Settlement

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

NOTICE OF PROPOSED SETTLEMENT

This is a Notice about the Sears Retiree Group Life Insurance lawsuit.

According to Sears' records, you are a Class Member who may be entitled to share in the benefits of the proposed Settlement described in this Notice. Please read this Notice carefully as it affects your rights.

THE HISTORY OF THIS SUIT

In September 1997, Sears announced that retiree life insurance would be cut back at the rate of 10% per year on each retiree’s life insurance amount in excess of $5,000. At the end of ten years, each retiree would have a $5,000 retiree life insurance policy, regardless of original amount. The only way to avoid these cuts was to buy replacement insurance, at the retiree’s expense.

Shortly after the announcement, a number of suits were filed against Sears by retirees who believed they had been promised “free” or “paid up” life insurance for the rest of their lives. All lawsuits were eventually consolidated in the United States District Court in Chicago, Illinois, and were assigned to Judge James B. Moran. In essence, the complaints alleged that Sears had violated a federal law known as ERISA, the Employee Retirement Income Security Act of 1974. The plaintiffs claimed Sears' benefit cutback breached its contract with retirees under the terms of the group life insurance plan. Retirees also claimed that by misrepresenting the life insurance as "free" and "paid up" on retirement, Sears had breached its fiduciary duty to them.

Sears, at all times, has denied that it violated any legal obligation to its retirees, and contended that it had a legal right at all times to modify or terminate the retiree insurance program.

The Court certified a class of Sears’ retirees on the breach of contract claims, but ruled on two occasions that each retiree would have to individually prove his or her breach of fiduciary duty claim. The Court subsequently granted Sears' motion for summary judgment on the breach of contract claims certified for class treatment, holding that Sears did not breach the terms of the plan.

The parties began negotiations in March, 2001, at a time when they were preparing to try the breach of fiduciary duty claims of a group of twelve named plaintiffs. On June 1, 2001, Sears moved for summary judgment on the breach of fiduciary duty claims of each of the named plaintiffs in this first group. On June 5, 2001, after extensive mediation, the parties reached agreement to settle the case. On October 10, 2001, the Court directed the parties to provide each class member with a copy of this Notice and a blue Claim Form.

This Notice is not an expression of opinion by the Court on the merits of the remaining claims and defenses in the case, nor is it an expression of opinion about the merits of this proposed Settlement. Rather, this Notice is sent as required by the Federal Rules of Civil Procedure for the purpose of informing you of your rights with regard to the proposed Settlement.

SUMMARY OF SETTLEMENT TERMS

1. Whether or not you file a Claim Form, the Settlement Agreement provides that Sears cannot further accelerate the life insurance reduction schedule that began in 1998 and it cannot reduce the final insurance amount to less than $5,000.
    
2. A blue Claim Form is enclosed. Its terms are self-explanatory. Though it need not be notarized, it is to be signed under penalty of perjury. Under the Settlement Agreement, Claim Forms must be received at the address on the Claim Form no later than January 17, 2002. Timely submitted Claim Forms shall be considered approved unless Sears challenges a claim based upon substantial evidence of fraud, in which case the validity of the claim will be resolved by a mediator. Additional Claim Forms may be requested by telephoning the toll-free number shown on page 1 of this Notice, and may be downloaded from the website maintained by NARSE (the National Association of Retired Sears Employees).
    
3. Class members who timely mail Claim Forms that are approved are guaranteed at least one less annual reduction than the scheduled ten reductions. Their final insurance amount will therefore be at least $5,000 plus the amount of one year’s reduction. The “skipped” reduction will be the reduction previously scheduled for the year 2003.

EXAMPLE

If you started with $15,000 of retiree life insurance, your insurance amount has decreased $1,000 per year since January 1, 1998. Under this Settlement, if you timely file an approved Claim Form, the previously scheduled reduction for year 2003 will be skipped, and the final amount of insurance in year 2007 and thereafter will be $6,000 instead of $5,000. The table below shows how this works:

Table 1
Example -- Effect of Settlement on A Retiree With $15,000 Policy
 Before 1998 Who Files An Approved Claims Form

4. Those Class Members who timely file approved Claim Forms (“Approved Claimants”) may be entitled to have Sears forego more than the guaranteed one year reduction in 2003 depending on the number of Class Members who file claims. Exact quantification is not possible until all the Claim Forms are received; further details are discussed in paragraph 5 of this Summary.
    

5. Under the Settlement Agreement, only a one-year freeze in the life insurance reductions is guaranteed for Approved Claimants. However, depending on the number of Class Members who file claims, Approved Claimants may be entitled to have Sears freeze more than the guaranteed one year reduction in 2003. That depends on certain actuarial calculations, as described below.
    

Table 2

6. The benefits under this proposed Settlement apply to all Class Members, whether or not they paid “replacement premiums” to avoid Sears’ cutbacks. However, Class Members must file a Claim Form to obtain the benefits in paragraphs 3-5.
    
7. This settlement applies to some persons on “premium waiver” due to disability at the time Sears implemented retiree life insurance cut backs. Persons whose disability coverage and “premium waiver” ended and who were not previously provided an opportunity to purchase replacement insurance will be permitted to purchase replacement insurance and will be eligible to receive the other benefits of the Settlement. The beneficiaries of such persons who died without being allowed to purchase replacement coverage will be entitled to receive the full unreduced amount of retiree life insurance less the cost of the replacement insurance, less any benefits already paid. There will be a separate mailing to these persons.
    
8. The estates of retirees who die (or have died) between January 1, 1998 and December 31, 2002 will receive a $100 unrestricted Sears gift card. (The gift card will be sent, for distribution and use in accordance with the direction of the administrator or executor of the estate, to the beneficiary receiving the highest percentage of the life insurance payment for that retiree, or, if all beneficiaries for that retiree receive an equal percentage, the beneficiary whose first name comes first alphabetically.)
    
9. Sears will pay each of the 71 named plaintiffs who brought the lawsuit a $5,000 special payment for the risk, time and efforts they expended in bringing the case. The activities the named Plaintiffs participated in included obtaining counsel, working with counsel, filing suits, producing documents, answering written questions from Sears’ lawyers and traveling to depositions, where they answered oral questions under oath asked by the lawyers for Sears.
    
10. Attorneys fees and costs of the litigation will be paid by Sears, not the class. The Court will decide the amount of fees and costs Sears must pay, which cannot exceed $5.43 million.
     
11. If the Settlement is approved, it will be binding on all Class Members who do not request exclusion. If more than 1,000 retirees request exclusion, Sears has the right to terminate the proposed Settlement.
     

  THE FAIRNESS HEARING

You are notified that a final hearing on a motion by both parties to approve the proposed Settlement (the “Fairness Hearing”) will be held at the United States Courthouse, 219 South Dearborn Street, Courtroom 1843 on March 5, 2002, at 10:00am for the purpose of determining whether the proposed Settlement is fair, adequate and proper, and whether the Court should enter judgment approving the Settlement, approving payments of class representative awards, attorneys’ fees, costs, and other relief requested.

You have the right to attend the hearing, but you are not required to do so. If you do plan to attend, you should telephone the toll free number shown on the first and last pages of this Notice several days in advance to be sure the hearing has not been rescheduled.

If the proposed Settlement is approved by the Court following the Fairness Hearing, the parties will jointly request the Court to enter final judgment that (a) approves the Settlement Agreement; (b) dismisses the class action with prejudice as to Sears as against all plaintiffs and all class members except those that have requested exclusion; (c) releases and discharges Sears from any and all liability with respect to the Settled Claims; (d) releases and discharges the Released Plaintiffs from any and all liability with respect to the Settled Claims; (e) awards class representative awards subject to the terms of the Stipulation of Final Settlement; and (f) reserves continuing and exclusive jurisdiction over enforcement of the Settlement. In addition, the Plaintiffs will request that the Court order Sears to pay Plaintiffs’ attorneys their fees, costs and expenses in an amount between $1.00 and $5,430,000.

YOUR RIGHT TO OBJECT TO
THE PROPOSED SETTLEMENT

You have a right to object or comment on the Settlement. You may, but are not required to, attend the Fairness Hearing either in person or by your attorney. Any Class Member who desires to object or comment on the Settlement must comply with the following rules:

1. All objections and comments must be received no later than December 10, 2001. Objections should be sent by first class mail to the Clerk of the United States District Court, P.O. Box 803938, Chicago, IL., 60680-3938, with copies to (a) Michael M. Mulder, Esq., Meites, Mulder, Burger & Mollica, 208 South LaSalle Street, Suite 1410, Chicago, Illinois 60604; (b) Wood R. Foster, Jr., Esq., Siegel, Brill, Greupner, Duffy & Foster, P.A., 1300 Washington Square, 100 Washington Avenue South, Minneapolis, Minnesota 55402; (c) Charles R. Watkins, Esq, Susman & Watkins, Two First National Plaza, Suite 600, Chicago, Illinois 60603; and (d) Charles F. Regan, Jr., Esq., Mayer, Brown & Platt, 190 South LaSalle Street, Chicago, Illinois 60603.
    
2.  Note if you file an objection you may also file a Claim Form. If you do not file a Claim Form and your objection is overruled you will be bound by the Settlement, unable to obtain relief from at least the one year freeze in reductions, while completely releasing your claims.
    
3.  If you desire to be represented at the Fairness Hearing by counsel of your own choosing, your attorney must file an appearance on or before December 10, 2001.
    
4. Objections will be considered by the Court at the Fairness Hearing. Objectors and/or their representatives will have a chance to speak on the objection if desired.

YOUR RIGHT TO REQUEST EXCLUSION
FROM THIS PROPOSED SETTLEMENT

The Court will exclude any member of the Class who desires not to be bound by the Settlement, but all Requests for Exclusion must be in writing and must be received by the Clerk of the United States District Court, P. O. Box 803938, Chicago, IL., 60680-3938, no later than December 10, 2001. The Request for Exclusion must include the name, address, and social security number of the retiree. If you request exclusion you will not participate in or benefit from the Settlement if it is approved. Note you can not both request exclusion and file a Claim Form.

AVAILABILITY OF DOCUMENTS
FOR YOU TO REVIEW

The Stipulation of Final Settlement in this case, together with exhibits and all other papers are available for your inspection, should you choose to do so, in the office of the Clerk of United States District Court, United States Courthouse, 219 South Dearborn Street, 20th Floor, Chicago, Illinois, 60604.

If you have questions concerning this Notice, please call the Settlement Administrator at 1-800-347-0716 or by writing one of the Class Counsel: Michael M. Mulder, Meites, Mulder, Burger & Mollica, 208 South LaSalle Street, Suite 1410, Chicago, Illinois, 60604.

Clerk of United States District Court
Northern District of Illinois, Eastern Division
Chicago, Illinois