participant is reemployed in the same Plan
Year, he will not accrue an additional benefit for that Plan Year
(based upon Compensation earned after his reemployment date)
unless he satisfies the 1,000 hour requirement for such Plan
Year.
5.2. Covered Compensation, Final Average Monthly
Compensation, and Compensation. Subject to the provisions of
subsection 5.3, the following definitions shall be used for
purposes of subsection 5.1:
(a) The term "Covered Compensation" means the average of
the Social Security taxable wage bases for the 35
year period ending with and including the calendar
year in which the Participant attains (or will
attain) Social Security retirement age. In
determining a Participant's Covered Compensation for
a calendar year, the Social Security taxable wage
base for the current calendar year and any subsequent
calendar year shall be assumed to be the same as the
Social Security taxable wage base as in effect as of
the beginning of the calendar year for which the
determination is being made. A Participant's Covered
Compensation for a calendar year ending after the 35
year period described above shall be the
Participant's Covered Compensation for the calendar
year during which the Participant attained his Social
Security retirement age. A Participant's Covered
Compensation for a calendar year prior to the 35 year
period described above shall be the Social Security
taxable wage base in effect as of the beginning of
the calendar year. Covered Compensation shall be
determined using rounding procedures similar to those
set forth in Table II of the 1989 Covered
Compensation Table attached to Internal Revenue
Service Notice 89-70. A Participant's monthly
Covered Compensation means his Covered Compensation,
as determined under the foregoing provisions of this
paragraph, divided by twelve (12).
(b) A Participant's "Final Average Monthly Compensation"
means the highest result obtained by dividing his
Compensation during a Considered Period by the number
of months in such considered period. A "Considered
Period" means any period of five successive complete
calendar years of a Participant's period of
Continuous Service as an Eligible Employee which
falls within the last ten successive complete
calendar years of his period of Continuous Service as
an Eligible Employee ending with his most recent
termination date; provided, however, that a
Considered Period shall not include any such complete
calendar year of Continuous Service during which he
was absent for more than 120 days because of an
approved leave of absence due to illness, layoff or
military service, nor any such complete calendar year
that occurred after the calendar year in which he
attains age 65 but before January 1, 1988, unless the
Participant completes an Hour of Service on or after
January 1, 1988. If a Participant's number of total
complete calendar years of Continuous Service prior
to his last termination of employment with the
Employers and Related Companies does not equal or
exceed five years, then, subject to the foregoing
provisions, such Participant's Considered Period
shall consist of all such complete calendar years.
(c) For calendar years prior to 1998, "Compensation"
means total cash compensation paid to an employee for
personal services rendered to an Employer, including
salary, wages, pre-tax employee deposits under any
qualified profit sharing or stock bonus plan
maintained by an Employer, Employer contributions on
behalf of the employee to a cafeteria plan of an
Employer pursuant to section 125 of the Code,
bonuses, incentive payments, commissions, overwrites,
vacation pay, severance or salary continuation
allowances (except to the extent such amounts are
paid in a lump sum), Employer payments for temporary
military service and short-term illness allowances,
all determined prior to any deferrals under the
Deferred Compensation Plan, but excluding any awards
under any long-term executive compensation plan,
service allowances, retirement or profit sharing
benefits, long-term disability benefit payments,
prizes or awards, retainers, living expense
allowances, moving allowances, payments or
reimbursements in connection with moving expenses,
special geographic differentials, medical expense
reimbursements, lump sum payments for vacations
earned but not taken, overseas compensation
adjustments (as determined under the Employer's
personnel policy), dividends paid with respect to
shares of restricted stock, cash payments received
pursuant to stock options and all other special
compensation of any kind. The compensation otherwise
determined with respect to a Participant whose
employment with the Employers last terminated under
conditions entitling him to a benefit under the Plan
will be adjusted by the Plan Administrator to
mitigate the effect of receipt of reduced
compensation (or no compensation) due to a period of
employment with a Related Company prior to his last
termination of employment with the Employers if the
Plan Administrator determines that such Participant's
compensation, as otherwise determined in accordance
with this paragraph (c), does not fairly reflect such
Participant's earnings history. If a Participant's
compensation is adjusted by operation of the
preceding sentence, then with respect to such
Participant, the term "Compensation" shall mean his
compensation as so adjusted. Notwithstanding the
foregoing, the term Compensation shall not include
amounts paid after the date shown as the
Participant's termination date on his Employer's
payroll records.
(d) For calendar years after 1997, "Compensation" means
all regular remuneration paid to an Eligible Employee
by the Employers before any pre-tax contributions are
made to any cash or deferred arrangement (under
section 401(k) of the Code) or any cafeteria plan
(under section 125 of the Code) sponsored by the
Employers or any deferrals are made under the
Deferred Compensation Plan, and shall not include
irregular forms of remuneration such as payments from
any nonqualified deferred compensation plan, income
from the exercise of stock options or the lapsing of
a restriction on Company stock, "WOW" bonuses,
finder's fees, vacation pay, severance or salary
continuation allowances paid as a lump sum, state
disability income, awards in the form of cash,
merchandise or trips and the related gross-up,
tuition reimbursements, moving allowances and the
related gross-up, signing bonuses or imputed income.
Notwithstanding the foregoing, the term Compensation
shall not include amounts paid after the date shown
as the Participant's termination date on his
Employer's payroll records.
5.3. Special Limitation on Compensation Taken Into Account
For Any Plan Year. Notwithstanding any other provision of the
Plan to the contrary, the Accrued Benefit of each Participant
will be determined without regard to any Compensation for any
Plan Year that exceeds the maximum amount permitted for such year
in accordance with section 401(a)(17) of the Code and applicable
regulations thereunder. In applying the foregoing limit, the
"fresh start with extended wearaway" method of benefit
calculation permitted under applicable Treasury Regulations shall
be utilized as of January 1, 1994, but only with respect to
Participants affected by section 401(a)(17). Accordingly, any
such affected Participant shall be entitled to an Accrued Benefit
that is the greater of the benefit determined under subsection
5.1 with the applicable section 401(a)(17) cap applied to all
relevant years, or the sum of the Participant's accrued benefit
as of December 31, 1993 using the 401(a)(17) cap for each of the
high five successive years prior to 1993 used in determining
Final Average Monthly Compensation, plus any additional benefits
accrued under subsection 5.1, applying the new section 401(a)(17)
cap (as adjusted for cost-of-living increases) for the period
commencing on January 1, 1994.
5.4. Early Retirement Reductions for Commencement Prior to
Normal Retirement Age. For any Participant who retires on an
Early Retirement Date and whose Annuity Starting Date precedes
his Normal Retirement Date, his Retirement Income shall be equal
to his Accrued Benefit reduced in accordance with the following
provisions:
(a) Age 63 With Less Than Ten Years of Continuous
Service. If an employee who was a Participant prior
to January 1, 1989 terminates employment with the
Employers and Related Companies with less than 10
years of Continuous Service and after attainment of
age 63 but before attainment of age 65, he will be
eligible for a Retirement Income equal to the sum of:
(i) his Immediate Credit Benefit under subparagraph
5.1(a)(i);
(ii) his Pre-1989 Adjusted Benefit under
subparagraph 5.1(a)(ii);
(iii) his Base Benefit under subparagraph 5.1(a)(iii)
(A) and his Career Pay Base Benefit under
subparagraph (b)(i), each reduced to its
Actuarial Equivalent; and
(iv) his Additional Benefit under subparagraph 5.1
(a)(iii)(B) and his Career Pay Additional
Benefit under subparagraph 5.1(b)(ii), each
reduced to its Actuarial Equivalent.
(b) Age 55 With Ten Years of Continuous Service. If a
Participant who is not covered by paragraph (a) above
terminates his employment with all of the Employers
and Related Companies for a reason other than his
death, and after he has both attained age 55 and
completed 10 or more years of Continuous Service, but
before attainment of age 65, he will be eligible for
a Retirement Income equal to the sum of:
(i) his Immediate Credit Benefit under subparagraph
5.1(a)(i), reduced by .4167% per month for each
full month that his Annuity Starting Date
precedes the first day of the month next
following the date he will attain age 63;
(ii) his Pre-1989 Adjusted Benefit under
subparagraph 5.1(a)(ii), reduced by .4167% per
month for each full month that his Annuity
Starting Date precedes the first day of the
month next following the date he will attain
age 63;
(iii) his Base Benefit under subparagraph 5.1(a)(iii)
(A) and his Career Pay Base Benefit under
subparagraph 5.2(b)(i), each reduced by .4167%
per month for each full month that his Annuity
Starting Date precedes the first day of the
month next following the date he will attain
age 65 (age 63 in the case of a Participant
who, while employed by the Employers, both
attains at least age 55 and has at least 20
years of Continuous Service on or before
December 31, 1999); and
(iv) his Additional Benefit under subparagraph
5.1(a) (iii)(B) and his Career Pay Additional
Benefit under subparagraph 5.1(b)(ii), each
reduced by .6667% for each full month that his
Annuity Starting Date precedes the first day of
the month next following the date he will
attain age 65, including the month next
following the date he will attain age 62, and
by .3333% per month for each full month that
his Annuity Starting Date precedes the first
day of the month next following the date he
will attain age 62.
A Participant to whom the Minimum Benefit under
subsection 5.1 is applicable shall be eligible for a
Retirement Income equal to such Minimum Benefit
reduced in the same manner as the base benefits under
subparagraph (b)(iii) above.
(c) Participants Hired On or After January 1, 2000. In
the case of a Participant who is hired (or rehired as
a new employee pursuant to subsection 2.5) on or
after January 1, 2000, 10 or more Years of Vesting
Service shall be substituted for 10 years of
Continuous Service for purposes of this subsection
5.4.
5.5. Non-Duplication of Benefits. Except as provided in
an applicable Supplement, the benefits payable to or on behalf of
any Participant under this Plan shall be reduced by the amount of
any benefits payable to or on behalf of such Participant under
any other defined benefit plan maintained by an Employer or a
Related Company to the extent that such benefits under such other
plan are based upon periods of service with the Employers which
constitute Credited Service under this Plan.
5.6. Protection of Accrued Benefit. Notwithstanding the
preceding provisions of this Section 5 or of Section 6, no
Participant shall have a Retirement Income or Deferred Vested
Income that is less than his accrued benefit under the Plan as of
December 31, 1988, adjusted by any applicable reduction factors
for commencement prior to age 65, determined in accordance with
the provisions of Supplement B.
SECTION 6.
Deferred Vested Benefit
6.1. Eligibility. If a Participant's employment with the
Employers and Related Companies is terminated for any reason
(other than his death) prior to the date on which he would first
be eligible to retire on a Normal or Early Retirement Date and
after he has become vested in his benefits under the Plan, he
will be entitled to receive a monthly "Deferred Vested Benefit"
in an amount determined under subsection 6.2. Subject to
subsection 8.11, a Participant who is entitled to a Deferred
Vested Benefit and who terminates employment with the Employers
and Related Companies may elect, by written application to the
Plan Administrator, to have his Deferred Vested Benefit commence
as of the first day of any month after the date he attains age
55; provided, however, that payment of such Participant's
Deferred Vested Benefit must commence in accordance with Section
8 as of the date no later than the first day of the month
following his 65th birthday. Any such election must be made in
writing in advance of the date the Participant intends to be his
Annuity Starting Date.
6.2. Amount of Deferred Vested Benefit. A Participant who
waits to receive his Deferred Vested Benefit until the first day
of the month following his 65th birthday will receive his Accrued
Benefit determined as of his termination of employment. A
Participant who elects to commence payment of his Deferred Vested
Benefit as of the first day of any month commencing on or before
the day on which he attains age 65 will receive a benefit that is
equal to his Accrued Benefit reduced using an interest rate of 8%
per annum, compounded annually, and the 1984 unisex pension table
to reflect commencement prior to the first day of the month
following age 65.
SECTION 7.
General Limitations on Benefits
7.1. Section 415. Notwithstanding any other provision of
this Plan, a Participant's benefit under the Plan will not exceed
the limitations specified in section 415 of the Code, determined
once as of his Annuity Starting Date. If the Participant
participates in any other defined benefit plan maintained by the
Employers or any Section 415 Affiliate (as defined below) and if
the Participant's total benefits under this Plan and such other
defined benefit plan would exceed the limits of section 415, the
Participant's benefit under this Plan will be reduced to the
extent necessary to satisfy section 415. For Annuity Starting
Dates commencing before January 1, 2000, if a Participant also
participates in any defined contribution plan maintained by the
Employers or any Section 415 Affiliate, and if the Participant's
combined interest in this Plan
and such defined contribution plan would exceed the limits of
section 415(e) of the Code, the benefits under this plan will be
reduced as necessary to satisfy section 415(e). For purposes of
this section, the term "Section 415 Affiliate" means any entity
that would be a Related Company if the ownership test of sections
414(b) and (c) of the Code was "more than 50%" rather than "at
least 80%".
SECTION 8.
Payment of Retirement Income
and Deferred Vested Benefit
8.1. Normal Form of Payment. Except as otherwise
specifically provided in this Section 8, the Retirement Income or
the Deferred Vested Benefit to which a Participant is entitled
under Section 5 or 6, respectively, will be paid to him in the
following manner:
(a) Unmarried Participants. The Retirement Income or
Deferred Vested Benefit payable to a Participant who
does not have a Qualified Spouse on his Annuity
Starting Date will be paid to him in the form of
equal monthly payments terminating with the payment
for the month in which he dies (a "Single Life
Annuity") that is his Accrued Benefit under
subsection 5.l, reduced (as appropriate) in
accordance with subsection 5.4 or subsection 6.2 for
early commencement.
(b) Married Participants. The Retirement Income or
Deferred Vested Benefit payable to a Participant who
has a Qualified Spouse on his Annuity Starting Date
will be paid in the form of a "Surviving Spouse
Annuity" which is the Actuarial Equivalent of the
normal form of Retirement Income which would be
payable under Section 8.1(a) in the absence of a
Qualified Spouse. Under this form reduced equal
monthly payments will be made to the retired
Participant during his lifetime and 50% of such
reduced payments will be made upon his death to his
Qualified Spouse for her life.
For purposes of this Section 8, the term "Qualified Spouse" means
the person to whom the Participant is legally married on his
Annuity Starting Date, except as otherwise provided in a
qualified domestic relations order within the meaning of section
414(p) of the Code.
8.2. Waiver of Normal Form of Payment. Notwithstanding
the provisions of subsection 8.1, a Participant entitled to a
Retirement Income or Deferred Vested Benefit may elect to waive
payment in accordance with the normal form set forth in
subsection 8.1 and to have his Retirement Income or Deferred
Vested Benefit, as applicable, paid to him in one of the optional
forms available to him pursuant to subsection 8.3; provided,
however, that a married Participant's waiver will be effective
with respect to a form of payment that would provide less to the
Qualified Spouse upon the death of the Participant than the
Surviving Spouse Annuity only if Spousal Consent is obtained with
respect thereto. No such election to waive the normal form of
payment shall be valid if it is made more than 90 days prior to
the Participant's Annuity Starting Date, or if it is made before
Retirement Election Information is given to the Participant, and
benefits shall not commence to be paid to the Participant until
at least 30 days have elapsed since he was given his Retirement
Election Information (unless such 30-day period is waived by the
Participant). A Participant may elect to rescind any prior
election made by him in accordance with this subsection 8.2 at
any time before his benefit payments commence, in which case his
Retirement Income or Deferred Vested Benefit, as applicable, will
be paid in the normal form required by subsection 8.1 unless
another election is timely filed. Any election permitted under
this subsection shall be made and filed with the Plan
Administrator in such form as it may require.
8.3. Optional Forms of Payments. In place of his normal
form of Retirement Income or Deferred Vested Benefit, a
Participant may elect to receive his Retirement Income or
Deferred Vested Benefit under any one of the optional forms of
payment set forth below. The amount payable in accordance with
any such election will be the Actuarial Equivalent of the amount
payable to the Participant under the normal form (provided that a
Lump Sum Payment under paragraph (e) shall not be less than the
Actuarial Equivalent of the Participant's Accrued Benefit). The
optional forms will include the following:
(a) Option A. A reduced monthly Retirement Income or
Deferred Vested Benefit payable during the retired
Participant's life, with the further provision that
after his death a monthly Retirement Income or
Deferred Vested Benefit of 50% or 100%, whichever he
shall elect, of such reduced monthly amount shall be
continued during the life of, and paid to, the
Coannuitant designated by him if such person survives
him.
(b) Option B. A reduced monthly Retirement Income or
Deferred Vested Benefit payable during the retired
Participant's life, with the further provision that
after his death a monthly Retirement Income or
Deferred Vested Benefit of 50% or 100%, whichever he
shall elect, of such reduced monthly amount shall be
continued during the life of, and paid to, the
Coannuitant designated by him if such person survives
him, and with the further provision that if such
Coannuitant predeceases the Participant, the monthly
Retirement Income or Deferred Vested Benefit payable
thereafter to the Participant during his life shall
be equal to the Retirement Income to which he would
have been entitled under Section 5 if he had not
elected this Option B and if subparagraph 8.1(a) had
applied to him.
(c) Option C. A reduced monthly Retirement Income or
Deferred Vested Benefit payable during the
Participant's life, with the further provision that
upon the death of the retired Participant prior to
his receipt of 120 monthly payments, such reduced
Retirement Income or Deferred Vested Benefit will
continue to be payable to his designated Beneficiary
or Beneficiaries (in such proportions and with such
rights of succession) or the survivor or survivors
among such persons or the estate of the last survivor
among such persons, or if no such person survives the
Participant, to the estate of the Participant, until
a total of 120 monthly payments shall have been made,
in the aggregate, to the Participant, the surviving
Beneficiar(ies), or the estate of the last survivor
among such persons, or the estate of the Participant,
as the case may be.
(d) Option D. A reduced monthly Retirement Income or
Deferred Vested Benefit payable during the
Participant's life, with the further provision that
after his death a monthly Retirement Income of 100%
of such reduced monthly Retirement Income or Deferred
Vested Benefit shall be continued during the life of,
and paid to, his Coannuitant if such person survives
him, and with the further provision that upon the
deaths of both the retired Participant and the
Coannuitant prior to the receipt of 120 monthly
payments, such reduced Retirement Income or Deferred
Vested Benefit will continue to be payable to the
designated Beneficiary or Beneficiaries (in such
proportions and with such rights of succession) or
the survivor or survivors among such persons or the
estate of the last survivor among such persons, or if
no such person survives the Participant, to the
estate of the Participant, until a total of 120
monthly payments shall have been made, in the
aggregate, to the Participant, his Coannuitant, the
surviving Beneficiar(ies) or the estate of the last
survivor among such persons, or the estate of the
Participant, as the case may be.
(e) Lump Sum. Subject to the provisions set forth below,
in lieu of a Retirement Income or Deferred Vested
Benefit otherwise payable to, or on account of, a
Participant, a "Lump Sum" payment which is the
Actuarial Equivalent of such Retirement Income or
Deferred Vested Benefit will be paid to the person or
persons entitled thereto, if the Participant
terminates employment with all the Employers and
Related Companies (i) at or after his attainment of
age 55 and completion of 20 or more years of
Continuous Service, (ii) at or after his attainment
of age 60, if he attains age 60 prior to January 1,
1990, or (iii) at or after his attainment of age 60
and completion of 10 or more years of Continuous
Service, if he attains age 60 on or after January 1,
1990, or (iv) if the Participant's Accrued Benefit
when he terminates employment is less than $150,
provided that such Participant may elect instead to
receive an annuity for his life (if he is unmarried)
or a joint and 50% survivor annuity for the lives of
himself and his Qualified Spouse (if he is married)
which is the Actuarial Equivalent of the Lump Sum
payable under this clause (iv) commencing as early as
the first day of the month following his termination
from employment. For purposes of this paragraph (e),
Years of Vesting Service shall be substituted for
years of Continuous Service in the case of a
Participant hired (or rehired as a new employee
pursuant to subsection 2.5) on or after January 1,
2000.
(f) Single Life Annuity. (Optional for a married
Participant.)
If the Coannuitant designated under paragraph (a), (b) or (d)
above dies before the Annuity Starting Date, payment will be made
in the normal form specified in subsection 8.1. A Participant's
designation of a Coannuitant or Beneficiary is irrevocable unless
he makes a new election in accordance with subsection 8.4.
8.4. Election and Discontinuance of Options. A
Participant may cancel any option elected under subsection 8.3 at
any time prior to the day his first payment is processed, and may
make a new election, subject to the provisions of this Section 8
(including the requirement of Spousal Consent) and uniform rules
established by the Plan Administrator (or its delegate) from time
to time. If a Participant dies before his Annuity Starting Date,
no benefits will be payable to any person under the Plan, except
as provided in Section 10. For purposes of determining whether
this Section 8 or Section 10 is applicable to a deceased
Participant, a Participant's Annuity Starting Date will have been
established if all of the events necessary for the Plan to
properly make or commence payment as of that date have occurred.
8.5. Actuarial Equivalents. Except where covered by a
table attached to the Plan, in determining whether one form of
benefit is the "Actuarial Equivalent" of another form of benefit
under the Plan, the following actuarial assumptions shall be
employed:
Interest Rate: 8% per annum, compounded annually
Mortality Table: the 1984 unisex pension table, but
with a one-year setback solely for purposes
of Lump Sum calculations ("UP 84 mortality
table")
Notwithstanding the foregoing, in calculating the present value
of any benefit payable in the form of a Lump Sum pursuant to
subsection 8.3, the Plan shall use the following actuarial
assumptions:
(a) For Participants who terminate employment before
January 1, 1995,
(i) if the Participant's Annuity Starting Date
occurs before January 1, 1996, the present
value of his Accrued Benefit shall be
determined using the UP 84 mortality table and
the following interest rates:
(A) the lesser of 8% or the applicable interest
rate used by the Pension Benefit Guaranty
Corporation ("PBGC") to value lump sum
benefits upon plan termination as of the
first day of the plan year in which such
benefit commencement date occurs (the
"annual PBGC rate"), with respect to that
portion of such Participant's Accrued
Benefit which was earned through
December 31, 1990; and
(B) with respect to that portion of such
Participant's Accrued Benefit which was
earned after December 31, 1990,
(I) if the sum of the lump sum value
determined under clause (i)(A)
above plus the lump sum value of
the Participant's post-1990 Accrued
Benefit calculated by using the
annual PBGC rate is less than
$25,000, the annual PBGC rate, and
(II) if the lump sum value in clause
(i)(B)(I) above is at least
$25,000, 110% of the annual PBGC
rate,
provided that use of the 110% factor may
not result in a lump sum of less than
$25,000;
(ii) if the Participant's Annuity Starting Date
occurs on or after January 1, 1996, the
present value of his Accrued Benefit shall
be determined using the following
assumptions:
(A) with respect to his Accrued Benefit
as of December 31, 1990, whichever of
the following produces the larger
lump sum value: (I) the Applicable
Interest Rate for the November
preceding the Plan Year in which his
Annuity Starting Date occurs and the
Applicable Mortality Table or (II) 8%
and the UP 84 mortality table; and
(B) with respect to the Accrued Benefit
earned after December 31, 1990, the
Applicable Interest Rate for the
November preceding the plan year in
which his Annuity Starting Date
occurs and the Applicable Mortality
Table.
(b) For a Participant who terminates employment on or
after January 1, 1995, the following assumptions
shall be used:
(i) if the Participant's Annuity Starting Date
occurs before January 1, 1996, the UP 84
mortality table and the applicable interest
rate employed by the PBGC as of the first day
of the month in which the Participant's Annuity
Starting Date occurs for purposes of
determining the present value of a lump sum
distribution upon plan termination (the
"monthly PBGC rate") or, in the case of a
present value in excess of $25,000, 120% of
such monthly PBGC rate, provided that no such
Participant shall receive a lump sum that is
less than the present value of the portion of
his Accrued Benefit which he had earned by
December 31, 1994, calculated in accordance
with subparagraph (a)(i) above;
(ii) if the Participant's Annuity Starting Date
occurs on or after January 1, 1996, the
Applicable Interest Rate for the second month
preceding the month in which the Participant's
Annuity Starting Date occurs and the Applicable
Mortality Table; provided, however, that the
present value determined under this
subparagraph (b)(ii) shall not be less than the
present value of the Accrued Benefit earned by
the Participant as of December 31, 1994
determined in accordance with subparagraph
(a)(ii) above.
For purposes of this subsection 8.5 "Applicable Interest Rate"
for a month means the annual interest rate on 30-year Treasury
securities as specified by the Commissioner of Internal Revenue
for that month (rounded down to the nearest tenth of a percentage
point), and "Applicable Mortality Table" means the mortality
table based on the prevailing commissioner's standard table used
to determine reserves for group annuity contracts issued on the
date as of which present value is being determined.
8.6. Retirement Election Information. The Plan
Administrator will make "Retirement Election Information"
available to a Participant no earlier than 90 days prior to his
Annuity Starting Date that includes the following:
(a) a written description of the terms and conditions of
the normal form of payment (the Single Life Annuity
or Surviving Spouse Annuity, as applicable);
(b) a notification of the Participant's right to revoke
payment in accordance with subsection 8.2 and the
Qualified Spouse's rights, if any, with respect to
that revocation; and
(c) a general description of the eligibility conditions
and other material features of the optional forms of
benefit, if any, available to him under the Plan and
information explaining the relative values of such
optional forms of benefit.
The Plan Administrator may make Retirement Election Information
available to a Participant by:
(i) personal delivery to him;
(ii) first class mail, postage prepaid, addressed to
the Participant at his last known address as
shown on his Employer's records; or
(iii) permanent posting on a bulletin board located
at the Participant's work site, if he is not a
retired or terminated Participant.
After receiving his Retirement Election Information, a
Participant may make a written request for an explanation,
written in nontechnical language, of the terms, conditions and
financial effect (in terms of dollars per monthly benefit
payment) of payment in accordance with the optional forms.
8.7. Spousal Consent. Any waiver, revocation, election or
other action by a Participant under the Plan which, by its terms,
requires "Spousal Consent", will be effective only if:
(a) the Participant's Qualified Spouse consents in
writing to such election or other action;
(b) the consent acknowledges the effect of the election
or other action and is witnessed either by a notary
public or by a Plan representative appointed or
approved by the Plan Administrator;
(c) in the case of Spousal Consent to a Coannuitant
Beneficiary, or Death Beneficiary designation, such
designation names the specific person (including any
class of persons), which person(s) may not be changed
without Spousal Consent, or the consent expressly
permits designations by the Participant without any
requirement of further consent by the Qualified
Spouse in a manner that satisfies applicable Treasury
regulation; and
(d) in the case of a waiver of the Surviving Spouse
Annuity, the waiver specifies the optional form of
benefit elected, which form of benefit may not be
changed without Spousal Consent (except back to a
Surviving Spouse Annuity), or the consent expressly
permits the Participant to change the form of benefit
without any requirement of further consent by the
Qualified Spouse in accordance with applicable
Treasury regulations;
provided, however, that, unless otherwise provided by a
qualified domestic relations order within the meaning of
section 414(p) of the Code, no Spousal Consent will be
required if it is established to the satisfaction of a Plan
representative appointed or approved by the Plan
Administrator that Spousal Consent cannot be obtained
because there is no Qualified Spouse, because the Qualified
Spouse cannot be located or because of such other
circumstances as the Secretary of the Treasury may prescribe
in regulations.
Once Spousal Consent is given in accordance with this subsection
8.7 it shall be irrevocable.
8.8. Coannuitant and Beneficiary Designations. If the
Participant is not married on his Annuity Starting Date, or if
the Participant is married but obtains Spousal Consent to the
designation of a person other than the Qualified Spouse, the term
"Coannuitant" and "Beneficiary" will mean such person as the
Participant designates to receive, respectively (a) any lifetime
benefits payable as the survivor portion of a joint and survivor
annuity or (b) ten-year certain annuity form elected in
accordance with subsection 8.3. Such designation may be made,
revoked or changed only by an instrument signed by the
Participant and filed with the Plan Administrator prior to his
death.
8.9. Facility of Payment. Notwithstanding the foregoing
provisions of this Section 8, if, in the Plan Administrator's
opinion, a Participant or other person entitled to benefits under
the Plan is under a legal disability or is in any way
incapacitated so as to be unable to manage his financial affairs,
the Plan Administrator may direct the Trustee to make payment to
a relative or friend of such person for his benefit until claim
is made by a conservator or other person legally charged with the
care of his person or of his estate. Thereafter, any benefits
under the Plan to which such Participant or Beneficiary is
entitled will be paid to the conservator or other person legally
charged with the care of his person or his estate.
8.10. Restrictions on Alienation and Qualified Domestic
Relations Orders. The interests of Participants and other persons
entitled to benefits under the Plan are not subject to the claims
of their creditors and may not be voluntarily or involuntarily
assigned, alienated or encumbered, except in the case of
qualified domestic relations orders which relate to the provision
of child support, alimony payments or marital property rights of
a spouse, child or other dependent and which meet the
requirements of section 414(p) of the Code and the regulations
issued thereunder, or in the case of a levy by the Internal
Revenue Service. With respect to any such qualified domestic
relations order (a "QDRO") received on or after May 1, 1997, the
alternate payee may be given the choice (by express language or
by general reference in the QDRO to any form of payment
permissible under the Plan) to elect payment of the Actuarial
Equivalent of the portion of the Participant's Accrued Benefit
awarded to such alternate payee in the form of a Lump Sum,
determined as of the first day of the month next following the
later of the date the order is entered or the date the Plan
Administrator (or his designated agent) determines that the order
is qualified within the meaning of section 414(p) of the Code.
With respect to any domestic relations order determined by the
Plan Administrator to be qualified prior to July 15, 1991 which
contemplates payments to an alternate payee until the death of
the earlier to die of such alternate payee or the Participant
whose Accrued Benefit has been alienated pursuant to such order,
such alternate payee may elect to convert such payments (or the
remaining portion thereof if the alternate payee is already in
pay status) to an actuarially equivalent Lump Sum, but only if,
and when, such Participant retires and receives a Lump Sum
distribution pursuant to subsection 8.3.
8.11. Immediate Payment of Small Amounts. If the present
value of the vested Accrued Benefit payable to or on behalf of
any Participant is $3,500 or less, the Plan Administrator will
direct the Trustee to distribute to the Participant or his
Qualified Spouse or Death Beneficiary, as the case may be, the
Actuarial Equivalent Lump Sum value of the Accrued Benefit
without regard to whether the payee consents to such
distribution. Such present value shall be determined as of the
first day of the month following the Participant's termination of
employment and will be paid as soon as administratively feasible
thereafter, provided that if the Plan Administrator does not
receive notification (by the appropriate payroll department) that
the Participant has terminated employment with the Employers and
Related Companies, or that the Participant has died, within six
months of the event, the determination of the amount of the Lump
Sum (and whether this subsection applies) will be made as of the
first day of the month following such notification and the
resulting Lump Sum will be paid as promptly as possible
thereafter. A Participant who terminates employment with the
Employers and Related Companies before he becomes vested in any
portion of his Accrued Benefit shall nevertheless be deemed to
have received his vested interest (zero) in the Plan pursuant to
this subsection 8.11. If a Participant earns separate benefits
under the Plan because of reemployment, his entire Accrued
Benefit will be aggregated for purposes of determining whether
the involuntary cash-out provision of this subsection shall
apply; provided that, in accordance with applicable Treasury
regulations the foregoing shall not apply if the benefits earned
during his prior period of employment have already been paid out
in full, and provided further that if a Participant is cashed out
after he has attained age 65 in accordance with this subsection
8.11, any additional benefit earned under the Plan after the
Annuity Starting Date for such cash out will be paid in the form
of a Lump Sum.
8.12. Limitation on Payment Period. Notwithstanding any
other provision of the Plan to the contrary, benefits payable
under the Plan to or on account of any Participant will be
subject to the following:
(a) All distributions under the Plan will be made in
compliance with sections 401(a)(9) and 401(a)(14) of
the Code and applicable regulations thereunder
including the minimum incidental benefit requirement
of Treas. Reg. Sec. 1.401(a)(9)-2.
(b) Unless the Participant elects otherwise, in no event
will distribution of a Participant's benefit commence
later than 60 days after the close of the Plan Year
in which the later of the following events occurs:
(i) the Participant's Normal Retirement Age, or (ii)
the Participant's termination of employment.
(c) Distribution of a Participant's vested benefits will
commence, in such form as the Participant may elect
in accordance with the foregoing provisions of this
Section 8, no later than his "Required Commencement
Date", determined in accordance with the following:
(i) if the Participant is a full-time employee, the
April 1 following the calendar year in which
the Participant attains age 70-1/2;
(ii) if the Participant is a part-time employee, the
later of the first day of the month following
his 65th birthday or the first day of the month
following the date he transfers from full-time
to part-time status.
(d) Distribution will be made over a period no greater
than the life of the Participant or the lives of such
Participant and his Coannuitant and/or Beneficiary
(or a period not extending beyond the life expectancy
of such Participant or the life expectancies of such
Participant and his Coannuitant or Beneficiary). If
a Participant dies after his Annuity Starting Date,
the remaining portion of his benefits, if any, will
be distributed to his Coannuitant or Beneficiary at
least as rapidly as under the method of distribution
used prior to the Participant's death.
(e) If a Participant dies prior to his Annuity Starting
Date, the benefits payable under Section 10, if any,
will commence as of the date determined thereunder,
and will be paid over a period no greater than the
life of the Qualified Spouse or Death Beneficiary or
a period not exceeding the life expectancy of the
Qualified Spouse or Death Beneficiary.
(f) For purposes of this subsection 8.12, life
expectancies will be determined in accordance with
Tables V and VI of Treas. Reg. Sec. 1.72-9 and will not
be recalculated following the commencement of
benefits.
8.13. Missing Participants or Beneficiaries. Each
Participant and each designated Beneficiary must file with the
Plan Administrator from time to time in writing his post office
address and each change of post office address. Any
communication, statement or notice addressed to a Participant or
designated Beneficiary at his last post office address filed with
the Plan Administrator, or, in the case of a Participant, if no
address is filed with the Plan Administrator, then at his last
post office address as shown on the Employers' records, will be
binding on the Participant and his designated Beneficiary for all
purposes of the Plan. None of the Plan Administrator, the
Employers, nor the Trustee will be required to search for or
locate a
Participant or designated Beneficiary. If the Plan
Administrator, for any reason, is in doubt as to whether benefit
payments are being received by the person entitled thereto, it
will, by registered mail addressed to the person concerned at his
last known address, notify such person that all unmailed and
future benefit payments will henceforth cease (subject to
retroactive reinstatement without interest) until he provides the
Plan Administrator with evidence that he is still alive, and with
his proper mailing address.
8.14. Absence of Guaranty. None of the Plan Administrator,
the Trustee, or the Employers in any way guarantee the Trust Fund
from loss or depreciation. The Employers do not guarantee any
payment to any person. The liability of the Plan Administrator
and the Trustee to make any payment is limited to the available
assets of the Trust Fund.
8.15. Direct Rollover Option. To the extent required under
section 401(a)(31) of the Code and regulations issued thereunder,
any person receiving an "eligible rollover distribution" (as
defined therein) may direct the Plan Administrator to pay such
distributable amount, or a portion thereof, to an "eligible
retirement plan" (as defined therein), in accordance with uniform
rules established by the Plan Administrator.
8.16. Administrative Delay in Payment. A reasonable
administrative delay in processing a payment will not affect the
establishment of an Annuity Starting Date or the calculation of
the amount of benefit; a delay that is longer than
administratively reasonable will cause the Annuity Starting Date
to be postponed (and the Retirement Income or Deferred Vested
Benefit to be redetermined as of the new date). Generally, a
reasonable delay for this purpose means a period of six months
or, if less, the longest period permitted by applicable Treasury
regulations. In the case of a payment which is not suspendable
in accordance with subsection 9.1 (because the Participant is at
least age 65 and is not working for at least 40 hours a month),
the Accrued Benefit will be actuarially increased to reflect a
postponed Annuity Starting Date.
SECTION 9.
Employment Beyond Normal Retirement
Age and Reemployment
9.1. Continuous Full-time Employment Beyond Normal
Retirement Age. Except as provided in paragraph 8.12(c), if a
Participant is employed by an Employer or a Related Company on a
full-time basis beyond his Normal Retirement Age, no Retirement
Income will be paid to such Participant until his termination of
employment with the Employers and Related Companies or attainment
of age 701/2 and the Participant will be so informed in accordance
with applicable regulations; provided, however, that the
Actuarial Equivalent of such benefit will be provided upon
subsequent retirement for any month commencing after the
Participant's Normal Retirement Age in which the Participant is
credited with fewer than 40 Hours of Service.
9.2. Adjustment of Retirement Income During Employment
After Required Commencement Date. The Retirement Income of a
Participant who is a part-time employee, or a full-time employee
who attains age 70-1/2, and who receives or begins to receive
payment of his
Retirement Income under Section 5 calculated as of his Required
Commencement Date while still employed shall be subject to the
following:
(a) Any such Participant who begins to receive payment of
his Retirement Income in a form other than a Lump Sum
shall have his Retirement Income recalculated as of
the end of each Plan Year beginning with the Plan
Year in which his Annuity Starting Date occurs to
reflect his employment after such date, as follows:
(i) For the Plan Year in which his Annuity Starting
Date occurs, his additional Retirement Income
shall be equal to the Actuarial Equivalent of:
(A) His Accrued Benefit as of the last day of
such Plan Year less
(B) His Accrued Benefit as of his Annuity
Starting Date,
and shall be added to his previous Retirement
Income as of the first day of the next Plan
Year.
(ii) For each succeeding Plan Year, his additional
Retirement Income shall be equal to the
Actuarial Equivalent of:
(A) His Accrued Benefit as of the last day of
such Plan Year less
(B) His Accrued Benefit as of the last day of
the next preceding Plan Year,
and shall be added to his previous Retirement
Income as of the first day of the next Plan
Year.
In no event, however, will a Participant's
recalculated Retirement Income as of the beginning of
a Plan Year be less than the amount of monthly
Retirement Income payable to him during the prior
Plan Year.
(b) Any such Participant who receives payment of his
Accrued Benefit in the form of a Lump Sum shall be
entitled to the additional Accrued Benefit, if any,
payable on his behalf under the formulas set forth in
subsection 5.1 due to his employment after his
Annuity Starting Date. Such additional Accrued
Benefit shall be calculated on an annual basis as of
the last day of each Plan Year ending after his
Annuity Starting Date, as follows:
(i) For the Plan Year in which his Annuity Starting
Date occurs, his additional Accrued Benefit
shall be the Actuarial Equivalent of:
(A) His Accrued Benefit as of the last day of
such Plan Year less
(B) His Accrued Benefit as of his Annuity
Starting Date.
(ii) For each succeeding Plan Year, his annual
additional Accrued Benefit shall be the
Actuarial Equivalent of:
(A) His Accrued Benefit as of the last day of
such Plan Year less
(B) His Accrued Benefit as of the last day of
the next preceding Plan Year.
Payment of such annual additional Accrued Benefit
shall be made to or on behalf of the Participant in
the form of a Lump Sum as soon as practicable after
the end of the Plan Year for which such annual
additional Retirement Income was calculated.
Each recalculation under paragraphs (a) and (b) above shall
reflect the Participant's Compensation, Covered Compensation
and Credited Service as of the end of the Plan Year for
which such recalculation is made and shall be effective as
of the first day of the following Plan Year.
9.3. Reemployment of Annuitant As A Full-Time Employee
After Commencement of Benefits. If a Participant who has
commenced receipt of a Retirement Income or Deferred Vested
Benefit in the form of an annuity is reemployed by an Employer or
Related Company in a full-time capacity, then, subject to the
provisions of paragraph 8.12(c), no benefits will be payable to
him under the Plan during the period of reemployment (for as long
as he remains a full-time employee) and his annuity payments will
be suspended. Subject to subsection 9.5, any benefit payable to
or on his account after his employment with the Employers and
Related Companies is again terminated will be determined in
accordance with the provisions of the Plan (including the
provisions of subsection 9.1, if applicable) as in effect on the
date his employment with the Employers and Related Companies is
subsequently terminated, and for this purpose, his Credited
Service, Compensation and Final Average Monthly Compensation as
of his last preceding termination date will be adjusted to
reflect any additional Credited Service, Compensation or Final
Average Monthly Compensation earned during his period of
reemployment, except as provided in subsection 9.5. However,
such recalculated benefit will be reduced by an amount determined
by the Plan Administrator to be the Actuarial Equivalent of
benefits previously paid to him under the Plan. Notwithstanding
the foregoing provisions of this subsection 9.3, in no event will
the amount of a Participant's Retirement Income or Deferred
Vested Benefit, as the case may be (expressed in the form of a
single life annuity), determined as of a subsequent termination
of employment with the Employers and Related Companies, be less
than the amount of the Retirement Income or Deferred Vested
Benefit, as the case may be (expressed in the form of a single
life annuity), that he was receiving or entitled to receive
immediately prior to his reemployment date. The benefit payable
under this subsection 9.3 will
be adjusted by appropriate actuarial factors to take into account
any option elected by the Participant in accordance with
subsections 8.3 and 9.6. The Plan Administrator will notify the
Participant, in writing, of the suspension of his benefit
payments under this subsection 9.3 as and to the extent required
by applicable regulations.
9.4. Reemployment of Annuitant As A Part-Time Employee
After Commencement of Benefits. If a Participant who has
commenced receipt of a Retirement Income or Deferred Vested
Benefit in the form of an annuity is reemployed by an Employer or
Related Company in a part-time capacity, his annuity payments
will not be suspended (for as long as he remains a part-time
employee) even if his reemployment occurs prior to his attainment
of age 65. If such individual again becomes an Eligible
Employee, his Credited Service, Compensation and Final Average
Monthly Compensation as of his last preceding termination date
will be adjusted to reflect any additional Credited Service,
Compensation and Final Average Monthly Compensation earned during
his period of reemployment upon his subsequent termination of
employment with all Employers and Related Companies, and the
separate amount of additional Retirement Income earned during
such reemployment will be determined in accordance with the
following:
(a) First, the value of his new accrual will be
calculated as the excess of (i) his Accrued Benefit
determined on the basis of his Credited Service, his
Final Average Monthly Compensation and his Covered
Compensation as of such subsequent termination over
(ii) the Accrued Benefit earned by him on the basis
of his Credited Service, his Final Average Monthly
Compensation and his Covered Compensation as of his
last preceding termination from employment, provided
that if such last preceding termination occurred
prior to January 1, 1989, the amount under this
clause (ii) shall be the amount that would have been
payable to him at Normal Retirement Age determined
under the provisions of Supplement B.
(b) Next, the amount determined under (a) above will be
reduced for each full calendar month, if any,
remaining in the period between the date of such
subsequent commencement date and the first day of the
month next following the date on which he will attain
age 65 in accordance with subsection 5.4.
(c) Next, the amount determined after application of (a)
and (b) above is payable as of the first day of the
month following such subsequent termination and will
be adjusted by appropriate actuarial factors to take
into account any option elected by him in accordance
with subsections 8.3 and 9.6.
Notwithstanding the foregoing provisions of this subsection 9.4,
the additional Retirement Income of a Participant who continues
to be reemployed in a part-time capacity beyond age 65 will
commence to be paid to him upon his attainment of age 65 (or as
of the end of the month in which he is reemployed, if
reemployment occurs after he has already attained age 65) in
accordance with the election provisions of paragraph (c) above,
and thereafter such additional
Retirement Income will be separately adjusted each year to
reflect the additional benefit accruals of such Participant, if
any, under subsection 9.2. In the case of any Participant
covered by this subsection who is receiving monthly Retirement
Income under Supplement A to the Plan, the Plan Administrator may
make appropriate adjustments, following the principles set forth
above, in determining the amount of additional Retirement Income
accrued during any period of reemployment.
9.5. Additional Accruals After Receipt of Lump Sum.
Notwithstanding any other provisions of this Section 9, if a Lump
Sum payment was made to a Participant on account of a termination
of employment with the Employers and Related Companies or on
account of a Required Commencement Date and thereafter the
Participant to whom such payment was made is or becomes entitled
to earn additional benefits under the Plan, only such
Participant's Compensation, and not his Credited Service earned
prior to such Lump Sum payment, shall be used in calculating the
amount of the additional Retirement Income payable to him under
the Plan on account of his reemployment. If, however, a former
Participant who terminated employment prior to January 1, 1989 is
reemployed, resumes participation in the Plan and restores in a
single payment (within a period of five years from such reemploy-
ment) to the Plan the lump sum amount previously paid to him with
interest on such amount at the maximum rate permitted from time
to time under ERISA from the date of payment to the date of such
restoration, such Participant's Credited Service shall be
restored to him for purposes of calculating any Retirement Income
thereafter payable to him under the Plan, provided that repayment
shall not be required if such Participant is reemployed after age
65, and restoration of his Credited Service instead shall be
automatic (subject to the offset described in subsection 9.4.)
9.6. Elections For Participants Who Accrue Additional
Benefits After An Annuity Starting Date.
(a) Generally, if a Participant's Annuity Starting Date
occurs on or after such Participant's Normal
Retirement Date, all subsequent accruals (whether
because of continued employment or reemployment) will
be subject to the election made by the Participant in
connection with his original Annuity Starting Date,
and will be paid in the same form; provided that for
purposes of determining the Actuarial Equivalent
value (including the Lump Sum value) of the
additional accruals, the interest rate and mortality
assumptions will be adjusted to reflect the date as
of which the additional accruals are payable.
(b) A Participant who has an Annuity Starting Date before
he attains age 65 and who is reemployed and earns
additional benefits under the Plan must separately
elect a form of payment, with a new Annuity Starting
Date, for the benefits accrued after his reemployment
and, in the case of a Participant whose original
payments were suspended in accordance with subsection
9.3, for the recommenced payment of his suspended
benefit in a single election.
(c) A Participant may have multiple Annuity Starting
Dates reflecting different periods of accrual,
provided that the first election made for an Annuity
Starting Date occurring after the Participant attains
age 65 will determine the form of payment of all
future accruals.
(d) If a Participant who first commenced receiving
benefits under the Plan prior to age 65 and who is
reemployed and earns additional benefits under the
Plan dies before commencement of his additional
benefits, Section 10 will apply to any benefits
subject to a new payment election under the preceding
provisions of this subsection. Accordingly:
(i) in the case of a Participant who is reemployed
as a part-time employee after commencing
payment in the form of an annuity who dies
before age 65 while still working, the survivor
portion of the original benefit will be paid to
a Beneficiary or Coannuitant in accordance with
his original benefit election and only the new
accrued benefit will be paid under 10.2 or
10.3;
(ii) if a Participant who is reemployed as a full-
time employee whose original benefit commenced
before age 65 dies before his new accruals and
suspended benefit commence under a new
election, his entire benefit (less the amount
offset to reflect his prior payments) will be
subject to Section 10 and the original form of
payment disregarded;
(iii) if a pre-65 annuity recipient who was
reemployed as a part-time employee died after
his Annuity Starting Date for payment of his
new accruals at age 65, no death benefit under
Section 10 will be payable but two different
Coannuitants or Beneficiaries (or his estate if
the post-65 election was for a Lump Sum) could
be due the residual portions of his two benefit
pieces, depending on the forms elected; or
(iv) if a post-65 annuity recipient dies after he is
reemployed, his entire benefit will be paid to
the Coannuitant or Beneficiary, if any, due the
survivor portion under his original election.
SECTION 10.
Death Benefits
10.1. Death Benefits in General. Except for benefits under
this Section 10, there are no death benefits payable under the
Plan either before or after a Participant's retirement or
termination of employment; provided, however, that benefits may
continue to be paid to a Participant's Qualified Spouse,
Coannuitant or Beneficiary after his death under the form of
benefit chosen by the Participant in accordance with Section 8.
For purposes of this Section 10, if the Participant and his
Qualified Spouse or other Death Beneficiary die at the same time,
the Participant shall be deemed to have died after the Qualified
Spouse or other Death Beneficiary. In addition, no benefit shall
be paid with respect to any Qualified Spouse or other Death
Beneficiary if such Qualified Spouse or Death Beneficiary dies
before his or her Annuity Starting Date.
10.2. Qualified Preretirement Survivor Annuity. If a
married Participant who has a nonforfeitable right to his Accrued
Benefit dies prior to his Annuity Starting Date (whether or not
such Participant is then employed by an Employer or Related
Company), a Qualified Preretirement Survivor Annuity will be
payable to his Qualified Spouse. For purposes of this subsection
10.2, a "Qualified Preretirement Survivor Annuity" or "QPSA" is
an annuity payable over the life of the Qualified Spouse of a
Participant, the payments of which are not less than the amounts
that would have been payable under the Surviving Spouse Annuity
under subsection 8.1(b). Such annuity shall be calculated as if:
(a) in the case of a Participant who dies on or after
attaining age 55, such Participant:
(i) terminated employment on the date of his death
(if his employment had not yet terminated),
(ii) survived to the first of the next month
following his death,
(iii) commenced receiving a Surviving Spouse Annuity
in accordance with paragraph 8.1(b) on the
first day of the month immediately following
his death, and
(iv) died the day after such commencement, or
(b) in the case of a Participant who dies before
attaining age 55, such Participant:
(i) terminated employment on the date of his death
(if his employment had not yet terminated),
(ii) survived to the date that would have been his
55th birthday,
(iii) commenced receiving the Surviving Spouse
Annuity in accordance with paragraph 8.1(b) on
the first day of the month immediately
following the day that would have been his 55th
birthday, and
(iv) died the day after such commencement;
provided, however, that if the Participant prior to his death had
made a valid election of the 100% (with or without "pop-up"
feature) joint and survivor annuity form with his Qualified
Spouse as the Coannuitant, the Qualified Preretirement Survivor
Annuity will be based on the form elected by the Participant
prior to his death.
The Qualified Preretirement Survivor Annuity will be payable in
equal monthly installments, unless the Qualified Spouse elects a
Lump Sum payment under subsection 10.4. The first of such monthly
installments will be payable to the Qualified Spouse on the first
day of the calendar month following the Participant's death
(reduced to its Actuarial Equivalent in the event of commencement
prior to the first day of the month following the date that would
have been the Participant's 55th birthday). Notwithstanding the
preceding sentence, the Qualified Spouse may elect to defer the
commencement of the Qualified Preretirement Survivor Annuity
until the first day of any month after the Participant's death,
but no later than the first day of the month following the date
that would have been the Participant's 65th birthday, with an
appropriate adjustment to the actuarial reduction required under
subsection 5.4 or 6.2 (whichever is applicable) to reflect such
delayed commencement.
For purposes of this Section 10 the term "Qualified Spouse" means
the person to whom a deceased Participant was legally married on
the date of his death.
Notwithstanding any other provision of this subsection, no
Qualified Spouse may elect payment of the Qualified Preretirement
Survivor Annuity until the Plan has been properly notified of the
Participant's death, and payment of the QPSA shall in no event be
retroactive to the first day of the month following the date of
death of the Participant (even if otherwise permitted under this
subsection) unless notice of the death is given within 180 days
of the date of death.
10.3. Special Death Benefits. Under the circumstances
described below the Plan may pay a death benefit other than the
Qualified Pre-retirement Survivor Annuity, and, with Spousal
Consent, to someone other than the Qualified Spouse. In no
event, however, will a benefit be payable with respect to the
same Participant under both subsection 10.1 and subsection 10.2.
(a) Death of Active Employees After Attainment of Age 55.
If a Participant dies while employed by the
Employers and Related Companies, after he has both
attained age 55 and has completed ten or more years
of Continuous Service, or after attainment of age 65
(age 63 in the case of an individual who was a
Participant on or before December 31, 1988)
regardless of length of Continuous Service, a
Retirement Income shall be payable to his Qualified
Spouse, as the Qualified Spouse elects, commencing
with the first day of any month following the month
in which the deceased Participant's death occurs, in
the same amount as would have been payable to such
Qualified Spouse if the deceased Participant had
terminated his employment with all Employers and
Related Companies (for a reason other than his death)
on the date his death occurred, had elected to have
his Retirement Income commence on the first day of
any month, as elected by
the Qualified Spouse following the date of his
death, had survived to his Annuity Starting Date and
had elected Option A under subsection 8.3 with a
100% survivor annuity. If a deceased Participant to
whom this paragraph (a) applies is not survived by a
Qualified Spouse, then a Retirement Income shall be
payable to his estate, determined on the same
assumptions as set forth above, the same as if the
deceased Participant had effectively elected Option
C under subsection 8.3 commencing on the first day
of the month following the date of his death, with
his estate as his designated Beneficiary.
Notwithstanding the foregoing provisions of this
paragraph (a), a Participant may waive the death
benefit that would otherwise be payable on his
behalf under both subsection 10.2 and the preceding
provisions of this paragraph (a) and instead elect
to have a death benefit paid in the form of any
option of comparable value to the benefit previously
described in this paragraph (a) under Options A, C
or D under subsection 8.3, payable to such person or
persons as he may select (his "Death Beneficiary"),
in the same amount as would have been payable to
such person or persons under such option if he had
severed his employment with all Employers and
Related Companies on the date of his death, had
elected to have his Retirement Income commence on
the first day of the month following the date of his
death, and had survived to his Annuity Starting
Date. However, no such waiver and election will be
effective with respect to a Participant who is
married on the date of his death without Spousal
Consent. Such waiver and election of an alternative
option or an alternative Death Beneficiary may be
made at any time after the Participant meets the age
and service requirements of this paragraph (a).
(b) Death of Active Employees Before Both Attainment of
Age 55 and Completion of Ten Years of Continuous
Service. If a vested Participant dies while employed
by the Employers and Related Companies, and before
attainment of age 55 and completion of 10 years of
Continuous Service, without qualifying for the
special death benefit provided under paragraph (a)
above, and such deceased Participant is survived by a
Qualified Spouse, a monthly Retirement Income shall
be payable to such Qualified Spouse as the Qualified
Spouse elects commencing on the first day of any
month following the month in which the Participant's
death occurs (but no later than the first day of the
month following the later of the deceased
Participant's date of death or his 65th birthday) and
terminating with the payment due on the first day of
the month in which such surviving Qualified Spouse
dies. The amount of such Retirement Income shall be
calculated initially as the deceased Participant's
Accrued Benefit, which initially calculated amount
then shall be reduced, in the event of commencement
to the Qualified Spouse on or before the date that
would have been the deceased Participant's 65th
birthday, to a percentage thereof derived from Tables
A, B and C which are attached to and form a part of
the Plan, and on the assumption that the deceased
Participant had effectively elected Option A (50%)
under subsection 8.3 with his Qualified Spouse as his
Coannuitant. At the death of a Participant described
in this paragraph (b) who is not survived by a
Qualifie
Spouse, monthly payments shall be paid to such
Participant's estate for a period of 60 months
commencing on the first day of the month following
the month in which such Participant's death occurs.
The amount of each such monthly payment shall be
initially calculated as the deceased Participant's
Accrued Benefit based on his Credited and Continuous
Service, age and Compensation as of the date of his
death, which initially calculated amount then shall
be reduced to a percentage thereof, derived from
Tables D, E and F, which are attached to and form a
part of the Plan. Notwithstanding the foregoing,
unless subsection 8.11 applies no Retirement Income
shall be paid to a Qualified Spouse under this
paragraph (b) prior to the first day of the month
following the Participant's 65th birthday without
such Qualified Spouse's consent.
(c) Death of Certain Former Employees. If a Participant
who terminated his employment with all Employers and
Related Companies after attainment of age 55 and
completion of at least 20 years of Continuous Service
dies following such termination but before his
Annuity Starting Date, then a Retirement Income shall
be payable, commencing with the first day of the
month following the month in which the deceased
Participant's death occurs, in an amount determined
in the same manner and to the same persons as would
have been payable under paragraph (a) of this
subsection 10.3 if such Participant had died while
actively employed by the Employers and Related
Companies.
Payment under this subsection 10.3 is conditioned upon the Plan's
receipt of proper notice of the Participant's death, and payments
will not be made retroactively (except in the case of immediate
commencement following the Participant's death if notice is given
within 180 days following the date of death).
10.4. Lump Sum Election. Any Qualified Spouse, other Death
Beneficiary or the administrator of an estate entitled to a
Qualified Preretirement Survivor Annuity under subsection 10.2 or
a special death benefit under subsection 10.3 may elect payment
in the form of a Lump Sum that is the Actuarial Equivalent of the
benefit otherwise payable to such person or estate at any time
after the Participant's death (but no later than the date that
would have been his Normal Retirement Date), subject to the
provisions of subsection 8.11.
SECTION 11.
Funding Plan Benefits
11.1. Contributions. Subject to the provisions of
Section 13, the Employers will make contributions from time to
time to the Trustee in amounts that are sufficient (as determined
in accordance with the funding method and policy adopted by the
Company) to maintain the Plan in sound actuarial condition and as
are consistent with the provisions of section 412 of the Code.
Participants are not required or permitted to make contributions
under the Plan.
11.2. Forfeitures. Forfeitures arising under the Plan for
any reason will not be used to increase the benefits any person
would otherwise receive under the Plan and will instead be
applied to reduce the Plan contributions of the Employers.
11.3. No Reversion to Employers. No part of the corpus or
income of the Trust Fund will revert to any Employer or be used
for, or diverted to, purposes other than for the exclusive
benefit of Participants and other persons entitled to benefits
under the Plan, except as specifically provided in the Trust
Agreement and in the provisions set forth below:
(a) The contributions of each Employer under the Plan are
conditioned upon the deductibility thereof under
section 404 of the Code, and, to the extent any such
deduction is disallowed, the Trustee will, upon
written request of that Employer, return the amount
of the contribution (to the extent disallowed),
reduced by the amount of any losses thereon, to that
Employer within one year after the date the deduction
is disallowed.
(b) If a contribution or any portion thereof is made by
an Employer by a mistake of fact, the Trustee will,
upon written request of that Employer, return the
amount of the contribution or such portion, reduced
by the amount of any losses thereon, to that Employer
within one year after the date of payment to the
Trustee.
(c) Upon termination of the Plan, after all liabilities
to Participants and other persons entitled to
benefits under the Plan have been satisfied pursuant
to and in accordance with the provisions of Section
13, any residual assets will be returned to the
Employers.
SECTION 12.
Administration of the Plan and Management of Its Assets
12.1. Plan Administrator. The Plan Administrator is the
Company.
12.2. General Powers, Rights and Duties of Plan
Administrator. In addition to the powers, rights and duties
conferred or imposed upon the Plan Administrator elsewhere in the
Plan or by law, the Plan Administrator shall have the following
powers, rights and duties:
(a) To conclusively determine, in its sole discretion,
all questions arising under the Plan, including the
power to determine the rights and eligibility of
employees, Participants, Coannuitants, Beneficiaries
and other persons, and the amount of their Retirement
Incomes or other benefits under the Plan, and to
remedy ambiguities, inconsistencies or omissions,
and, without limiting the generality of the
foregoing, where records relating to any
Participant's Continuous Service,
Credited Service, and Compensation or other component
of any formula are not readily available, to estimate
any or all of such factors, which estimates will be
conclusive on all persons unless demonstrated to be
incorrect to the satisfaction of the Plan
Administrator;
(b) To adopt such rules of procedure and regulations as,
in its opinion, may be necessary for the proper and
efficient administration of the Plan and as are
consistent with the provisions of the Plan and
applicable law;
(c) To enforce the Plan in accordance with its terms and
the rules and regulations adopted by the Plan
Administrator;
(d) To furnish the Employers with such information as may
be required by them for tax or other purposes in
connection with the Plan;
(e) To utilize agents, attorneys, accountants, actuaries,
or other persons (who may be employees of the Company
or who also may be utilized by the Company) and to
allocate or delegate to them such powers, rights and
duties as the Plan Administrator considers necessary
or advisable to properly carry out the administration
of the Plan, provided that any allocation and
delegation of any fiduciary duty imposed upon the
Plan Administrator, and the acceptance thereof, shall
be in writing; and
(f) To direct any Trustee of assets of the Plan with
respect to payment of Retirement Income or other
benefits under the Plan.
12.3. Claims Review. The Plan Administrator shall
establish a claims review procedure which:
(a) Gives notice in writing to any Participant or other
person whose application for a Retirement Income or
other benefits has been denied;
(b) States the specific reason for such denial; and
(c) Affords a reasonable opportunity to such Participant
or other person for a full and fair review of any
decision.
The Plan Administrator or any person or persons designated by the
Plan Administrator shall review and make decisions on claim
denials. The records of the Employers as to a Participant's
period of employment, termination of employment and the reason
therefor, leave of absence, reemployment and Compensation will be
conclusive on all persons unless determined to the Plan
Administrator's satisfaction to be incorrect.
12.4. Expense of Plan Administration. All fees, costs,
expenses, taxes and charges incurred with respect to the
administration of the Plan (including, to the extent permitted by
law, any direct expenses incurred by the Company or any of its
affiliates in providing administrative services and office space
to the Plan or otherwise incurred by them in connection with the
Plan) shall be expenses of the Plan and shall be paid or
reimbursed from Plan assets.
12.5. Administrative Services and Office Space Provided by
the Company and its Affiliates. Any administrative services
rendered to the Plan by the Company or its affiliates, and the
provision of office space in connection therewith, shall be
subject to the approval of the Benefits Executive, acting in the
capacity of a named fiduciary of the Pension Plan.
12.6. Responsibilities of Investment Committee. All of the
assets of the Plan shall be managed and controlled by a
Investment Committee consisting of not less than three
individuals who shall be the "named fiduciaries" for all purposes
of ERISA relating to the acquisition, retention and disposition
of Plan assets for purposes other than payment of Retirement
Income and other benefits under the Plan. The members of the
Investment Committee shall be appointed by the Company and shall
serve at the pleasure of the Company.
12.7. General Powers, Rights and Duties of Investment
Committee. Except as otherwise specifically provided in
subparagraph 12.2(f), and in addition to the powers, rights and
duties specifically given to the Investment Committee elsewhere
in the Plan, by law, and in any Trust agreement, the Investment
Committee shall have the following powers, rights and duties:
(a) To direct any Trustee with respect to the
acquisition, retention and disposition of the Plan
assets, and with respect to the exercise of
investment powers, authorities and discretions
relating to such assets, and without limiting the
generality of the foregoing, the Investment Committee
is specifically authorized to direct any Trustee to
invest assets of the Plan in common shares of the
Company, provided that the aggregate amount of the
assets of the Plan invested in any such common
shares, immediately following any acquisition
thereof, shall not exceed 10% of the fair market
value of the assets of the Plan;
(b) To furnish any Trustee, the Plan Administrator and
the Company with such information as may be required
for any purpose related to the Plan;
(c) To adopt such rules of procedure and regulations as
in the Investment Committee's opinion may be
necessary for the proper and efficient performance of
the Committee's duties and responsibilities;
(d) To appoint an Executive Director and a Secretary, who
may, but need not, be members of the Investment
Committee and to employ such other agents, attorneys,
accountants, investment advisors, actuaries, and
other persons and to delegate to them and to allocate
among them, in writing, such powers, rights and
duties as the Investment Committee may consider
necessary or advisable
properly to carry out the Investment Committee's
responsibilities; and in the same manner to revoke
such delegation and allocation; the acceptance of
such written allocation or delegation shall also be
in writing; any action of the delegate or person to
whom responsibilities have been allocated shall have
the same force and effect for all purposes hereunder
as if such action had been taken by the Investment
Committee; neither the Investment Committee nor any
of its members shall be liable for the acts or
omissions of such delegates or persons to whom
responsibilities have been allocated except as
required by law;
(e) Without limiting the generality of (d) above, to
appoint an investment manager as defined in section
3(38) of ERISA ("Investment Manager") to manage (with
power to acquire and dispose of) Plan assets, which
Investment Manager may or may not be a subsidiary of
the Company, and to delegate to any such Investment
Manager all of the powers, authorities and
discretions granted to the Investment Committee
hereunder or under the Trust Agreement (including the
power to delegate and, in the case of Sears
Investment Management Co., the power, with prior
notice to the Investment Committee, to appoint an
Investment Manager), in which event any direction to
any Trustee from such Investment Manager with respect
to the acquisition, retention or disposition of Plan
assets shall have the same force and effect as if
such direction had been given by the Investment
Committee and to remove such Investment Manager;
provided, however, that the power and authority to
manage, acquire or dispose of any asset of the Plan
shall not be delegated except to an Investment
Manager, and provided further that the acceptance by
any Investment Manager of such appointment and
delegation shall be in writing, and the Investment
Committee shall give notice to the Trustee, in
writing, of any appointment of, delegation to, or
removal of, any Investment Manager; and
(f) To adopt from time to time the methods of funding.
12.8. Manner of Action by Investment Committee. In the
performance of the Investment Committee's duties, the following
provisions shall apply where the context admits:
(a) Any Investment Committee member, by written
instrument, may delegate any or all of his rights,
powers, duties or discretions to any other Committee
member, with the consent of the latter.
(b) The Investment Committee may act by meeting or by a
written instrument signed without meeting and may
execute any document by signing one document or
concurrent documents.
(c) An action or decision of a majority of the members of
the Investment Committee as to a matter shall be as
effective as if taken or made by all members of the
Investment Committee, but, except to the extent
otherwise
expressly provided by law, no member of the
Investment Committee who dissents from any action or
decision of a majority of the Investment Committee
shall be liable or responsible for such action.
(d) If, because of the number qualified to act, there is
an even division of opinion among the members of the
Investment Committee as to any matter, a
disinterested party selected by the Investment
Committee shall decide the matter and his decision
shall control.
(e) The certificate of the Secretary of the Investment
Committee or of a majority of the members of the
Investment Committee that the Investment Committee
has taken or authorized any action shall be
conclusive in favor of any person relying on the
certificate.
12.9. Expenses of Asset Management. All fees, costs,
expenses, taxes and charges incurred in connection with the
operation, preservation and management of Plan assets (including,
to the extent permitted by law, any direct expenses incurred by
the Company or any of its affiliates in providing asset
management services and office space to the Plan) shall be
expenses of the Plan and shall be paid or reimbursed from Plan
assets.
12.10. Asset Management Services Provided by the Company
and its Affiliates. Any services rendered to the Plan or the
Trust by the Company or its affiliates, and the provision of
office space in connection therewith, shall be subject to the
approval of the Investment Committee, acting as a named fiduciary
of the Plan.
12.11. Indemnification of Individuals Acting on Behalf of
the Company. To the full extent permitted by law and to the
extent not covered by any applicable insurance policy, any person
acting on behalf of the Company with respect to the Plan will be
indemnified by the Employers against any and all liabilities,
losses, costs and expenses (including legal fees and expenses) of
whatsoever kind and nature which may be imposed on, incurred by,
or asserted against such person by reason of the performance of
the functions delegated to such person by the Plan Administrator
if such person did not act dishonestly or in willful violation of
the law or regulation under which such liability, loss, cost or
expense arises.
12.12. Separation and Limitation of Duties and
Responsibilities of Plan Administrator, Investment Committee and
Employers. To the extent permitted by law, none of the Plan
Administrator, the Investment Committee and the Employers shall
be obliged to inquire into, or otherwise be responsible for, the
acts or omissions of any of the others, and neither the Plan
Administrator nor any member of the Investment Committee shall be
personally liable for the payment of any benefit under the Plan.
12.13. Information to be Furnished by Participants and
Employers. Each Participant and each Qualified Spouse,
Beneficiary, Coannuitant or alternate payee or other entitled to
benefits under the Plan shall furnish the Plan Administrator with
such documents, evidence, data
or information as the Plan Administrator considers necessary or
desirable for purposes of administering the Plan. Without
limiting the generality of the foregoing, each person entitled to
receive Retirement Income or Deferred Vested Benefits under the
Plan must file with the Plan Administrator, in writing, his post
office address and each change of post office address. Any
communication, statement or notice addressed to any such person
at his last post office address so filed will be binding upon
such person, and neither the Plan Administrator nor any employer
is required to search for or locate any such person. The
Employers shall furnish the Plan Administrator with such data or
information within their possession as the Plan Administrator may
deem necessary or desirable in order to administer the Plan.
SECTION 13.
Amendment, Termination and Merger
13.1. Amendment. While it is expected that the Plan will
be continued, the Company may amend the Plan from time to time by
action of its Board of Directors or by a duly-authorized
administrative committee or by a duly authorized officer of the
Company; provided, however, that no amendment will reduce a
Participant's Accrued Benefit to less than the accrued benefit
that he would have been entitled to receive if he had resigned
from the employ of the Employers and Related Companies on the day
of the amendment (except to the extent permitted by section
412(c)(8) of the Code) and no amendment will eliminate an
optional form of benefit with respect to a Participant or
Beneficiary except as otherwise permitted by law and applicable
regulation. Any such amendment may be made retroactively
effective if, in the opinion of the Plan Administrator, such
amendment is necessary or appropriate to conform the Plan
document to a consistent interpretation or administrative rule,
or to secure or retain a determination by any Federal government
agency having the required jurisdiction that the Plan qualifies
under the provisions of applicable Federal law, or any applicable
rule or regulation made pursuant to any such applicable Federal
law.
13.2. Termination. The Plan will terminate as to all of
the Employers on any day specified by the Company. Affected
employees of any Employer will cease active participation in the
Plan on the first to occur of the following:
(a) the date on which that Employer ceases to be a
contributing sponsor of the Plan by appropriate
action taken by the Company or such Employer;
(b) the date that Employer is judicially declared
bankrupt or insolvent; or
(c) the dissolution, merger, consolidation,
reorganization or sale of that Employer, or the sale
by that Employer of all or substantially all of its
assets, except that, subject to the provisions of
subsection 13.3, with the consent of the Company, in
any such event arrangements may be made whereby the
Plan will be continued by any successor to that
Employer or any purchaser of all or
substantially all of that Employer's assets, in
which case the successor or purchaser will be
substituted for the Employer under the Plan.
13.3. Merger and Consolidation of Plan, Transfer of Plan
Assets. In the case of any merger or consolidation with, or
transfer of assets and liabilities to, any other plan, provisions
will be made so that each affected Participant in the Plan on the
date thereof, if the Plan then terminated, would receive a
benefit immediately after the merger, consolidation or transfer
which is equal to or greater than the benefit he would have been
entitled to receive immediately prior to the merger,
consolidation or transfer if the Plan had then terminated. If
another plan (the "Merged Plan") is merged into this Plan, the
total liabilities of the Merged Plan are less than 3 percent of
the assets of the Plan, and if there is a spinoff from the Plan
or the Plan terminates within five years after such merger, then
Plan assets will be allocated first for the benefit of the
participants in the Merged Plan to the extent of the present
value of their benefits as of the date of the merger.
13.4. Distribution on Termination. On termination of the
entire Plan with respect to all Employers, the Trust Fund will be
liquidated by the Trustee. After payment of all expenses of
liquidation, the Plan Administrator will allocate the remainder
of the Trust Fund assets and cause them to be distributed by the
Trustee in the manner and order set forth in section 4044 of
ERISA to the extent of the sufficiency of such assets. If any
assets remain after satisfaction of all liabilities of the Plan
to Participants and Beneficiaries, such surplus assets will be
distributed to the Company, or, if applicable, to its assigns.
13.5. Notice of Amendment, Termination or Partial
Termination. Affected Participants will be notified of an
amendment, termination or partial termination of the Plan as
required by law.
DEATH BENEFIT REDUCTION TABLE - MARRIED
POST-1988 BASE BENEFIT WITH REDUCTION FROM AGE 65
(TABLE A)
_____________________________________________________________________
EXACT EARLY APPLICABLE EXACT EARLY APPLICABLE
PAYMENT PERIOD* PERCENTAGE** PAYMENT PERIOD* PERCENTAGE**
1 Years 95.00% 26 Years 11.68*
2 90.00 27 10.74
3 85.00 28 9.87
4 80.00 29 9.08
5 75.00 30 8.35
6 70.00 31 7.69
7 65.00 32 7.08
8 60.00 33 6.52
9 55.00 34 6.01
10 50.00 35 5.54
11 45.30 36 5.11
12 41.10 37 4.71
13 37.34 38 4.35
14 33.96 39 4.01
15 30.92 40 3.70
16 28.19 41 3.42
17 25.72 42 3.15
18 23.49 43 2.91
19 21.47 44 2.69
20 19.64
21 17.98
22 16.47
23 15.10
24 13.86
25 12.72
* "Early Payment Period" is number of years
between first day of month next following
participant's date of death and first day of
month next following participant's 65th
birthday.
** For a period other than exact whole number
of years, applicable percentage will be
determined by interpolation between appropriate
whole-year factors.
DEATH BENEFIT REDUCTION TABLE - MARRIED
POST-1988 ADDITIONAL BENEFIT
(TABLE B)
_________________________________________________________
EXACT EARLY APPLICABLE EXACT EARLY APPLICABLE
PAYMENT PERIOD* PERCENTAGE** PAYMENT PERIOD* PERCENTAGE**
1 Years 92.00% 26 Years 11.22%
2 84.00 27 10.31
3 76.00 28 9.48
4 72.00 29 8.72
5 68.00 30 8.02
6 64.00 31 7.38
7 60.00 32 6.80
8 56.00 33 6.26
9 52.00 34 5.77
10 48.00 35 5.32
11 45.49 36 4.90
12 39.46 37 4.52
13 35.84 38 4.17
14 32.60 39 3.85
15 29.69 40 3.55
16 27.06 41 3.28
17 24.69 42 3.03
18 22.55 43 2.79
19 20.61 44 2.58
20 18.85
21 17.26
22 15.82
23 14.50
24 13.30
25 12.72
* "Early Payment Period" is number of years
between the first day of month next following
participant's date of death and first day of
month next following participant's 65th
birthday.
** For a period other than exact whole number
of years, applicable percentage will be
determined by interpolation between appropriate
whole-year factors.
DEATH BENEFIT REDUCTION TABLE - MARRIED
PRE-1989 ADJUSTED BENEFIT
IMMEDIATE CREDIT BENEFIT
(TABLE C - Formerly Table 3)
_________________________________________________
EXACT EARLY APPLICABLE EXACT EARLY APPLICABLE
PAYMENT PERIOD* PERCENTAGE** PAYMENT PERIOD* PERCENTAGE**
1 Years 95.00% 21 Years 18.12%
2 90.00 22 16.62
3 85.00 23 15.26
4 80.00 24 14.01
5 75.00 25 12.88
6 70.00 26 11.84
7 65.00 27 10.89
8 60.00 28 10.02
9 54.36 29 9.22
10 49.32 30 8.49
11 44.80 31 7.82
12 40.74 32 7.21
13 37.10 33 6.65
14 33.81 34 6.13
15 30.85 35 5.65
16 28.17 36 5.21
17 25.75 37 4.81
18 23.56 38 4.44
19 21.57 39 4.10
20 19.76 40 3.78
41 3.49
42 3.22
* "Early Payment Period" is number of years
between first day of month next following
participant's date of death and first day of
month next following participant's 63rd
birthday.
** For a period other than exact whole number
of years, applicable percentage will be
determined by interpolation between appropriate
whole-year factors.
DEATH BENEFIT REDUCTION TABLE - SINGLE
POST-1988 BASE BENEFIT WITH REDUCTION FROM AGE 65
(TABLE D)
__________________________________________________
EXACT EARLY APPLICABLE EXACT EARLY APPLICABLE
PAYMENT PERIOD* PERCENTAGE** PAYMENT PERIOD* PERCENTAGE**
1 Years 92.95% 26 Years 11.66%
2 88.25 27 10.72
3 83.51 28 9.86
4 78.75 29 9.07
5 73.94 30 8.34
6 69.12 31 7.68
7 64.26 32 7.07
8 59.38 33 6.51
9 54.66 34 6.00
10 49.58 35 5.54
11 44.96 36 5.11
12 40.83 37 4.71
13 37.11 38 4.35
14 33.78 39 4.01
15 30.77 40 3.70
16 28.06 41 3.42
17 25.62 42 3.15
18 23.41 43 2.91
19 21.40 44 2.69
20 19.59
21 17.94
22 16.44
23 15.07
24 13.83
25 12.70
* "Early Payment Period" is number of years
between first day of month next following
participant's date of death and first day of
month next following participant's 65th
birthday.
** For a period other than exact whole number
of years, applicable percentage will be
determined by interpolation between appropriate
whole-year factors.
DEATH BENEFIT REDUCTION TABLE - SINGLE
POST-1988 ADDITIONAL BENEFIT
(TABLE E)
_________________________________________________________
EXACT EARLY APPLICABLE EXACT EARLY APPLICABLE
PAYMENT PERIOD* PERCENTAGE** PAYMENT PERIOD* PERCENTAGE**
1 Years 90.01% 26 Years 11.20%
2 82.37 27 10.29
3 74.67 28 9.47
4 70.87 29 8.71
5 67.04 30 8.01
6 63.19 31 7.37
7 59.32 32 6.79
8 55.42 33 6.25
9 51.68 34 5.76
10 47.60 35 5.32
11 43.16 36 4.90
12 39.20 37 4.52
13 35.62 38 4.17
14 32.42 39 3.85
15 29.55 40 3.55
16 26.94 41 3.28
17 24.59 42 3.03
18 22.47 43 2.79
19 20.55 44 2.58
20 18.80
21 17.22
22 15.79
23 14.47
24 13.28
25 12.19
* "Early Payment Period" is number of years
between first day of month next following
participant's date of death and first day of
month next following participant's 65th
birthday.
** For a period other than exact whole number
of years, applicable percentage will be
determined by interpolation between appropriate
whole-year factors.
DEATH BENEFIT REDUCTION TABLE - SINGLE
PRE-1989 ADJUSTED BENEFIT
IMMEDIATE CREDIT BENEFIT
(TABLE F - Formerly Table 4)
________________________________________________
EXACT EARLY APPLICABLE EXACT EARLY APPLICABLE
PAYMENT PERIOD* PERCENTAGE** PAYMENT PERIOD* PERCENTAGE**
1 Years 93.34% 21 Years 18.08%
2 88.59 22 16.59
3 83.80 23 15.24
4 78.99 24 13.99
5 74.15 25 12.86
6 69.28 26 11.83
7 64.60 27 10.88
8 59.50 28 10.01
9 53.95 29 9.21
10 48.99 30 8.48
11 44.53 31 7.81
12 40.52 32 7.20
13 36.92 33 6.65
14 33.66 34 6.13
15 30.73 35 5.65
16 28.07 36 5.21
17 25.67 37 4.81
18 23.50 38 4.44
19 21.52 39 4.10
20 19.72 40 3.78
41 3.49
42 3.22
* "Early Payment Period" is number of years
between first day of month next following
participant's date of death and first day of
month next following participant's 63rd
birthday.
** For a period other than exact whole number
of years, applicable percentage will be
determined by interpolation between appropriate
whole-year factors.
SUPPLEMENT A
TO
SEARS PENSION PLAN
THE SUPPLEMENTAL PLAN
A-1. Purpose. The Sears Pension Plan is an amendment and
restatement of the Sears Supplemental Pension Plan (the
"Supplemental Plan") with respect to those employees on
January 1, 1978 who were participants in the Supplemental Plan on
December 31, 1977 and those retired participants and former
participants in the Supplemental Plan who, on
December 31, 1977, were entitled to receive benefits under the
Supplemental Plan. The purpose of this Supplement A is:
(a) To set forth those particulars wherein the Plan, as
applied to Participants in this Supplement A, and the
Retirement Income and other benefits to be provided
under the Plan, differ from, and may be in addition to,
the Retirement Income and other benefits provided under
the Supplemental Plan; and
(b) To provide for the protection and preservation of the
benefits accrued through December 31, 1977 under the
Supplemental Plan for Participants in this Supplement
A.
Any benefits provided for any person under this Supplement A will
be in addition to the benefits, if any, payable to such person
under the Plan.
A-2. Use of Terms. Except where the context of this
Supplement A expressly indicates to the contrary, terms used and
defined in the Plan or in Supplement B shall have the same
meanings for purposes of this Supplement A. As used in this
Supplement A, the term "this Supplement A" shall include only
this Supplement A and any tables or exhibits attached to and
forming a part of this Supplement A, and references to the "Plan"
shall include all provisions of the Plan and all other
supplements, tables and exhibits attached to and forming a part
of the Plan, but shall not include this Supplement A.
A-3. Conflicts Between Plan and This Supplement A. This
Supplement A, together with the Plan, comprises the Plan with
respect to participants in this Supplement A. In case of any
conflict between the provisions of the Plan and this Supplement
A, the terms and provisions of this Supplement A shall govern to
the extent necessary to eliminate such conflict.
A-4. Participants. Only those employees of the Employers on
January 1, 1978 and other persons who were participants in the
Supplemental Plan on December 31, 1977 and those retired
participants, former participants and contingent annuitants in
the Supplemental Plan who, on December 31, 1977, were receiving
or were entitled to receive, benefits under the Supplemental Plan
will be participants in this Supplement A. No other employees of
the Employers will be eligible to become participants in this
Supplement A. Notwithstanding the foregoing provisions of this
subsection A-4, a participant who is a highly compensated
employee,
as such term is defined in section 414(q) of the Internal Revenue
Code, at any time on or after December 31, 1988 and who either
terminates employment prior to November 8, 1994 (and is not
rehired prior to his Annuity Starting Date) or terminates
employment under the Sears 1993 Early Retirement Incentive
Program for Checklist Associates (as described in Supplement I)
shall cease to accrue benefits under this Supplement A as of the
later of December 31, 1988 or the first day of the first plan
year during which such participant first becomes a highly
compensated employee.
A-5. Amount of Supplement A Retirement Income. The
Retirement Income of a vested participant covered by this
Supplement A shall be an annuity payable each month for life
commencing on his Normal Retirement Date in an amount equal to:
(a) one and one-half percent (1-1/2%) of that part of the
annual amount of his Final Average Monthly Compensation
(as defined below) which is in excess of $1,250,
multiplied by
(b) the period of his credited service as of December 31,
1977 as determined under the provisions of the Plan in
effect on that date,
provided, however, that in no event will the monthly retirement
income for any such participant in this Supplement A be less than
1/12th of the annual amount of retirement allowance accrued for
him under the Supplemental Plan through December 31, 1977. For
purposes of (a) above,
(c) There shall be excluded from amounts otherwise included
in the term "Compensation" any compensation paid to an
employee who either was not exempt from Sections 6 and
7 of the Fair Labor Standards Act of 1938, as amended,
or would not have been so exempt under that Act as
amended to December 31, 1966, except that any such
compensation which otherwise would qualify as compen-
sation shall be taken into account if it is paid to any
employee during a calendar year in which the employee
ceased to be so exempt under such Act as in effect on
December 31, 1966; and
(d) For purposes of computing Final Average Monthly
Compensation in the case of any Participant who, prior
to severance from employment, ceases to receive any
compensation, as so defined, the ten-year period ending
with the last calendar year during which he received
any such compensation will be used.
Notwithstanding the foregoing, no additional benefits shall be
accrued by any Participant under this Supplement A after December
31, 1999, on which date each Participant's Retirement Income
under this Supplement A shall be fixed.
A-6. Vesting. A Participant in this Supplement A will be
fully vested in his Supplement A benefit if he severs his
employment with all Employers and Related Companies after he has
completed at least 5 years of Continuous Service or after
attainment of age 60. Notwithstanding
the preceding sentence, the nonforfeitable percentage of the
basic monthly Retirement Income of a Participant in this
Supplement A who does not have an Hour of Service on or after
January 1, 1989 will be determined under the provisions of this
Supplement A as in effect on December 31, 1988.
A-7. Early Commencement of Supplement A Benefit. In
general, a Participant in this Supplement A who is also entitled
to a Retirement Income or Deferred Vested Benefit under the main
provisions of the Plan will be paid his entire benefit under the
Plan, including the benefit payable under this Supplement A, at
the same time, pursuant to a single election with one Annuity
Starting Date, except as otherwise provided under Section 9 with
respect to part-time employment after age 65 and reemployment.
If, however, a Participant in this Supplement A wants to commence
his Supplement A benefit between the first day of the month after
he attains age 60 (when he can begin receiving his Supplement A
benefit without reduction for early commencement) and the first
day of the month after he attains age 65, he can do so without
commencing his Retirement Income or Deferred Vested Benefit under
the main provisions of the Plan at the same time. In that case,
such Participant will have two Annuity Starting Dates and two
separate elections and, if such individual happens to die after
the Annuity Starting Date for his Supplement A benefit but before
the Annuity Starting Date for his Retirement Income or Deferred
Vested Benefit under the main provisions of the Plan, the
residual portion, if any, of his Supplement A benefit will be
paid to his Coannuitant or Beneficiary in accordance with the
form of payment he selected for his Supplement A benefit, and the
Accrued Benefit remaining under the main provisions of the Plan
will be paid in accordance with Section 10 of the Plan.
A-8. Amount of Supplement A Benefit Paid Prior to Age 60. A
Participant in this Supplement A who commences payment of his
Supplement A benefit on or after the first day of the month
following attainment of age 60 will receive the amount determined
under subsection A-5 without reduction for early commencement
(but actuarially adjusted, if necessary, to reflect the elected
form of payment). A Participant in this Supplement A may
commence payment earlier than the first day of the month
following his attainment of age 60 if he commences receipt of his
Retirement Income or Deferred Vested Benefit under the main
provisions of Plan earlier than that date, subject to the
following adjustments for early commencement:
(a) In the case of a Participant in this Supplement A who
retires on an Early Retirement Date and commences
receiving a Retirement Income under Section 5, the
amount determined initially in accordance with
paragraph A-5 will be reduced by one-half of one
percent (1/2%) thereof for each full month that the date
of commencement precedes the first day of the month
following the date on which he would attain age 60.
(b) In the case of a Participant in this Supplement A who
commences receipt of a Deferred Vested Benefit under
Section 6, the amount determined initially in
accordance with paragraph A-5 will be reduced to its
actuarial equivalent as determined according to the
following:
Age at Commencement Percentage Payable
60 or older 100%
59 89.85%
58 80.89%
57 72.94%
56 65.89%
55 59.61%
A-9. Retirement Allowances and Other Benefits for
Participants Not Entitled to Benefits Under the Plan. Except as
otherwise expressly provided in Exhibit II of this Supplement A,
persons who are participants in this Supplement A and who, on or
after January 1, 1978 are not receiving, and do not become
entitled to receive, any Retirement Income or other benefits
under the Plan, will not receive any additional benefits under
this Supplement A or the Plan because of their participation in
this Supplement A. However, subject to the provisions of any
Exhibit to this Supplement A, such participants (and their
surviving spouses, designated annuitants and contingent
annuitants) will be entitled to receive, pursuant to this
Supplement A, the same retirement allowances, or other benefits
based upon such retirement allowances, as they were receiving, or
such Participants were entitled to receive, under the provisions
of the Supplemental Plan, as in effect on December 31, 1977,
based upon continuous service accrued, and compensation received,
up to, but not beyond, that date. Any such Participant whose
retirement allowance is based upon such Participant's employment
with the Employers may elect to receive such retirement allowance
in one of the optional forms provided under subsection 8.3 of the
Plan.
A-10. Effect of Other Plan Provisions. Except to the
extent expressly overridden by any of the provisions of this
Supplement A, all of the other provisions of the Plan will apply
with respect to eligibility for, and payment of, monthly
Retirement Income or other benefits under this Supplement A.
Notwithstanding the foregoing, if a Participant in this
Supplement A dies and Retirement Income payments become payable
under Section 10 of the Plan to his Qualified Spouse or his
estate (or would have become payable except for such
Participant's severance of employment after December 31, 1975 and
before January 1, 1978), the monthly Retirement Income payable to
his Qualified Spouse or estate under this Supplement A shall be
calculated in the same manner and under the same assumptions as
apply in calculating the amount payable to his Qualified Spouse
or estate under Section 10 except that the initially calculated
amount under this Supplement A shall be reduced to a percentage
thereof derived from Table A-1 in the case of payments to a
Qualified Spouse or from Table A-2 in the case of payments to an
estate, which tables are attached to and form a part of this
Supplement A, and in the case of payments to a Qualified Spouse,
such initially calculated amount shall be reduced to its
Actuarial Equivalent.
SUPPLEMENT A
TO
SEARS PENSION PLAN
Table A-1
Exact Early Applicable Exact Early Applicable
Payment Period* Percentage** Payment Period* Percentage**
1 years 94.00% 16 years 25.16%
2 88.00 17 23.05
3 82.00 18 21.14
4 76.00 19 19.39
5 70.00 20 17.80
6 63.42 21 16.35
7 57.54 22 15.02
8 52.26 23 13.81
9 47.53 24 12.70
10 43.28 25 11.69
11 39.45 26 10.76
12 35.99 27 9.91
13 32.87 28 9.13
14 30.04 29 8.41
15 27.48 30 7.75
* "Early Payment Period" is number of years
between first day of month next following
participant's date of death and first day of
month next following participant's 60th
birthday.
** For a period other than exact whole number
of years, applicable percentage will be
determined by interpolation between
appropriate whole-year factors.
SUPPLEMENT A
TO
SEARS PENSION PLAN
Table A-2
Percentages to be Applied Pursuant to Subparagraph (f) of
Paragraph A-11 of Supplement A in Determining Monthly Amount of
60 Installments Payable to Estate of Unmarried Participant Under
Paragraph A-10 of Supplement A
Exact Early Applicable Exact Early Applicable
Payment Period* Percentage** Payment Period* Percentage**
1 years 92.81% 16 years 25.10%
2 87.00 17 23.00
3 81.16 18 21.10
4 75.30 19 19.36
5 69.42 20 17.77
6 62.94 21 16.33
7 57.15 22 15.00
8 51.95 23 13.79
9 47.27 24 12.69
10 43.07 25 11.68
11 39.28 26 10.75
12 35.85 27 9.90
13 32.76 28 9.12
14 29.95 29 8.40
15 27.41 30 7.74
* "Early Payment Period" is number of years
between first day of month next following
participant's date of death and first day of
month next following participant's 60th
birthday.
** For a period other than exact whole number of
years, applicable percentage will be
determined by interpolation between
appropriate whole-year factors.
EXHIBIT I DELETED NOVEMBER 8, 1995
EXHIBIT II
1. Purpose. The purpose of this Exhibit II is to set
forth the terms and conditions of increased pension benefits
which are to become effective October 1, 1979 (the "Effective
Date" of this Exhibit II) for certain Participants in Supplement
A.
2. Applicability. The provisions of this Exhibit II apply
only to those Participants in Supplement A who:
(a) are described in paragraph A-9 of Supplement A; and
(b) on December 31, 1977 were receiving a monthly
Retirement Income under the Supplemental Plan or, on or
after that date and before the Effective Date, became
entitled to receive a monthly Retirement Income
following the death of a person who, on December 31,
1977, was receiving a monthly Retirement Income under
the Supplemental Plan; and
(c) are alive on the effective date.
Persons to whom the provisions of this Exhibit II apply are
referred to below as "Covered Persons".
3. Determination of Amount of Pension Benefit Increase.
The amount of a Covered Person's pension benefit increase under
this Exhibit II depends upon the earliest date as of which
monthly Retirement Income under the Supplemental Plan commenced
to be paid either to the Covered Person or to the retired or
deceased employee upon whose retirement allowance such Covered
Person's pension benefit is based (the "Commencement Date").
Subject to the limitations set forth in paragraph (4) below, the
amount of pension benefit increase for any Covered Person will be
determined as follows:
(a) If the monthly pension payment was computed based upon
"Final Average Monthly Participating Compensation" in
accordance with the provisions of the Supplemental Plan
as in effect on or after February 1, 1971, the monthly
Retirement Income otherwise payable to such Covered
Person on the Effective Date shall be increased by an
amount equal to 1% thereof, multiplied by the number of
calendar years (including the calendar years in which
the Commencement and Effective Dates occurred) elapsed
between the Commencement Date and the Effective Date.
(b) If the monthly Retirement Income was computed based
upon "total participating annual compensation" in
accordance with the provisions of the Supplemental Plan
as in effect before February 1, 1971, the monthly
Retirement Income otherwise payable to such Covered
Person on the Effective Date shall be increased
by an amount equal to 2% thereof, multiplied by the
number of calendar years (including the calendar years
in which the Commencement and Effective Dates occurred)
elapsed between the Commencement Date and the Effective
Date.
(c) Notwithstanding the foregoing, the minimum amount of
any increase in any monthly pension benefit, calculated
pursuant to (a) or (b) above, shall be ten dollars
($10) and the maximum amount of any increase in any
monthly pension benefit, calculated pursuant to (a) or
(b) above, shall be two hundred dollars ($200).
(d) Beginning with the Effective Date, any increase in any
pension benefit, as determined in accordance with the
foregoing provisions, shall be payable subject to the
same terms and conditions as the pension benefit to
which such increase is added.
4. Limitations on Pension Benefit Increases. The amount
of any increase, as determined in accordance with paragraph (3)
above, is subject to such of the following limitations as may
apply:
(a) Such increase, when added to the monthly pension
benefit otherwise payable to such Covered Person on the
Effective Date, shall not exceed the Actuarial
Equivalent of the maximum retirement allowance that
could be paid under the limitations of subsection
415(b) of the Internal Revenue Code of 1986, as
adjusted from time to time pursuant to such Code.
(b) Such increase shall not exceed the sum of:
(i) the excess of:
(A) the monthly amount of single life annuity
normal retirement allowance which could have
been provided under the Supplemental Plan at
the Commencement Date, exclusive of any
portion of such retirement allowance which
was permitted to be provided on account of
the employee's accumulation in the Profit
Sharing Fund arising out of the Employers'
Contributions under the Profit Sharing Fund,
increased by the compound rate of the
increase in the Consumer Price Index - Urban
Wage Earners and Clerical Employees, U. S.
City Average, All Items - Series A (1967-1OO)
U. S. Department of Labor, Bureau of Labor
Statistics, in the period from the first day
of the year in which the commencement date
occurred to the effective date,
over
(B) the monthly amount of single life annuity
normal retirement allowance which could have
been provided under the Supplemental Plan at
the Commencement Date, exclusive of any
portion of such retirement allowance which
was permitted to be provided on account of
the employee's accumulation in the Profit
Sharing Fund arising out of the Employer's
Contributions under the Profit Sharing Fund;
plus
(ii) the excess, if any, of:
(A) the monthly amount of single life annuity
normal retirement allowance which could have
been provided at the commencement date with
the employee's accumulation in the Profit
Sharing Fund arising out of the Employers'
Contributions to the Profit Sharing Fund up
to the Commencement Date, plus the amount of
retirement allowance described in (i)(B)
above,
over
(B) the monthly amount of single life annuity
normal retirement allowance which could have
been provided at the Commencement Date.
(c) the amount of any increased pension benefit for any
covered person whose retirement allowance under the
Supplemental Plan is subject to the restrictions of
Supplement B to the Plan also shall be subject to the
restrictions of such Supplement B, except that the
period of such restrictions with respect to such
increased amount shall begin on the Effective Date and
end on September 30, 1989.
SUPPLEMENT B
TO
SEARS PENSION PLAN
CALCULATION OF ACCRUED BENEFITS FOR
PARTICIPANTS IN THE PLAN ON DECEMBER 31, 1988
B-1. Purpose. The Sears Pension Plan has been amended and
restated effective January 1, 1989 to comply with applicable
provisions of the Tax Reform Act of 1986, including new
restrictions on integration with Social Security benefits under
section 401(l) of the Internal Revenue Code. This Supplement B
contains the provisions of the Plan as in effect on December 31,
1988 that are relevant to determining the benefits accrued by
Participants as of that date which form part of the new formula
under paragraphs (a)(i) and (a)(ii) of subsection 5.1 or are
protected from reduction under subsection 5.6.
B-2. Use of Terms. Except where the context of this
Supplement B expressly indicates to the contrary, terms used and
defined in the Plan shall have the same meanings for purposes of
this Supplement B. As used in this Supplement B, the term "this
Supplement B" shall include only this Supplement B and any tables
or exhibits attached to and forming a part of this Supplement B,
and references to the "Plan" shall include all provisions of the
Plan and all other supplements, tables and exhibits attached to
and forming a part of the Plan, but shall not include this
Supplement B.
B-3. Conflicts Between Plan and This Supplement B. This
Supplement B, together with the Plan, comprises the Plan with
respect to Participants in this Supplement B. In case of any
conflict between the provisions of the Plan and this Supplement
B, the terms and provisions of this Supplement B shall govern to
the extent necessary to eliminate such conflict.
B-4. Supplement B Participants. Only those employees and
former employees of the Employers who had accrued a benefit under
the Plan as of December 31, 1988 and who have Credited Service
under the Plan on or after January 1, 1989 will be Participants
in this Supplement B.
B-5. Basis of Supplement B Benefit. A Participant's
"Supplement B benefit" under this Supplement B will be based upon
his "Credited Past Service", his "Credited Future Service", his
"Past Service Compensation", his "Final Average Monthly
Compensation", and his "Estimated Projected Primary Social
Security Benefit", each as defined below.
B-6. Continuous Service. "Continuous Service" for purposes
of this Supplement B will have the same meaning as Continuous
Service under subsection 2.2 of the Plan.
B-7. Credited Past Service. Only those employees in the
employ of the Employers on January 1, 1978 who became
Participants in the Plan on that date will be eligible for
Credited Past Service. An eligible Participant's "Credited Past
Service" means that portion of his Continuous
Service which occurred before January 1, 1978 and after the date
on which he was first credited with a Year of Eligibility
Service, but before his Normal Retirement Date. A Participant's
"Period of Credited Past Service" means the number of years, and
any fractional year, of Credited Past Service.
B-8. Credited Future Service. A participant's "Credited
Future Service" means that portion of his period of Continuous
Service which occurred after December 31, 1977 and before
January 1, 1989 during which he was an employee of one or more
Employers and after the date on which he was first credited with
a Year of Eligibility Service, whichever is applicable to him;
provided, however, that Credited Future Service shall not include
any such period of Continuous Service that occurred after the end
of the calendar month in which he attained age 65 but before
January 1, 1988, unless the Participant completes an Hour of
Service (as defined in subsection 2.5 of the Plan) on or after
January 1, 1988. A Participant's "Period of Credited Future
Service" means the number of years, and any fractional year, of
Credited Future Service.
B-9. Compensation. The term "Compensation" for purposes of
this Supplement B means total cash compensation paid to an
employee for personal services rendered to an Employer, including
salary, wages, pre-tax employee deposits under any qualified
profit sharing or stock bonus plan maintained by an Employer,
employer contributions on behalf of the employee to a cafeteria
plan of an Employer pursuant to section 125 of the Internal
Revenue Code of 1986, bonuses, incentive payments, commissions,
overwrites, vacation pay, unit closing allowances (except to the
extent such allowances are paid in a lump sum), employer payments
for temporary military service and short-term illness allowances,
but excluding any awards under any long-term executive
compensation plan, service allowances, retirement or profit
sharing benefits, long-term disability benefit payments, prizes
or awards, retainers, living expense allowances, moving
allowances, payments or reimbursements in connection with moving
expenses, special geographic differentials, medical expense
reimbursements, lump sum payments for vacations earned but not
taken, overseas compensation adjustments (as determined under the
employer's personnel policy), dividends paid with respect to
shares of restricted stock, cash payments received pursuant to
stock options and all other special compensation of any kind.
The Compensation otherwise determined with respect to a
Participant whose employment with the Employers last terminated
under conditions entitling him to a benefit under the Plan will
be adjusted by the Plan Administrator to mitigate the effect of
receipt of reduced compensation (or no compensation) due to a
period of employment with a Related Company prior to his last
date of severance with the Employers if the Pension Plan
Administrator determines that such Participant's Compensation, as
otherwise determined in accordance with this subsection B-9, does
not fairly reflect such Participant's earnings history. If a
Participant's Compensation is adjusted by operation of the
preceding sentence then, with respect to such Participant, the
term "Compensation" shall mean his Compensation as so adjusted.
Notwithstanding the foregoing provisions of this subsection B-9,
no Compensation earned after December 31, 1988 shall be taken
into account in determining a Participant's Supplement B benefit.
B-10. Past Service Compensation. A participant's "Past
Service Compensation" means that part of his Compensation for the
calendar year 1976 or 1977, whichever is higher, which does not
exceed $15,000, and for this purpose, the actual Compensation
received by a Participant who
also was receiving long-term disability payments for part of
either of those years will be converted to its annual equivalent.
B-11. Final Average Monthly Compensation. A
participant's "Final Average Monthly Compensation" shall mean the
highest result obtained by dividing his Compensation (as
determined in accordance with subsection B-9 above) during a
Considered Period by the number of months in such Considered
Period. A "Considered Period" shall mean any period of five
successive complete calendar years of a Participant's period of
Continuous Service which falls within the last ten successive
complete calendar years of his period of Continuous Service
ending on the earlier of December 31, 1988 or his last date of
severance prior to January 1, 1989; provided, however, that a
Considered Period shall not include any such complete calendar
year of Continuous Service during which he was absent for more
than 120 days because of an approved leave of absence due to
illness, layoff or military service, nor any such complete
calendar year that occurred after the calendar year in which he
attains age 65 but before January 1, 1988, unless the Participant
completes an Hour of Service (as defined in subsection 2.5) on or
after January 1, 1988. If a Participant's number of total
complete calendar years of Continuous Service on the earlier of
December 31, 1988 or his last date of severance prior to January
1, 1989 does not equal or exceed five years, then, subject to the
foregoing provisions, such Participant's considered period shall
consist of all such complete calendar years.
B-12. Estimated Projected Primary Social Security
Benefit. The Estimated Projected Primary Social Security Benefit
for purposes of calculating the amount of a Participant's
Supplement B benefit shall be the monthly amount which it is
estimated will be payable to him at his Normal Retirement Date
(or, if applicable, the amount that will be payable to him at his
later severance date) under the provisions of the Social Security
Act, as amended and as in effect on the earlier of December 31,
1988 or his last date of severance prior to January 1, 1989,
subject to the following:
(a) It will be assumed that in the case of a Participant
who would attain his Normal Retirement Age after the
earlier of December 31, 1988 or his last date of
severance prior to January 1, 1989, that he would have
received Compensation for each year in the period
beginning with the earlier of the 1988 calendar year or
the year in which his last date of severance prior to
January 1, 1989 occurs and until the calendar year in
which he would attain his Normal Retirement Age in an
amount equal to the annual amount of his Final Average
Monthly Compensation.
(b) It will further be assumed that a Participant received
compensation in each calendar year in the period ending
after the later of the calendar year 1950 and the
calendar year in which he attained age 21 and up to the
end of the earlier of the 1988 calendar year or the
calendar year coincident with or next preceding his
last date of severance prior to January 1, 1989 (or, in
the case of a part-time or part-time regular employee
whose Retirement Income is recalculated for each Plan
Year or who receives a lump sum payment for each Plan
Year to reflect Compensation and service earned after
his Normal Retirement Date, up to the end of each such
Plan Year occurring prior to January 1, 1989) in an
amount equal to
the product of (i) the annual amount of his Final
Average Monthly Compensation multiplied by (ii) a
factor derived from Table 2 which is attached to and
forms a part of this Supplement B.
(c) In the case of a Participant whose severance date
occurs after the date on which he attains his Normal
Retirement Age, his Estimated Projected Primary Social
Security Benefit (A) will be adjusted to reflect cost
of living increases, if any, that would have been
applied to his benefit payable under the Social
Security Act had he retired on his Normal Retirement
Date from such Normal Retirement Date through the
earlier of December 31, 1988 or his last date of
severance prior to January 1, 1989, but (B) will not be
adjusted to reflect any delayed retirement credits that
will be applied in the calculation of his benefit under
the Social Security Act.
(d) For purposes of this subsection B-12, a Participant's
Final Average Monthly Compensation shall be determined
on the basis of the same five-year (or shorter) period
used in determining his Final Average Monthly
Compensation for purposes of subsection B-11, above
including any increases or decreases in Final Average
Compensation that occur as a result of his period of
employment after he attains his Normal Retirement Age
and prior to January 1, 1989.
The amount of a Participant's Supplement B benefit shall be
calculated based on his Estimated Projected Primary Social
Security Benefit as of December 31, 1988 as determined above
unless he elects that, for purposes of calculating such
Supplement B benefit as of December 31, 1988, his Estimated
Projected Primary Social Security Benefit be determined
based on his actual earnings history. Such election by a
Participant to have his Estimated Projected Primary Social
Security Benefit determined based upon his actual earnings
history must be made by written notice filed with the Plan
Administrator. Such election shall become effective only
if, within such reasonable period of time as shall be
established by the Plan Administrator, such Participant
supplies the Plan Administrator with a record of the actual
earnings upon which his Primary Insurance Amount under the
Federal Social Security Act will be based. As soon as
practicable, after receiving such request and earnings
record, the Plan Administrator shall recalculate the
Participant's Supplement B benefit as of the Participant's
Annuity Starting Date. If the Participant's Supplement B
benefit increases as a result of such recalculation, the
Participant shall be entitled to the larger amount, but in
no event shall the substitution of actual earnings history
cause a decrease in a Participant's Supplement B benefit.
If the Participant has already commenced receiving his
Supplement B benefit, the Plan Administrator shall (i)
convert that larger Supplement B benefit into the form of
payment originally elected by the Participant, (ii) pay the
Participant, in a lump sum and without interest, the
difference between the Supplement B benefit payment(s) he
has already received and the payment(s) he would have
received had the Participant provided his actual earnings
history when his Supplement B benefit was first calculated,
and (iii) if the Participant is receiving his Supplement B
benefit in the form of an annuity, increase his future
monthly payments to equal the amount produced by the
recalculation. In no event shall any such recalculation
affect the form of payment chosen by the Participant when he
first commenced receiving his Supplement B benefit.
B-13. Amount of Supplement B Benefit at Normal
Retirement Date. Subject to the limitations of section 415 of
the Code, a Participant's Supplement B benefit, payable to him in
the form of a single life annuity commencing on the first day of
the month following his attainment of age 65, will be an amount
equal to the sum of the following:
(a) An amount equal to one-twelfth (1/12th) of two-tenths
of one percent (.2%) of his Past Service Compensation
multiplied by his Period of Credited Past Service; and
(b) An amount equal to a percentage of his Final Average
Monthly Compensation reduced by the same percentage of
his monthly Estimated Projected Primary Social Security
Benefit (but not exceeding fifty percent of such
monthly Estimated Projected Primary Social Security
Benefit in any event), such percentage to be the sum
of:
(i) One and one-half percent (1-1/2%) multiplied by
that portion of his period of Credited Future
Service which occurred before the first day of the
calendar month in which he had both attained age
50 and completed fifteen years of Continuous
Service; and
(ii) Two percent (2%) multiplied by that portion of his
period of Credited Future Service which occurred
after the end of the calendar month next preceding
the month in which he had both attained age 50
years and completed fifteen years of Continuous
Service.
B-14. Effect of Severance After Attainment of Age 63.
Subject to the limitations of section 415 of the Internal Revenue
Code, if a Participant severs his employment with all Employers
and Related Companies for a reason other than his death, and on
or after attainment of age 63, but before his Normal Retirement
Date, he will be credited with a Supplement B benefit, commencing
with the first day of the month following the date of severance,
in an amount equal to the sum of the following:
(a) An amount equal to one-twelfth (1/12th) of two-tenths
of one percent (.2%) of his past service compensation
multiplied by his period of credited past service; and
(b) An amount equal to a percentage of his final average
monthly compensation, such percentage to be an amount
calculated in the same manner as provided in clauses
(i) and (ii) of paragraph B-13(b), but such amount then
to be reduced by a percentage of the Participant's
Estimated Projected Primary Social Security Benefit,
such percentage to be:
(i) In the case of a Participant whose Period of
Credited Future Service began when he had attained
age 36 and 8 months or more, a percentage
calculated in the same manner as provided in
clauses (i) and (ii) of paragraph B-13(b); and
(ii) In the case of a Participant whose Period of
Credited Future Service began before he had
attained age 36 years and 8 months, a percentage
initially calculated in the same manner as
provided in clauses (i) and (ii) of paragraph
B-13(b), but such percentage then to be reduced by
multiplying it by the appropriate factor derived
from Table 1 which is attached to and forms a part
of this Supplement B.
B-15. Effect of Severance After Attainment of Age 55 and
Completion of 10 or More Years of Continuous Service. If a
Participant severs his employment with all of the Employers and
Related Companies for a reason other than his death, and after he
has both attained age 55 and completed 10 or more years of
Continuous Service, but before attainment of age 63, he will be
entitled to a Supplement B benefit equal to the one of the
following which he shall elect:
(a) A Supplement B benefit, commencing with the first day
of the month next following the date he will attain age
63, in an amount determined in accordance with
subsection B-14; or
(b) A Supplement B benefit, commencing as of the first day
of the month next following the date of severance or as
of the first day of any month thereafter, in an amount
equal to the amount described in paragraph (a) above,
but then reduced by .4167% thereof for each full month
that the date of commencement precedes the first day of
the month next following the date he will attain age
63.
B-16. Deferred Vested Benefit. If a Participant severs
his employment with all Employers and Related Companies for a
reason other than his death, and before he has both attained age
55 and completed 10 years of Continuous Service, but after he has
completed five or more years of Continuous Service (including at
least one Hour of Service in a Plan Year beginning after
December 31, 1988), he will be entitled to a Supplement B benefit
commencing with the first day of the month next following the
date he attains age 65, in an amount determined in accordance
with paragraph B-14. In lieu of the benefit described in the
preceding sentence, he may elect a Supplement B benefit,
commencing as of the first day of any month following the month
in which he attains age 55, in an amount equal to the amount
described in the preceding sentence, but then reduced to its
Actuarial Equivalent. If a Participant who severed from
employment prior to January 1, 1989 when ineligible for a
deferred Retirement Income is reemployed, the Participant shall
be fully vested in his Supplement B benefit upon completion of
five or more years of Continuous Service, provided he completes
at least one Hour of Service in a Plan Year beginning after
December 31, 1988.
B-17. Actuarial Equivalents. Except where covered by a
table attached to this Supplement B, in determining whether one
form of Supplement B benefit is the "Actuarial Equivalent" of
another form of Supplement B benefit for purposes of determining
the protected Accrued Benefit under subsection 5.6 of the Plan,
the applicable provisions of subsection 8.5 shall govern.
SEARS PENSION PLAN
SUPPLEMENT B
Table 1
Factors to be Applied, Depending upon Age of Participant at Time
Credited Future Service Commenced, in Determining Percentage of
Estimated Projected Primary Social Security
Factor to be Applied
Age of Participant To Percentage of Esti-
When Credited Future mated Projected Primary
Service Began Social Security Benefit
36 years and 8 months or more 1.0000
36 years or more but less than 36 years
and 8 months .9804
35 years or more but less than 36 years .9524
34 years or more but less than 35 years .9259
33 years or more but less than 34 years .9009
32 years or more but less than 33 years .8772
31 years or more but less than 32 years .8547
30 years or more but less than 31 years .8333
29 years or more but less than 30 years .8130
28 years or more but less than 29 years .7937
27 years or more but less than 28 years .7752
26 years or more but less than 27 years .7576
25 years or more but less than 26 years .7407
24 years or more but less than 25 years .7246
23 years or more but less than 24 years .7092
22 years or more but less than 23 years .6944
21 years or more but less than 22 years .6803
20 years or more but less than 21 years .6667
19 years or more but less than 20 years .6536
18 years or more but less than 19 years .6410
17 years or more but less than 18 years .6289
16 years or more but less than 17 years .6173
15 years or more but less than 16 years .6061
SEARS PENSION PLAN
SUPPLEMENT B
Table 2
Table of Factors to be applied under Clause (b)(ii) of Subsection
B-12 of Supplement B
Complete Calendar Years
Preceding the Earliest of
the 1989 Calendar Year and Factor to be Applied to
the Calendar Year in Which Annualized Final Average
Day Following Severance Monthly Compensation to
Date Prior to January 1, Determine Compensation
1989 Occurs in That Calendar Year
First (most recent) Year 1.0000
Second Year 1.0000
Third Year 1.0000
Fourth Year 1.0000
Fifth Year 1.0000
Sixth Year .8396
Seventh Year .7921
Eighth Year .7473
Ninth Year .7050
Tenth Year .6651
Eleventh Year .6274
Twelfth Year .5919
Thirteenth Year .5584
Fourteenth Year .5268
Fifteenth Year .4970
Sixteenth Year .4688
Seventeenth Year .4423
Eighteenth Year .4173
Nineteenth Year .3936
Twentieth Year .3714
Twenty-First Year .3503
Twenty-Second Year .3305
Twenty-Third Year .3118
Twenty-Fourth Year .2942
Twenty-Fifth Year .2775
To calculate the factor for the Twenty-Sixth year, the factor for
the Twenty-Fifth year is divided by 1.06. The factors for the
Twenty-Seventh and subsequent years shall be determined in a
similar manner.
SUPPLEMENT C
TO
SEARS PENSION PLAN
RELATING TO TRANSFERRED EMPLOYEES
PRORATION
(Effective January 1, 1984)
C-1. Coverage. Only Transferred Employees whose transfers
occurred on or before June 30, 1995 will be Participants in this
Supplement C. A "Transferred Employee" is a Participant in the
Sears Pension Plan (the "Plan"):
(a) who, on or after January 1, 1984 and within a period of
twelve months following a prior severance from
employment with all Employers and Related Companies,
was employed by one of more Employers maintaining the
Plan; or
(b) who, on or after January 1, 1984 and without any
severance from employment with all Employers and
Related Companies, at the request of a Related Company
or by mutual agreement, transferred directly to
employment with an Employer under the Plan; and
(c) who, prior to such transfer or commencement of such
employment, was employed by a Related Company which is
not an Employer under the Plan and, while so employed,
was a Participant in a defined benefit pension plan
maintained by such Related Company under which
Retirement Incomes were based upon final average
(rather than career average) earnings (such plan being
referred to below as a "Related Plan"); and
(d) who, with respect to any such transfer or commencement
of such employment that occurred after December 31,
1987, completed at least twelve months of Continuous
Service with an Employer under the Plan after such
transfer or commencement of such employment; and
(e) who again severs employment with all Employers and
Related Companies for any reason (including death) and
under conditions entitling him (or his Qualified Spouse
or any other person) to a Retirement Income or Deferred
Vested Benefit income under the Plan; and
(f) whose last period of Continuous Service was with one or
more Employers.
C-2. Calculation of Basic Monthly Retirement Income for
Participants in this Supplement C. Notwithstanding the
provisions of subsection 5.1, the Accrued Benefit of a
Participant in this Supplement C will be calculated as follows:
(a) First, the Accrued Benefit that would be payable to (or
on account of) such Participant under the Plan and each
Related Plan will be calculated using the Participant's
period of Credited Service (or such other denominated
service which is used in calculating benefits under any
Related Plan) and using his Compensation from all
Employers and all Related Companies in determining his
Final Average Monthly Compensation;
(b) Next, the respective amounts calculated for the Plan
and each Related Plan under subparagraph (a) above will
be multiplied by a fraction, the numerator of which
shall consist of (i) that portion of his period of
Continuous Service during which he was an employee of
one or more Employers (with respect to amounts
calculated for the Plan) or (ii) that portion of his
period of Continuous Service during which he was an
employee of one or more Related Companies maintaining a
Related Plan (with respect to amounts calculated for
such Related Plan), as the case may be, and the
denominator of which shall consist of the period of his
Continuous Service;
(c) The Accrued Benefit under the Plan to or on account of
a Participant in this Supplement C shall be the excess
of
(i) the sum of the amounts calculated after
application of (a) and (b) next above,
over
(ii) the sum of the amounts that would be payable in
the form of a monthly Retirement Income payable as
a single life annuity commencing on his Normal
Retirement Date to such Participant under all
Related Plans.
C-3. Death of Certain Participants in this Supplement C. If
a Participant in this Supplement C dies while employed by one or
more Employers, Retirement Income will be payable to such
Participant's Qualified Spouse (or other person) in accordance
with the provisions of Section 10 of the Plan. The amount of
such Retirement Income will be based, initially, upon the Accrued
Benefit that would have been payable to the deceased Participant
as calculated in accordance with subsection C-2 of this
Supplement C, and finally, upon the effect of any option election
by such Participant which may have become effective before his
death.
C-4. Use of Terms. Except where the context of this
Supplement C expressly indicates to the contrary, terms used and
defined in the Plan shall have the same meanings for purposes of
this Supplement C. As used in this Supplement C, the term "this
Supplement C" shall include only this Supplement C, and
references to the "Plan" shall include all provisions of the Plan
and all other supplements, tables and exhibits attached to and
forming a part of the Plan, but shall not include this Supplement
C.
C-5. Effect of Different Commencement Dates. For purposes
of this Supplement C, if the Participant is eligible to
immediately commence receiving his Accrued Benefit under this
Plan and under each Related Plan, his prorated benefit under
subsection C-2 shall be calculated on the basis of a single life
annuity payable immediately from this Plan and from all such
Related Plans. If, instead, the Participant is eligible to
immediately commence his Accrued Benefit under this Plan but not
under one or more Related Plans, paragraph C-2(c) shall be
applied using the single life annuity value of any immediately-
payable amount calculated for the Plan and any Related Plan, and
the Actuarial Equivalent of any amount for a Related Plan the
Accrued Benefit from which is not immediately payable to the
Participant.
C-6. Calculation Upon Employer's Departure From Controlled
Group. If an entity referred to in paragraph C-1(c) ceases to be
a Related Company, the proration benefit provided under this
Supplement C shall be frozen, with respect to such former Related
Company, as of the day of its departure from the Company's
Controlled Group. In such event the "Frozen Proration Benefit"
of each affected Participant with respect to that departed
Related Company shall be equal to the excess of (a) his Accrued
Benefit under the Plan determined under the provisions of
subsection C-2 as of the date of the former Related Company's
departure from the Controlled Group, over (b) such Participant's
Accrued Benefit under the Plan determined as of the same date but
treating the plan of the former Related Company as though it were
not a Related Plan within the meaning of paragraph C-1(c). When
any such Participant terminates employment with the Employers and
remaining Related Companies, his Accrued Benefit income shall
equal the sum of (i) his Accrued Benefit income determined under
the applicable provisions of Section 5 without regard to this
Supplement C and (ii) his frozen proration benefit (or benefits,
if the Participant is affected by the departure of more than one
Related Company), which sum shall be reduced for commencement
prior to his Normal Retirement Date in accordance with the Plan's
applicable reduction factors, treating the Participant's frozen
proration benefit(s) as part of his base benefit for purposes of
any such reduction.
SUPPLEMENT D
TO
SEARS PENSION PLAN
[Intentionally Left Blank]
SUPPLEMENT E
TO
SEARS PENSION PLAN
SPECIAL RULES FOR TOP-HEAVY PLANS
E-1. Purpose and Effect. The purpose of this Supplement E
is to comply with the requirements of section 416 of the Internal
Revenue Code of 1954. The provisions of this Supplement E shall
be effective for each Plan Year beginning after December 31, 1983
in which the Plan is a "Top-Heavy Plan" within the meaning of
section 416(g) of the Internal Revenue Code.
E-2. Top-Heavy Plan. In general, the Plan will be a Top-
Heavy Plan for any Plan Year if, as of the last day of the
preceding Plan Year (the "Determination Date"), the present value
of the cumulative accrued benefits of Participants who are Key
Employees (as defined in section 416(i)(1) of the Internal
Revenue Code) exceeds 60 percent of the present value of the
cumulative accrued benefits of all Participants. In making the
foregoing determination, the following special rules shall apply:
(a) The present value of a Participant's Accrued Benefit
shall be increased by the aggregate distributions, if
any, made with respect to the Participant during the
five-year period ending on the Determination Date.
(b) The accrued benefit of a Participant who was previously
a Key Employee, but who is no longer a Key Employee,
shall be disregarded.
(c) The accrued benefit of a beneficiary of a Participant
shall be considered an accrued benefit of the
Participant.
E-3. Key Employee. In general, a "Key Employee" is a
Participant who, at any time during the five-year period ending
on the Determination Date, is:
(a) an officer of the Employer;
(b) one of the ten Participants owning the largest
interests in the Employer;
(c) a 5 percent owner of the Employer; or
(d) a 1 percent owner of the Employer receiving annual
compensation from the Employer of more than $150,000.
In no event shall more than 50 employees (or, if lesser, the
greater of three persons or 10% of the employees) be treated as
officers.
E-4. Minimum Vesting. For any Plan Year in which the Plan
is a Top-Heavy Plan, a Participant's vested percentage in his
Accrued Benefit shall not be less than the percentage determined
under the following table:
Years of Vested
Credited Service Percentage
Less than 2 0
2 20
3 40
4 60
5 80
6 or more 100
If the foregoing provisions of this paragraph E-4 become
effective, and the Plan subsequently ceases to be a Top-Heavy
Plan, each Participant who has then completed five or more years
of credited service may elect to continue to have the vested
percentage of his Accrued Benefit determined under the provisions
of this paragraph E-4.
E-5. Minimum Benefit. A Participant's monthly Retirement
Income or Deferred Vested Benefit, commencing at his Normal
Retirement Date and payable as a life annuity, shall not be less
than an amount equal to 2 percent of his Average Compensation (as
defined below), multiplied by the number of years (not to exceed
ten) of his Top-Heavy Service (as defined below). A
participant's "Average Compensation" means the monthly average of
his Compensation for the five consecutive years for which his
Compensation was highest, disregarding any Compensation paid
after the last year in which the Plan is a Top-Heavy Plan. A
Participant shall be entitled to a year of "Top-Heavy Service"
for each year of his Credited Service after December 31, 1983
during which the Plan is a Top-Heavy Plan and he is a Participant
thereunder.
E-6. Maximum Earnings. For any Plan Year in which the Plan
is a Top-Heavy Plan, a Participant's earnings in excess of
$200,000 (or such greater amount as may be determined by the
Commissioner of Internal Revenue for that Plan Year) shall be
disregarded for purposes of subsection 5.2 of the Plan.
E-7. Commencement of Distributions. Distribution of a Key
Employee's benefits must commence no later than the first
December 31 on which both of the following have occurred:
(a) the Plan is then a Top-Heavy Plan; and
(b) the Key Employee has attained age 70-1/2.
Notwithstanding the foregoing provisions of this paragraph E-7, a
Key Employee may elect, by filing a written designation with the
Pension Plan Administrator prior to January 1, 1984, to have
distribution of his benefits commence at any date permitted under
the terms of the Plan as in effect immediately preceding
January 1, 1984.
E-8. Aggregation of Plans. In accordance with section
416(g) (2) of the Internal Revenue Code, other plans maintained
by the Employers and Related Companies may be required or
permitted to be aggregated with this Plan for purposes of
determining whether the Plan is a Top-Heavy Plan.
E-9. No Duplication of Benefits. If the Employers and
Related Companies maintain more than one Plan, the minimum
benefit otherwise required under paragraph E-5 above may be
reduced in accordance with regulations of the Secretary of
Treasury to prevent inappropriate duplication of minimum benefits
or contributions.
E-10. Adjustment of Combined Benefit Limitations. For
any Plan Year in which the Plan is a Top-Heavy Plan, paragraphs
(2)(B) and (3)(B) of section 415(e) of the Internal Revenue Code,
to the extent applicable, shall be applied by substituting "1.0"
for "1.25".
E-11. Use of Terms. All terms and provisions of the
Plan, including all other Supplements, shall apply to this
Supplement E, except that where the terms and provisions of the
Plan (and all other Supplements) and this Supplement E conflict,
the terms and provisions of this Supplement E shall govern.
SUPPLEMENT F
TO
SEARS PENSION PLAN
RELATING TO STS EMPLOYEES
(EFFECTIVE AS OF JANUARY 1, 1991)
F-1. Coverage. Only employees of Sears Technology Services,
Inc. ("STS") will be Participants in this Supplement F.
F-2. Definitions. Except as otherwise provided in this
Supplement F, words that have been defined in the Plan or any
other Supplement to the Plan shall have the same meaning in this
Supplement F.
F-3. Participation. Each employee of STS who meets the
eligibility requirements of either paragraph 2.1(a) or 2.1(b)
shall become a Participant in the Plan on the later of (a) the
date specified in such paragraph 2.1(a) or 2.1(b) (whichever is
applicable) or January 1, 1991.
F-4. Credited Service. Notwithstanding the provisions of
subsection 2.3, no STS employee shall have Credited Service prior
to January 1, 1991 unless such employee had Credited Service
prior to such date pursuant to subsection 2.3 as an employee of
an Employer other than STS, except as otherwise provided in
subsection F-6 below.
F-5. Retirement Income Formula. In calculating the Accrued
Benefit of an STS employee under the Plan, 1.1 shall be
substituted for .85 in subparagraph 5.1(a)(iii)(A) for any period
of Credited Service as an STS employee after December 31, 1990,
and the last clause of paragraph 5.1(a)(iii) shall be
inapplicable to any such period of Credited Service; provided,
however, that if any STS employee is entitled to a prorated
benefit under Supplement C, December 31, 1988 shall be
substituted for December 31, 1990 in the foregoing clause, solely
for purposes of calculating such prorated benefit under
Supplement C.
F-6. Special Rules for January 1, 1991 STS Employees.
Notwithstanding the preceding subsections of this Supplement F,
for purposes of calculating the Accrued Benefit of any
Participant who was an employee of STS on January 1, 1991 and who
on that date also was a Participant in this Plan or any other
defined benefit pension plan with a final average pay formula
sponsored by an Employer or a Related Company, the following
special rules shall apply:
(a) Supplement C of the Plan shall be applied as if during
the period from such Participant's date of hire by STS
to December 31, 1999 (or if earlier, the date he
terminates employment with the Employers and Related
Companies) he had been employed by Allstate Insurance
Company and covered under the Allstate Retirement Plan
as in effect on January 1, 1991 or, if earlier, the
date of his termination of employment (and had not been
employed by STS during that same period).
(b) If such an STS employee has Credited Service recognized
under the provisions of subsection 5.1 for any period
to which subsection F-5 above is inapplicable because
such service is for an Employer other than STS,
Supplement C shall apply to such Participant as though
his shift between the normal formula described in
subsection 5.1 and the special formula for STS
employees described in subsection F-5 were a transfer
of employment between an Employer and a Related Company
sponsoring a different defined benefit pension plan.
SUPPLEMENT G
TO
SEARS PENSION PLAN
RELATING TO RETIREE MEDICAL BENEFITS
(EFFECTIVE AS OF JANUARY 1, 1993)
G-1. Purpose. The purpose of this Supplement G to the Sears
Pension Plan (the "Plan") is to provide for the payment of
medical benefits for eligible Participants (as described in
subsection G-4) under the Plan.
G-2. Effective Date. This Supplement G is effective on
January 1, 1993.
G-3. Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined in this Supplement G.
G-4. Eligible Member. For purposes of this Supplement G,
the term "Eligible Participant" means each Participant who
retires on or after January 1, 1993 under the Plan and who is
eligible for post-retirement medical benefits under the Sears
Group Health Plans for Retirees and Their Families ("Health
Plans"). An Eligible Participant who is re-employed by an
Employer or Related Company shall cease to be an Eligible
Participant during the period of his re-employment.
G-5. Payment of Medical Benefits. Subject to the provisions
of subsection G-13, no benefits under this Supplement G shall be
paid directly to any Participant or beneficiary. However,
subject to the provisions of this Supplement G, all payments for
sickness, accident, hospitalization and medical expenses for
Eligible Participants and their Qualified Spouses and dependents
under the Health Plans, including any required insurance
premiums, shall be paid or reimbursed by the Trustee at the
direction of the Company solely from amounts credited to the
separate account (as described in subsection G-7).
G-6. Employer Contributions. Subject to the provisions of
subsection G-13 and the following provisions of this subsection
G-6, the Employers and Related Companies shall make contributions
from time to time to the Trustee in such amounts, as determined
by the Company in accordance with generally accepted actuarial
methods, necessary to fund medical benefits required to be paid
in accordance with subsection G-5; provided, however, that for
any Plan Year, no Employer shall be required to contribute an
amount in excess of the maximum amount deductible on account
thereof by the Employer for that Plan Year as an expense for
federal income tax purposes. In no event shall the amount of the
Employer's contribution under this subsection G-6 for any Plan
Year exceed the lesser of the following amounts:
(a) the amount which, when aggregated with all prior
contributions under this Supplement G, equals 25
percent of the total contributions made to the Plan
(other than contributions to fund past service credits)
after January 1, 1993; or
(b) the amount necessary to fund amounts required to be
paid in accordance with subsection G-5, as determined
by the Investment Committee for the Plan Year in
accordance with generally accepted actuarial methods.
Each Employer and Related Company, at the time it makes a
contribution to the Plan, shall designate in writing to the
Trustee that portion, if any, of its contribution which is
allocable to the funding of medical benefits under this
Supplement G.
G-7. Separate Account. The Trustee (or the Investment
Committee on behalf of the Trustee) shall maintain a separate
account which shall reflect the portion of the assets of the Plan
allocable to the provision of medical benefits pursuant to this
Supplement G. The Trustee shall not be required to separately
invest the funds credited to such separate account; provided,
however, that if the funds credited to the separate account are
invested with the other assets of the Plan, the Trustee (or the
Investment Committee on behalf of the Trustee) shall allocate a
reasonable portion of the earnings on the assets of the Plan to
the separate account.
G-8. Individual Medical Benefit Account for Key Employee.
The portion of an Employer's contribution which is allocable to
the provision of medical benefits to or on behalf of a
Participant who is a Key Employee (as defined below) shall be
credited to an individual medical benefit account which shall be
established and maintained for each such Participant under the
separate account. Employer costs for medical benefits provided
under this Supplement G with respect to an Eligible Participant
(or his Qualified Spouse or dependents) for whom an individual
medical benefit account is maintained shall be payable only from
such individual medical benefit account. For purposes of the
preceding sentence, the term "Key Employee" means any employee
who, at any time during the Plan Year or any preceding Plan Year
during which contributions were made on his behalf, is or was a
Key Employee as defined in section 416(i) of the Code.
G-9. Payment From General Corporate Assets. Insurance
premiums and other costs and expenses under the Health Plans
otherwise required to be paid or reimbursed under subsection G-5
shall not be payable from the Plan (but may be paid by an
Employer and Related Company from its general corporate assets):
(a) to the extent that the assets in the separate account
at the time such premiums or other costs and expenses
are due and payable are insufficient to meet the total
of the premiums, costs and expenses then due for
eligible participants under the Health Plans; and
(b) to the extent that amounts credited to an Eligible
Participant's individual medical benefit account are
insufficient to meet the total cost of benefits for
that Eligible Participant (and his Qualified Spouse and
dependents) under the Health Plans for that year.
G-10. Forfeiture. If a Key Employee ceases to be, or is
precluded from becoming, an Eligible Participant under this
Supplement G for any reason, his individual medical benefit
account shall be eliminated and any amount credited thereto shall
be reallocated to the separate account for the payment of medical
benefits to other Eligible Participants.
G-11. Diversion Prohibited. Prior to the satisfaction
of all liabilities under this Supplement G, no part of the assets
of the Plan allocable to the separate account may be used for, or
diverted to, any purpose other than paying health insurance
premiums and providing medical benefits directly to Eligible
Participants and their Qualified Spouses and dependents and the
payment of appropriate expenses of the Plan attributable to the
administration of the separate account under this Supplement G.
G-12. Reversion to Employer. Any amounts which remain
credited to the separate account after satisfaction of all
liabilities for the provision of medical benefits under this
Supplement G shall be returned to the Employers and Related
Companies. The portion of the separate account which shall be
returned to an Employer shall be determined by the Company in
such manner as the Company determines to be equitable.
G-13. Amendment and Termination. The Company's right to
amend or terminate the Health Plans including, without
limitation, the right to decrease benefit levels or increase
required employee contributions, shall be governed exclusively by
the terms and conditions of the Health Plans and shall not be
limited or abridged by the provisions of this Supplement G. The
Company reserves the right to amend and to terminate the
provisions of this Supplement G at any time, including, without
limitation, the right to include additional persons as Eligible
Participants, and the right to eliminate the obligation under the
Plan of any Employer and Related Companies to make contributions
required under subsection G-6 for any Plan Year; provided,
however, that an amendment or termination which would eliminate
the obligation of an Employer and Related Companies to make
contributions required under subsection G-6 for any Plan Year
shall be effective only if the amendment or termination is
adopted before the last day of that year or, if earlier, the date
such contribution is paid.
G-14. No Guaranty of Benefits. Neither the Trustee nor
the Employers and Related Companies in any way guarantee the
assets credited to the separate account from loss or
depreciation. The Employers and Related Companies do not
guarantee any payment for benefits under this Supplement G to any
person. The liability of the Trustee to make any payment for
medical benefits under this Supplement G is limited to the assets
credited to the separate account.
SUPPLEMENT H
TO
SEARS PENSION PLAN
RELATING TO ADVANTIS EMPLOYEES
(EFFECTIVE AS OF JANUARY 1, 1993)
H-1. Purpose. The purpose of this Supplement H to the Sears
Pension Plan (the "Plan") is to provide for the recognition of
service with, and compensation from, Advantis, a New York general
partnership in which the Company has an interest ("Advantis"),
for certain purposes under the Plan.
H-2. Effective Date. This Supplement H is effective as of
January 1, 1993.
H-3. Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined in this Supplement H.
H-4. Eligible Participant. For purposes of this Supplement
H, the term "Eligible Participant" means each person listed on
Schedule H attached hereto who became an employee of Advantis or
of a subsidiary of Advantis on the later of January 1, 1993 or
the date such person returned to work from an authorized leave
(commencing prior to January 1, 1993) under a leave of absence
policy of an Employer or Related Company, or who was transferred
by an Employer to Advantis after January 1, 1993. For purposes
of this Supplement H, a "Subsidiary" of Advantis is any
partnership, corporation or unincorporated association of which
Advantis owns or controls, either directly or indirectly, more
than 50% of the outstanding shares or securities entitled to
vote, or, in the absence of shares or securities with voting
rights, more than 50% of the ownership interest representing the
right to make decisions for such entity. No additional benefits
of any kind shall accrue to an otherwise Eligible Participant
under this Supplement H after the earliest of (a) the date such
Eligible Participant receives or commences distribution of his
benefit under Section 5 of the Plan, (b) the date the Company
disposes of its interest in Advantis or (c) December 31, 1999.
H-5. Recognition of Partnership Service. Solely for
purposes of determining an Eligible Participant's eligibility to
receive his Accrued Benefit prior to his Normal Retirement Date
under subsection 5.4 or 6.1 and his eligibility for a Lump Sum
payment under paragraph 8.3(e) of the Plan (but not for purposes
of calculating the amount of his Accrued Benefit under subsection
5.1 or, if applicable, Supplements A, C and/or F except for
determining eligibility for the special enhancement under the
Allstate formula (as in effect on December 31, 1992) incorporated
into Supplement F), the term "Continuous Service" (as defined in
subsection 2.2 of the Plan) shall include service with Advantis
and any of its subsidiaries as though Advantis and any such
subsidiary were a Related Company.
H-6. Compensation. The Compensation of an Eligible
Participant under subsection 5.2 of the Plan shall include
Compensation paid to him by Advantis or any of its subsidiaries
as though Advantis or any such subsidiary were an Employer under
the Plan. Advantis compensation shall be included in the same
manner as additional compensation is taken into account under
subparagraph 5.1(a)(ii)(B), using Final Average Monthly
Compensation as of the date of the Eligible Participant's
transfer to Advantis as the denominator.
H-7. Early Retirement After 30 Years of Continuous Service.
An Eligible Participant who terminates employment with Advantis
or one of its subsidiaries after having completed at least 30
years of Continuous Service shall be eligible to receive his
Accrued Benefit under subsection 5.1 (or Supplements A, C or F,
if applicable) without any reduction for commencement prior to
his Normal Retirement Date. An Eligible Participant who has not
already been credited with 30 years of Continuous Service at the
time of his termination of employment with Advantis or one of its
subsidiaries may not satisfy such 30-year requirement through
subsequent employment with an Employer or Related Company.
H-8. Early Retirement After Age 55 With 15 Years of
Continuous Service. An Eligible Participant who terminates
employment with Advantis or one of its subsidiaries after
attainment of age 55 with at least 15 (but fewer than 30) years
of Continuous Service shall be eligible to receive his Accrued
Benefit under subsection 5.1 (or Supplements A, C and/or F, if
applicable) reduced by the lesser of (i) 5% for each year (or
fraction thereof) by which his years of Continuous Service are
fewer than 30 or (ii) 5% for each year (or fraction thereof) by
which the age of such Eligible Participant at his Annuity
Starting Date is less than 60; provided that in no event shall
the foregoing reductions be greater than the reductions that
otherwise would be applied to the Retirement Income of such
Eligible Participant under Section 5 (and, if applicable,
Supplement A) of the Plan in the event of commencement of such
Retirement Income prior to the Eligible Participant's Normal
Retirement Date. An Eligible Participant who has not already
satisfied the above requirements at the time of his termination
of employment with Advantis or one of its Subsidiaries may not
satisfy such requirements through subsequent employment with an
Employer or Related Company.
H-9. Certain Highly Compensated Participants.
Notwithstanding the foregoing provisions of this Supplement H, no
Participant who on January 1, 1993 is a Highly Compensated
Employee, as such term is defined in section 414(q) of the
Internal Revenue Code, will accrue any additional benefits under
Subsections H-7 and H-8 after that date, and any other Eligible
Participant who thereafter becomes a Highly Compensated Employee
will cease to accrue benefits under Subsections H-7 and H-8 as of
the first day of the Plan Year during which such Eligible
Participant first becomes a Highly Compensated Employee.
H-10. Reemployment By An Employer. Notwithstanding any
other provision of the Plan, if an Eligible Participant under
this Supplement H terminates his employment with Advantis and is
reemployed by an Employer under circumstances that require the
Plan to recognize the Credited Service he earned prior to such
reemployment, his Accrued Benefit when he again terminates his
employment with the Employers and Related Companies shall be the
greater of (a) his Accrued Benefit under the Plan, determined in
accordance with the provisions of subsection H-6 as of the date
of his termination of employment with Advantis, reduced for early
commencement in accordance with applicable Plan provisions
(including the provisions of subsections H-7 and H-8 to the
extent applicable), or (b) the sum of (i) his Accrued Benefit
under the Plan as of December 31, 1992 (prior to his transfer to
Advantis) multiplied by a fraction the numerator of which is his
Final Average Monthly Compensation as of his most recent
termination of employment with the Employers and Related
Companies (determined without regard to the provisions of
subsection H-6) and the denominator of which is his Final Average
Monthly Compensation as of December 31, 1992, and (ii) his
Accrued Benefit under subsection 5.1 determined without regard to
the provisions of this Supplement H and calculated using only the
Credited Service he has earned after his reemployment by an
Employer and Related Companies following his departure from
Advantis, which sum shall be reduced for early commencement in
accordance with the applicable provisions of Section 5 and
Supplements C and F (but not subsections H-7 and H-8). In
determining whether (a) or (b) is greater, the principles set
forth in subsection C-5 shall apply.
I N S E R T A T T A C H M E N T O F S U P P L E M E N T H P A G E S
[List of Eligible Participants]
SUPPLEMENT I
TO
SEARS PENSION PLAN
RELATING TO ADDITIONAL AGE AND SERVICE CREDIT FOR ELIGIBLE
"ERIP" PARTICIPANTS (EFFECTIVE AS OF MAY 1, 1993)
I-1. Purpose. In order to assist in its business purpose of
achieving a reduction in force as part of its overall corporate
restructuring, the Company adopted the "Sears 1993 Early
Retirement Incentive Program for Checklist Associates," Plan No.
558 ("ERIP"), permitting eligible salaried employees who retire
during a limited window period to receive enhanced pension
benefits and certain other benefits.
The ERIP applies:
(a) in the case of voluntary termination of employment, to
Eligible Employees who voluntarily elect to retire
under the terms of the ERIP:
(1) in the case of employees not employed by Sears
Logistics Services, between March 1 and April 15,
1993; and
(2) in the case of employees of Sears Logistics
Services, between March 15 and April 30, 1993.
(b) in the case of involuntary termination of employment by
Sears, to eligible employees who:
(1) have an involuntary termination of employment as a
result of a unit closing or reorganization as
determined under the ERIP; or
(2) elect to retire under the terms of the ERIP.
The purposes of this Supplement I to the Sears Pension Plan
(the "Plan") are (i) to provide for additional age and service
credit under the Sears Pension Plan and Supplements for those
eligible employees who retire according to the terms of the ERIP
and (ii) to set forth those particulars wherein the Plan, as
applied to Eligible Participants in this Supplement I, and the
Retirement Income and other benefits to be provided under the
Plan, differ from, and may be in addition to, the Retirement
Income and other benefits provided under the Plan. Any benefits
provided for any person under this Supplement I will be in
addition to the benefits, if any, payable to such person under
the Plan.
I-2. Effective Date. This Supplement I is effective as of
May 1, 1993.
I-3. Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined in this Supplement I.
I-4. Eligible Employee and Eligible Participant. For
purposes of this Supplement I, the term "Eligible Employee" means
any checklist employee of Sears, Roebuck and Co., Sears Tower
Management Company, Sears Roebuck Acceptance Corp., Sears
Investment Management Company, Sears Logistical Services,
Discover Credit Corp., Sears Buying Services, Inc., Sears,
Roebuck de Puerto Rico, Inc., Sears Canada, Sears, Roebuck de
Mexico, and any other entities specified by the Company from time
to time as participating in the ERIP, who is a Participant in the
Sears Pension Plan, and who is eligible for the ERIP.
For purposes of this Supplement I, the term "Eligible
Participant" means any eligible employee who (1) accepted the
early retirement offer under the ERIP, (2) signed and returned to
the Company the ERIP Election Form and General Release and Waiver
Agreement, (3) worked until a date determined under the ERIP by
the management of the Company, (4) had an actual attained age of
at least 50 as of the earlier of December 31, 1993 or the date of
his or her last salary continuation payment pursuant to the ERIP.
Any otherwise Eligible Participant who had Compensation (as
determined in accordance with subsection 4.4 of the Plan as in
effect on May 1, 1993) for 1992 of more than $67,000 and was
eligible to retire according to the terms of the subsection
7.4(b)(ii)(A) of the Plan by May 1, 1993 will not receive any
benefits under this Supplement I.
I-5. Additional Service. Each Eligible Participant shall be
credited with an additional five years of Continuous and Credited
Service provided that
(a) such additional service credit shall not be taken into
account under a particular provision of the Plan if the
effect would be to reduce the amount of the benefit
under that provision, or to postpone the date as of
which an Eligible Participant becomes eligible to
receive the benefit under that provision;
(b) if such Eligible Participant is reemployed by an
Employer or Related Company, or becomes a part-time or
part-time regular employee, any additional service
credited hereunder shall be disregarded upon such
reemployment or becoming a part-time or part-time
regular employee, in determining the amount of his
Continuous Service and Credited Service earned prior to
his rehire or becoming a part-time or part-time regular
employee, for purposes of recalculating his basic
monthly Retirement Income after Normal Retirement Age
under subsection 9.2, eligibility for and the amount of
the lump sum payable under subsection 8.3, and
recalculation of the suspended monthly Retirement
Income under subsection 9.3 of the Plan; provided that
such disregarding of service shall not result in a
reduction to an Eligible Participant's monthly
Retirement Income to less than the amount of monthly
Retirement Income payable to him prior to such
reemployment or becoming a part-time or part-time
regular employee;
(c) such additional service shall not cause the 35-year and
11-year maximums in subparagraph 5.1(a)(iii) to be
exceeded;
(d) such additional service shall not be credited if it
would be contrary to applicable law.
I-6. Additional Age. The term "Actual Attained Age" when
used in this Supplement I shall mean a person's age as without
regard to this Supplement I, other than Section I-5. Any
Eligible Participant shall be deemed to have an attained age of
his Actual Attained Age plus five years for purposes of
determining eligibility for and the amount of benefits under the
Plan and Supplements thereto; provided, however, that:
(a) such additional age shall not be credited under a
particular provision of the Plan if the effect would be
to reduce the amount of the benefit under that
provision, or to postpone the date as of which an
Eligible Participant becomes eligible to receive a
benefit under that provision;
(b) an Eligible Participant's Actual Attained Age shall be
used for the following purposes:
(1) determining required minimum distributions under
subsection 8.12 of the Plan;
(2) determining the maximum limitations on the amount
of basic monthly Retirement Income under Section 7
of the Plan;
(3) applying the applicable reduction factors for
commencement prior to age 65 in determining the
amount of protected benefits under subsection 5.6
of the Plan;
(4) any other purpose for which Actual Attained Age is
required to be used under applicable law.
I-7. Lump Sum Calculation. If an Eligible Participant
elects payment in the form of a Lump Sum pursuant to subsection
8.3 and the terms of this Supplement I, such lump sum shall be
calculated in accordance with the provisions of subsection 7.8 of
the Plan as in effect on May 1, 1993.
I-8. Reemployment. If an Eligible Participant who receives
an enhanced benefit under this Supplement I is reemployed, and
again begins accruing benefits under the Plan, any limits on
benefit accruals based upon years of Continuous Service or
Credited Service set forth elsewhere in the Plan shall be applied
by taking into account the years of Continuous Service and years
of Credited Service included in the calculation of the
Participant's Retirement Income at his prior termination of
employment, including the additional years of service added for
purposes of that calculation under subsection I-5.
SUPPLEMENT J
TO
SEARS PENSION PLAN
LIMITATIONS ON PAYMENT UPON PLAN TERMINATION
J-1. Application. This Supplement J to the Sears Pension
Plan (the "Plan") applies the limits of Section 4022 of ERISA to
the Plan.
J-2. Effective Date. The Effective Date of this Supplement
J is January 1, 1985.
J-3. Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement J.
J-4. Temporary Limitations on Benefits for 25 Highest-Paid
Participants (Provisions Applicable Before 1993).
Notwithstanding any other provisions of the Plan and except as
otherwise permitted by law, for Plan Years commencing before
January 1, 1993:
(a) Until the date 10 years after any amendment which
substantially increases benefits under the Plan (an
"Unrestricted Date"), the benefits for any Participant
whose anticipated annual Retirement Income from the
Plan will exceed $1,500 and who was one of the 25
highest paid employees of an Employer on the date of
such amendment (a "Pre-1993 Restricted Participant"),
will be paid in full to the extent provided by employer
contributions, not exceeding the largest of:
(i) $20,000;
(ii) the employer contributions which would have been
applied to provide his benefits if the Plan, as
in effect on the date of the amendment, had been
continued without change;
(iii) the sum of:
(A) the employer contributions which would have
been applied to provide his benefits under
the Plan, as in effect on the date of the
amendment, if it had been terminated on that
date; plus
(B) an amount computed by multiplying the number
of years after that date for which the full
current costs (as described in paragraph (g)
below) of the Plan have been met by 20
percent of the first $50,000 of his average
regular annual compensation received from the
Employer and the Related Companies during his
latest five-year
period of active employment, or total period
of active employment if less than five years;
(C) in the case of a Pre-1993 Restricted
Participant who is a substantial owner (as
defined in section 4022(b)(5) of ERISA), the
present value of the benefit, which is
guaranteed for such Participant under section
4022 of ERISA or would be guaranteed if the
Plan then terminated; or
(D) in the case of a Pre-1993 Restricted
Participant who is not a substantial owner,
the present value of the maximum benefit
described in section 4022(b)(3)(B) of ERISA,
determined on the date the Plan terminates
or, if earlier, the date the benefit
commences, without regard to any other
limitation in section 4022 of ERISA.
(b) If the Plan is terminated before an Unrestricted Date,
the benefits that a Pre-1993 Restricted Participant may
receive will not exceed the benefits set forth in
paragraph (a) above except as indicated in the
following paragraphs. If the full current costs have
not been met at any time before an Unrestricted Date,
the restrictions set forth above will continue to apply
until the date that the full current costs have been
met for the first time.
(c) If a Pre-1993 Restricted Participant leaves the employ
of the Employers and Related Companies at a time when
the full current costs have been met, the aggregate
benefits he may receive before an applicable
unrestricted date will not exceed the benefits set
forth in paragraph (a) above, except as indicated
below.
(d) The above restrictions will not apply to Retirement
Income payments payable to a retired Participant during
any period in which the Plan is in full effect and its
full current costs have been met.
(e) The above restrictions will not apply to any death or
survivor's benefits payable under the Plan during any
period in which the Plan is in full effect and the full
current costs have been met.
(f) If the Plan is terminated before an Unrestricted Date,
all amounts which, because of this Supplement J, cannot
be distributed to a Pre-1993 Restricted Participant,
will be distributed or applied for the benefit of other
Participants whose benefits are not restricted in the
proportion that the actuarial liabilities attributable
to each such other Participant bears to the then
actuarial liabilities attributable to all such other
Participants.
(g) For purposes of the Plan, the "Full Current Costs" of
the Plan with respect to any Employer and Controlled
Group member, will be considered as having been met as
of any date after an amendment which substantially
increases benefits under the Plan, if the unfunded past
service liability as of such date on account of
benefits provided under the Plan does not exceed the
Employer's past service liability under the Plan as of
the date of the amendment, plus any supplemental or
additional past service liability incurred by the
Employer after that date on account of any increase in
benefits or compensation.
(h) The limits of this Supplement J will not apply to a
Pre-1993 Restricted Participant if:
(i) the Pre-1993 Restricted Participant enters into a
written agreement with the Plan providing that if:
(A) prior to the end of his restricted period,
the Plan terminates; or
(B) the full current costs of the Plan are not
met for any year ending on or before the last
day of his restricted period,
then the Pre-1993 Restricted Participant (or, in
the event of his death, his estate) will repay to
the Plan an amount equal to the then present value
of the amounts by which the Pre-1993 Restricted
Participant's benefits would be decreased during
his remaining lifetime pursuant to the foregoing
provisions of this subsection (the "Repayment
Amount"), which agreement will contain such other
provisions as the Administrator determines to be
appropriate to adequately protect the Plan; and
(ii) the agreement described in subparagraph (i) above
is secured by (A) a bond or letter of credit
providing for repayment of the Repayment Amount;
or (B) establishment of a depositary (including an
individual retirement account) providing for
repayment of the Repayment Amount.
J-5. Pre-Termination Restrictions (Provisions Applicable
After 1992). Notwithstanding any other provisions of the Plan
and except as otherwise permitted by law, for Plan Years
commencing on or after January 1, 1993:
(a) In the event of the Plan's termination, the benefit of
any Highly Compensated Employee (as described in Code
section 414(q)) and Highly Compensated Former Employee
will be limited to a benefit that is nondiscriminatory
under section 401(a)(4) of the Code.
(b) For any Plan Year, the single sum option described in
subsection 8.3 will not be available to any Post-1992
Restricted Participant (as defined in paragraph (c)
below), and will be restricted to an amount equal to
the payments that would be made to him in the form of a
straight life annuity that is the actuarial equivalent
of his Retirement Income or Deferred Vested Benefit,
unless:
(i) after payment to him of all his benefits under the
Plan (within the meaning of Treas. Reg.
Sec.1.401(a)(4)-5(b)(3)(iii)), the value of Plan
assets equals or exceeds 110 percent of the value
of the Plan's current liabilities, as defined in
section 412(l)(7) of the Code;
(ii) the value of his benefits under the Plan (within
the meaning of Treas. Reg. Sec. 1.401(a)(4)-
5(b)(3)(iii)) is less than 1 percent of the value
of the Plan's current liabilities; or
(iii) the value of his benefits under the Plan
(within the meaning of Treas. Reg. Sec. 1.401(a)(4)-
5(b)(3)(iii)) does not exceed the amount described
in section 411(a)(11)(A) of the Code.
(c) For any Plan Year, a "Post-1992 Restricted Participant"
will mean a Participant who is a member of the group of
the 25 Highly Compensated Employees (within the meaning
of section 414(q) of the Code) and Highly Compensated
Former Employees who have the greatest Compensation.
SUPPLEMENT K
TO
SEARS PENSION PLAN
RELATING TO SMC/SSB EMPLOYEES
K-1. Application. This Supplement K to the Sears Pension
Plan (the "Plan") applies to employees (hereinafter referred to
as "SMC/SSB Eligible Employees") of Sears Mortgage Corporation
and Sears Savings Bank (together, "SMC/SSB") who were active
employees on November 30, 1993 (the date SMC/SSB was sold to PNC
Mortgage Corp. of America) and who had been active Participants
in the Sears Consumer Financial Corporation Pension Plan (the
"SCFC Plan") on June 30, 1993 when Dean Witter, Discover & Co.
was spun off from the Company's Controlled Group.
K-2. Effective Date. This Supplement K shall be effective
as of November 30, 1993.
K-3. Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement K.
K-4. Accrued Benefits. An SMC/SSB Eligible Employee who was
vested in his Accrued Benefit under the SCFC Plan on November 30,
1993 will have an Accrued Benefit under this Supplement K equal
to the amount he would have earned under subparagraph 5.1(a)(iii)
of the Plan had he become a Participant in the Plan on July 1,
1993 and terminated employment with the Employers and Related
Companies on November 30, 1993; provided, however that if any
such SMC/SSB Eligible Employee would have been entitled to have
his benefit prorated with reference to the Allstate Pension Plan
in accordance with the terms of the SCFC Plan, the Allstate
Pension Plan formula (as in effect on January 1, 1991) will be
substituted for the formula set forth in subparagraph
5.1(a)(iii). An SMC/SSB Eligible Employee who was not vested in
his Accrued Benefit under the SCFC Plan on November 30, 1993 will
have an Accrued Benefit under this Supplement K (expressed as a
single life annuity payable as of age 65) equal to the amount he
would have earned under subparagraph 5.1(a)(iii) of the Plan
(including the proviso at the end of paragraph 5.1(a)) had he (a)
become a Participant in the Plan on the day he began accruing
benefit service under the SCFC Plan and (b) terminated employment
with the Employers and Related Companies on November 30, 1993.
An SMC/SSB Eligible Employee will be fully vested in his accrued
benefit under this Supplement K regardless of the number of years
of Continuous Service he had earned by November 30, 1993.
K-5. Early Retirement Factors. An SMC/SSB Eligible Employee
will be entitled to commence payment of his Accrued Benefit under
this Supplement K as of November 1, 1997 or such subsequent date
the Participant elects that is no later than the first day of the
month following the Participant's attainment of age 65, provided
the Eligible Employee is not then employed by an Employer or
Related Company. The Accrued Benefit of an SMC/SSB Eligible
Employee who commences payment prior to attaining age 65 will be
reduced in accordance with the provisions of Section 5 of the
Plan.
K-6. Forms of Payment. An Eligible Employee will be
entitled to receive his Accrued Benefit under this Supplement K
in any of the annuity forms available under Section 8, or in a
Lump Sum payment. For purposes of determining the actuarially-
equivalent amount of any form of payment, the assumptions set
forth in subsection 8.5 will apply, except that the amount of a
Lump Sum payment will be determined using the Applicable Interest
Rate for the second month preceding the month in which the
Eligible Employee's Annuity Starting Date occurs and the
Applicable Mortality Table.
K-7. Distribution Election. Benefits payable under this
Supplement K will be subject to the normal distribution election
provisions of the Plan, including the requirements for Spousal
Consent. For this purpose, the rules of clause 8.3(e)(iv)
(requiring a simultaneous offering of an annuity in the normal
form with the offer of an early Lump Sum for an accrued benefit
not in excess of $150 per month) shall apply to any Lump Sum
payment offered to an Eligible Employee under this Supplement K
who has not yet attained age 55 and whose benefit exceeds the
mandatory cash out limit of the Plan.
SUPPLEMENT L
TO
SEARS PENSION PLAN
RELATING TO CIRCLE OF BEAUTY
L-1. Application. This Supplement L to the Sears Pension
Plan (the "Plan") describes the special provisions relating to
employees of Circle of Beauty ("CoB") that have been adopted by
the Company as part of its extension of the Plan to employees of
CoB.
L-2. Effective Date. The Effective Date of this Supplement
L is September 1, 1997.
L-3. Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement L.
L-4. Credited Service for Circle of Beauty Employees.
Notwithstanding any other provision of the Plan to the contrary,
for purposes of determining the Credited Service of an employee
of CoB, the following rules shall govern:
(a) no period of service with CoB prior to April 14, 1995
shall be included in the Participant's period of
Credited Service;
(b) in the case of any individual employed by CoB on
September 1, 1997, any period of service for CoB during
the period beginning on April 14, 1995 and ending on
August 31, 1997 shall be included in the individual's
Credited Service to the same extent that it would have
been included had CoB been an Employer during that same
period; and
(c) in the case of any individual who was employed by CoB
prior to September 1, 1997, who is not described in
paragraph (b) above but who is subsequently reemployed
by CoB after September 1, 1997, no service before
September 1, 1997 shall be counted as Credited Service
(unless such individual had earned Credited Service for
a period prior to such date through employment with an
Employer other than CoB.)
L-5. Compensation. For purposes of determining a CoB
employee's Final Average Compensation, any amount that was paid
during a period treated as Credited Service under subsection L-4
shall be treated as Compensation if it would have satisfied the
definition in subsection 5.2 but for the fact that the
Participant was not then an Eligible Employee.
SUPPLEMENT M
TO
SEARS PENSION PLAN
RELATING TO SEARS TIRE GROUP
M-1. Application. This Supplement M to the Sears Pension
Plan (the "Plan") describes the special provisions relating to
employees of Sears Tire Group ("STG") that have been adopted by
the Company as part of its extension of the Plan to employees of
STG.
M-2. Effective Date. The Effective Date of this Supplement
M is December 15, 1997.
M-3. Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement M.
M-4. Eligibility Rules for Sears Tire Group Employees. The
following rules shall modify the normal provisions of Section 2
and Section 3 in determining whether and when an employee of the
Company or another Employer who performs services for Sears Auto
Centers ("SAC") or National Tire and Battery ("NTB") is eligible
to participate in the Plan:
(a) generally, of the employees who perform services for
SAC or NTB, only those who are salaried employees and
who are on an Employer's payroll as such on or after
December 15, 1997 are eligible to participate in the
Plan;
(b) notwithstanding the general limitation set forth in
paragraph (a) above, an hourly employee who performs
services for SAC or NTB shall be eligible to
participate in the Plan while performing such services
if he (i) performed services for SAC in any capacity
prior to April 1, 1997 or as a salaried employee on or
after April 1, 1997, or (ii) has been (and remains)
credited with Continuous Service for an Employer that
is not attributable to services performed for SAC or
NTB.
M-5. Credited Service for Sears Tire Group Employees.
Notwithstanding any other provision of the Plan to the contrary,
for purposes of determining the Credited Service of an individual
performing services for SAC or NTB, the following rules shall
govern:
(a) a salaried employee described in paragraph M-4(a) shall
receive Credited Service for any period of employment
between January 1, 1997 and December 15, 1997 to the
same extent that it would have been included had
eligibility in the Plan been extended to that group of
employees on January 1, 1997, and
(b) an hourly employee described in paragraph M-4(b) shall
receive Credited Service in accordance with the rules
of subsection 2.3 except that service prior to
January 1, 1997 for NTB shall not count as Credited
Service.
M-6. Compensation. For purposes of determining the Final
Average Compensation of a Participant covered by this Supplement
M, any amount that was paid during a period treated as Credited
Service hereunder shall be treated as Compensation if it would
have satisfied the definition in subsection 5.2 but for the fact
that the Participant was not then an Eligible Employee.
SUPPLEMENT N
TO
SEARS PENSION PLAN
RELATING TO THE GREAT INDOORS
N-1. Application. This Supplement N to the Sears Pension
Plan (the "Plan") applies to employees (hereinafter referred to
collectively as "Great Indoors Employees" and individually as a
"Great Indoors Employee") of the Company's business unit known as
the "Great Indoors" and describes the special eligibility
provisions that have been adopted by the Company with respect to
Great Indoors Employees.
N-2. Effective Date. The Effective Date of this Supplement
N is January 1, 1998.
N-3. Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement N.
N-4. Eligibility to Participate. Effective as of January 1,
1998 participation in the Plan by Great Indoors Employees (who
satisfy the Plan's minimum eligibility requirements related to
age and service) has been limited to the following groups:
(a) hourly-paid employees employed in "store support"
positions;
(b) hourly-paid employees employed at store locations
who were already Participants prior to January 1,
1998 (for so long as they remain continuously
employed by the Company); and
(c) all salaried employees.
SUPPLEMENT O
TO
SEARS PENSION PLAN
RELATING TO MAXSERV, INC.
O-1. Application. This Supplement O to the Sears Pension
Plan (the "Plan") applies to employees (hereinafter referred to
collectively as "MaxServ Employees" and individually as a MaxServ
Employee") of "MaxServ, Inc." and describes the special
provisions that have been adopted by the Company as part of the
adoption of the Plan by MaxServ.
O-2. Effective Date. The Effective Date of this Supplement
O is January 1, 1999.
O-3. Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement O.
O-4. Service for MaxServ Employees. Notwithstanding any
other provision of the Plan to the contrary, for purposes of
determining the Credited and Continuous Service of each MaxServ
Employee, the following rules shall govern:
(a) no period of service with the MaxServ prior to January
1, 1999 shall be included in the Participant's period
of Credited Service;
(b) in the case of any MaxServ Employees actively employed
by MaxServ on March 18, 1997, each such Participant's
period of Continuous Service shall be determined based
on the Participant's date of hire by MaxServ even if
earlier than March 18, 1997.
O-5 Eligibility to Participate. Participation in the Plan
is extended to MaxServ Employees effective January 1, 1999.
SUPPLEMENT P
TO
SEARS PENSION PLAN
RELATING TO CERTAIN SUBSIDIARIES OF SEARS LOGISTICS SERVICES,
INC.
P-1. Application. This Supplement P to the Sears Pension
Plan (the "Plan") applies to employees (hereinafter referred to
collectively as "SLS Eligible Employees" and individually as an
"SLS Eligible Employee") of the following subsidiaries of Sears
Logistics Services, Inc. (the "SLS Subsidiaries"):
Optimum Home Delivery Service, Inc.
STG Logistics, Inc.
Focus Distribution, Inc.
Delano Logistics Services, Inc.
Wilkes Barre Logistics Services, Inc.
and describes the special provisions that have been adopted by
the Company as part of its extension of the Plan to the SLS
Eligible Employees.
P-2. Effective Date. The Effective Date of this Supplement
P is September 1, 1999.
P-3. Definitions. Unless the context clearly implies or
indicates the contrary, a word, term or phrase used or defined in
the Plan is similarly used or defined for purposes of this
Supplement P.
P-4. Credited and Continuous Service for SLS Eligible
Employees. Notwithstanding any other provision of the Plan to
the contrary, for purposes of determining the Credited and
Continuous Service of each SLS Eligible Employee, the following
rules shall govern:
(a) no period of service with the SLS Subsidiaries prior to
September 1, 1999 shall be included in the
participant's period of Credited Service;
(b) in the case of any SLS Eligible Employees employed by
the SLS Subsidiaries prior to September 1, 1999, each
participant's period of Continuous Service shall be
determined based on the date such SLS Subsidiary was
acquired by Sears Logistics Services, Inc., or the
participant's date of hire, if later.
EXHIBIT 12(a)
COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
(millions, except ratios)
Years Ended
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
Fixed Charges:
Interest and amortization of
debt discount and expense on
all indebtedness $1,268 $1,423 $1,409 $1,365 $1,373
Add interest element implicit
in rentals 133 144 147 121 119
1,401 1,567 1,556 1,486 1,492
Interest capitalized 5 5 3 5 4
Total fixed charges $1,406 $1,572 $1,559 $1,491 $1,496
Income:
Income from continuing operations $1,453 $1,072 $1,188 $1,271 $1,025
Deduct undistributed net income
(loss) of unconsolidated companies (5) 11 13 8 9
1,458 1,061 1,175 1,263 1,016
Add
Fixed charges (excluding interest
capitalized) 1,401 1,567 1,556 1,486 1,492
Income taxes 904 766 912 834 703
Income before fixed charges and
Income taxes $3,763 $3,394 $3,643 $3,583 $3,211
Ratio of income to fixed charges 2.68 2.16 2.34 2.40 2.15
</TABLE>
EXHIBIT 12(b)
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
SEARS, ROEBUCK AND CO. AND CONSOLIDATED SUBSIDIARIES
Years Ended
(millions, except ratios) 1996 1995
Fixed Charges:
Interest and amortization
of debt discount
and expense on all indebtedness $1,365 $1,373
Add interest element
implicit in rentals 121 119
1,486 1,492
Preferred dividend factor 41 89
Interest capitalized 5 4
Total fixed charges $1,532 $1,585
Income:
Income from continuing operations $1,271 $1,025
Deduct undistributed net income (loss)
of unconsolidated companies 8 9
1,263 1,016
Add
Fixed charges (excluding
interest capitalized
and preferred dividend factor) 1,486 1,492
Income taxes 834 703
Income before fixed charges and
Income taxes $3,583 $3,211
Ratio of income to combined fixed charges
and preferred share dividends 2.34 2.03
(A) In 1996 all the outstanding 8.88% Preferred Shares,
First Series were redeemed and thereafter the
Company made no other preferred dividend payments.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The Significant subsidiaries of Sears, Roebuck and Co., the
names under which such subsidiaries do business, and the
states or countries in which each was organized, were as
follows as of January 1, 2000:
Names Place of Organization
Consolidated Subsidiaries:
Sears Canada Inc. Canada
Sears Acceptance Company Inc. Canada
Sears Logistics Services, Inc. Delaware
Sears National Bank United States
SRFG, Inc. Delaware
Sears Roebuck Acceptance Corp. Delaware
95 other companies Various
The Company owns 20% to 50% of the outstanding voting
securities of 37 companies, which are accounted for on the
equity method.
The Company has investments in a number of other
corporations representing substantial percentages (but not
more than 20 percent) of their outstanding capital stock.
The Company disclaims control of any such companies.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF INCOME AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<CASH> 729
<SECURITIES> 3,144<F1>
<RECEIVABLES> 18,793
<ALLOWANCES> 760
<INVENTORY> 5,069
<CURRENT-ASSETS> 28,667
<PP&E> 11,912
<DEPRECIATION> 5,462
<TOTAL-ASSETS> 36,954
<CURRENT-LIABILITIES> 13,701
<BONDS> 12,884
0
0
<COMMON> 323
<OTHER-SE> 6,516
<TOTAL-LIABILITY-AND-EQUITY> 36,954
<SALES> 36,728
<TOTAL-REVENUES> 41,071
<CGS> 27,212
<TOTAL-COSTS> 27,212
<OTHER-EXPENSES> 9,307<F2>
<LOSS-PROVISION> 871
<INTEREST-EXPENSE> 1,268
<INCOME-PRETAX> 2,419
<INCOME-TAX> 904
<INCOME-CONTINUING> 1,453
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,453
<EPS-BASIC> 3.83
<EPS-DILUTED> 3.81
<FN>
<F1>Represents retained interest in transferred credit card receivables
<F2>Represents the sum of selling and administrative expense, depreciation and
amortization expense and the restructuring charge
</FN>
</TABLE>
SEARS, ROEBUCK AND CO.
3333 BEVERLY ROAD
HOFFMAN ESTATES, IL 60179
[Letterhead of John Sloan, Senior Vice President, Human Resources]
February 19, 1999
Mr. Julian Day
P.O. Box 116
LaJolla, CA 92038
Dear Julian,
As discussed, this letter will confirm our offer of employment to join Sears,
Roebuck and Co. as Executive Vice President, Chief Financial Officer
reporting to Arthur C. Martinez, Chairman and CEO, Sears, Roebuck and Co.
Your compensation will consist of the following:
- Annual base salary of $500,000.
- Participation in the Sears Annual Incentive Plan. your annual
incentive opportunity will equate to a bonus target of 85% of base
salary, amounting to $425,000 on an annualized basis. The annual
incentive performance objective for your position will be based 100%
on our achievement of Sears earnings per share, as well as your
performance on the individual priorities. Currently, the Company
performance portion of the plan pays for performance as follows:
- Threshold (90% of prior year Earnings Per Share) pays 25% of
target
- Target (110% of prior year Earnings Per Share) pays 100% of target
- Maximum (130% of prior year Earnings Per share) pays 230% of
target
- Performance goals for Sears are based on improvement over prior year
results. We will guarantee a minimum bonus award for 1999 of
$331,849 and also guarantee an additional three months in 2000 at
target bonus for a total of twelve consecutive months.
- 132,407 non-qualified stock option shares which will vest in three
equal annual installments from the date of grant and will include a
reload feature and tax withholding rights.
- 25,000 shares of restricted stock which will vest from the date of
grant as follows:
9,000 shares in three years;
8,000 shares in four years; and
8,000 shares in five years.
25,000 shares
These shares will also include tax withholding
rights.
- Participation in the Sears Long-Term Incentive Plan with an
incentive target of 125% of base pay. For the 1999-2001 cycle,
87.5% of your long-term incentive target will be conveyed in Sears
stock options issued annually and 37.5% through the Performance
Plan, which is paid in cash. The Performance Plan awards will be
determined based on achievements of our Total Performance Indicator
objectives. The Performance Plan Award can range between 50%-150%
of the target award. Plan participants receive this cash award in
March, 2002.
- Relocation assistance in accordance with Sears Relocation Policy.
- Pension will commence at employment date.
- Nothing contained in this letter shall limit the right of you or
Sears to terminate your employment with or without cause at any
time. However, in the event that Seas should involuntarily
terminate you other than for cause during your first three years of
Award can range between 50%-150% of the target award. Plan
participants receive this employment, you will receive two years
base salary plus two years target annual incentive and continuation
of equity vesting and benefits. This will constitute the entire
damages you may claim against Sears on account of such termination
of employment. In exchange for this severance protection, you will
be required to sign our standard Non- Compete/Change-in-Control
Agreement.
The above is contingent upon your satisfactorily passing a pre-employment
drug test, satisfactory reference verification and approval by the Sears
Compensation Committee of the Board.
Julian, we have great confidence in your ability to significantly contribute
to the future success of Sears. I look forward to working with you to build
that success.
Sincerely,
/S/ John T. Sloan
Accepted: /S/Julian C. Day Date: 2/19/1999
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration
Statement Nos. 2-64879, 2-80037, 33-18081, 33-23793, 33-41485,
33-43459, 33-45479, 33-55825, 33-58851, 33-64345, 333-8141, and
333-38131 of Sears, Roebuck and Co.; Registration Statement Nos.
33-58139, 33-64215, 33-9817, 333-30879, and 333-62847 of Sears,
Roebuck and Co. and Sears Roebuck Acceptance Corp.; Registration
Statement Nos. 33-64775, 333-18591, and 333-43309 of Sears,
Roebuck and Co. and Sears, Roebuck and Co. Deferred Compensation
Plan; Registration Statement Nos. 33-57205, 333-11973, 333-53149,
and 333-92501 of Sears Roebuck and Co. and the Sears 401(k)
Profit Sharing Plan (formerly, The Savings and Profit Sharing
Fund of Sears Employees); and Registration Statement No. 33-44671
of Sears, Roebuck and Co. and Sears DC Corp.; of our report dated
February 7, 2000, incorporated by reference in the Annual Report
on Form 10-K of Sears, Roebuck and Co. for the year ended January
1, 2000.
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
March 22, 2000
