Exhibit 10.(ii)(21)

OPERATIVE BOARD RESOLUTION

Adoption of the Long-Term Performance Incentive Program

THEREFORE, BE IT RESOLVED,

that the LTPIP, attached hereto as Exhibit B, be and hereby is adopted; and that
for purposes of the LTPIP, the Sears, Roebuck and Co. 2000 Employees Stock Plan
is amended to change the definition of "Change of Control" to the definition of
"Change of Control" set forth in the LTPIP.

 

 

LONG-TERM PERFORMANCE INCENTIVE PROGRAM ("LTPIP")
SEARS ROEBUCK AND CO.

 

PROGRAM INTRODUCTION

The Sears Long-Term Performance Incentive Program (LTPIP) is a performance-based
award made under the Sears 2000 Employees Stock Plan and consistent with the
measures provided in the Long Term Incentive Compensation Plan. The LTPIP is
designed to motivate the most senior leaders of Sears, Roebuck and Co. to
achieve significant, lasting change that successfully repositions the Company
for future growth. Performance goals directly align these executives' financial
incentives with the Company's strategic direction and initiatives. Under the
LTPIP, eligible executives can earn over-market long-term compensation by
achieving all internal performance goals and outperforming the external market.

 

Program Summary

Each eligible participant will be granted a number of "performance shares."

These performance shares may entitle a participant to an equal, lower or higher
number of Sears shares depending on performance against four pre-defined goals
and Sears share price performance relative to the market.

 * All participants will have the same four performance goals (although goals
   may be weighted differently for different participants).

 * Performance against the four goals will be measured through December 31,
   2004. The Compensation Committee will determine whether each individual goal
   has been met.

 * The number of performance shares that may be earned by each recipient will
   depend on
   
   * Which performance goals have been met, and the relative weighting given to
     each goal, and
   
   * Whether all four goals have been met, in which case the number of
     performance shares earned will be doubled.

 * Performance shares earned by a participant will be converted into Sears
   shares prior to distribution. Each performance share will equal between .5
   and 1.5 Sears shares depending upon the TSR of Sears shares compared to the
   companies in the S & P 500 over the 2001-2004 period.

 * One-half of these shares will be distributed after the Compensation Committee
   meeting in February 2005 in the participant's choice of shares or cash. The
   other half will also be distributed in February 2005 as restricted shares,
   and will vest on December 31, 2005.

ELIGIBILITY

The Compensation Committee of the Sears Board of Directors will identify those
executives that have the broadest strategic impact.

 

New Hires or Promoted Executives

The Compensation Committee may designate executives who have been newly hired or
promoted into the eligible group or promoted to a higher level within the
eligible group to receive grants under the Plan.

The Compensation Committee may, in its sole discretion, adjust the number of
shares which a newly hired or promoted executive would otherwise be awarded,
including any adjustment that the Compensation Committee deems necessary or
desirable to qualify such award as performance-based compensation for purposes
of Section 162(m) of the Internal Revenue Code or to require the deferral of any
such award which does not so qualify.

 

 

AWARDS

Performance shares will be awarded to all eligible executives. On the date of
grant, the shares awarded consist of a commitment by Sears to distribute a
number of Sears shares equal to the number of performance shares earned
multiplied by the applicable Total Shareholder Return multiple set forth in
Appendix A upon successful completion of the goals outlined in this document and
approval of the final award amount by the Compensation Committee of the Board of
Directors. The number of Sears shares actually awarded will be more or less than
the number of performance shares originally awarded, based on the achievement of
four pre-defined goals, Sears' TSR performance relative to the market, and the
participant's continued eligibility to participate in the LTPIP program.

 

Performance Period

The performance period for the four performance goals will end on December 31,
2004. The number of performance shares that may be earned will be determined at
the completion of this performance period.

 

 

Performance Goals

Performance goal descriptions and metrics are outlined below.

GOAL

REQUIRED PERFORMANCE

Achieve significant operating income improvement for Retail and Related Services
Segment

Operating income in 2004 of $1.5 billion

Achieve Retail comparable store sales growth above peer group in the third year
of plan

Achieve Retail comparable store sales growth above Merrill Lynch Broadline Index
for calendar year 2004

Reduce Sears total domestic operating expense as a percent of net sales

Reduce annual domestic operating expense as a percent of net sales by 200 bp in
2004 vs. 2001 level. Included expenses are SG&A, buying and occupancy,
depreciation, and certain logistics costs (transportation, warehousing and
delivery).

Achieve operating income growth for Credit and Financial Products

Equivalent to 5.0% compound annual growth rate over 3-year period (2002, 2003,
2004) over 2001 level of performance

 

Weighting of Goals and Calculation of Award

Each executive's grant will specify the weight assigned to each of the above
goals.

 * The sum of the weights assigned to the four goals will equal 100%.

The achievement of the goals will be judged by the Compensation Committee on a
"met" or "not met" basis.

The number of performance shares that may be earned will equal

 * The number of performance shares originally granted, multiplied by

 * The percentage that represents the sum of the weights assigned to the goals
   achieved, multiplied by

 * 200%, if all four goals were achieved

Only goals designated as "met" by the Compensation Committee will count toward
determining the number of shares earned. There will be no credit for partially
meeting goals, and no additional credit provided for exceeding the goals.

The Compensation Committee plans to assess performance versus the stated goals
at the February 2005 Compensation Committee meeting.

 

"Outperform" Total Shareholder Return Modifier

As additional incentive for eligible executives to achieve success in enabling
Sears to outperform the market, an "Outperform" TSR Modifier will be applied to
determine the number of Sears shares deliverable for each performance share
earned by a participant. Performance levels will be based on Sears TSR
performance ranking versus the companies in the Standard & Poor's 500 Index ("S
& P 500 Index") as of December 31, 2004.

Total Shareholder Return as it applies to Sears and the S & P 500 Index
companies is defined as the return shareholders receive on their investment,
taking into account share price appreciation plus dividends (assuming
reinvestment), expressed as a percentage increase over the course of the
measurement period. The measurement period for the modifier will begin on
December 31, 2000 and will end on December 31, 2004.

The average closing market price for twenty trading days ending December 31,
2000 and the average closing market price for twenty trading days ending on
December 31, 2004 will be used in the calculation to determine Sears beginning
and ending share price for the period, as well as for the companies in the S & P
500 Index.

Sears percentile rank will be calculated using the Microsoft Excel PERCENTRANK
function. This function interpolates Sears performance in relation to the S & P
500 Index companies, thereby increasing the precision of the relative TSR
result. Sears data will be included in the array for purposes of calculating
percentile rank performance. Companies will not be market cap weighted.
Calculations will be rounded up or down to the nearest tenth of a percentage
point. It is anticipated that the companies that comprise the S&P 500 will
change from time to time. This grouping of companies is independently selected
and maintained by Standard & Poor's. The companies used for the TSR calculation
for the LTPIP will be those companies included in the S&P 500 Index on December
31, 2004, and the average market price as described above for December 31, 2000
will be obtained at that time. If any company on the S&P 500 Index on December
31, 2004 did not exist in substantially the same form on December 31, 2000 in
the judgement of the Compensation Committee, the Committee may elect to
eliminate such companies from the "Outperform" Relative TSR modifier
calculation.

The "Outperform" TSR Modifier will be applied as outlined below.

 * If Sears four year TSR relative to that of the companies in the S & P 500
   Index as of December 31, 2004 is in the top quartile (at or above the 75th
   percentile), each performance share shall entitle the participant to 1.5
   Sears shares.

 * If Sears four year TSR is at or below median relative to this group of
   companies, each performance share shall entitle the participant to .5 Sears
   shares.

 * In the event of performance above the 50th and up to and including the 60th
   percentiles, each performance share shall equal 1 Sears share.

 * In the event of performance between the 60th and 75th percentile, each
   performance share will entitle the participant, interpolated on a
   straight-line basis, to between 1 and 1.5 Sears shares.

See Appendix A for the multiplier table.

The Compensation Committee may, at its discretion, apply negative discretion to
the calculated award.

 

 

DISTRIBUTION

 

Terms of Distribution

One-half of the number of Sears shares that result from the payout formula will
be distributed as soon as practical after the February 2005 Compensation
Committee meeting. The second half of the shares will be issued as a grant of
restricted stock at the same time, and will vest 100% on December 31, 2005.

 * February 2005 Distribution of Unrestricted Shares - Sears shares will be
   distributed to eligible executives net of applicable tax withholding. The
   executive may elect to receive up to 100% of the value of this distribution
   in cash, based on the Average Market Price of Sears shares on the date of
   distribution. "Average Market Price" shall be the mean between the lowest and
   highest reported sales price of Sears shares on the principal exchange or
   market on which Sears shares are then listed or admitted to trading. The cash
   payment, if elected, will be net of applicable tax withholding.

 * December 31, 2005 Unrestriction - The restricted shares will become
   exchangeable for unrestricted Sears common shares. No cash election is
   available on this distribution.

Any distribution of shares to an executive under this Plan will not be deemed as
eligible for an Equity Swap.

All distributions are subject to the termination provisions outlined below.

 

Deferral of Distribution

Any or all of either distribution outlined above may be deferred in accordance
with the terms of the Sears Deferred Compensation Plan.

 

 

Dividend Equivalents

No dividends or dividend equivalents will be paid or accrued on any performance
shares prior to December 31, 2004.

Any dividends declared by the Board of Directors after the distribution of
restricted shares will be paid on the restricted shares. Such dividends will be
reported on a W-2 form and be subject to income tax withholding and applicable
FICA taxes. Payment of such dividends will occur at the same time and in the
same amounts as dividends payable to shareholders of Sears common stock.

 

Taxes

On the dates that the shares and/or cash are distributed, the average market
price of the distribution will be considered as ordinary income to the
executive; as such, it will be subject to federal, state and local income and
employment tax withholding. Amounts necessary to settle this tax withholding
obligation will be withheld from the cash or stock amounts distributed to the
executive.

Except for taxes on dividends paid on restricted shares, generally no executive
will be subject to taxes on the awarded shares until the restrictions on the
shares lapse and the shares are distributed. However, the executive may choose
to pre-pay his or her taxes on the restricted shares awarded (in February 2005)
pursuant to an 83(b) election that must be made within 30 days of receiving the
award of restricted shares. Because this is fairly complicated, the executive
may want to consult his or her tax advisor before choosing this election.

 

TERMINATION PROVISIONS

 

The effect of termination of employment on restricted performance shares depends
not only on the reason for termination but also on the point in the performance
period that the termination occurs. The matrix below contains complete details
relating to different termination situations.

 

Termination Type

Between grant date and December 31, 2004

Between December 31, 2004 and December 31, 2005

Voluntary Termination (not retirement) or Retirement without company consent or
Involuntary Termination (with cause)

All shares forfeited

1/2 of shares earned will be distributed early in 2005 Remaining shares are
forfeited

Retirement at or after age 65 or earlier with Committee consent or

 * Permanent and Total Disability

 * Involuntary Termination (without cause/with salary continuation period )-all
   vesting and distributions determined by end of actual employment

Prorated distribution of shares to the extent eventually earned through the end
of active service (excluding any salary continuation period), distributed in
full in February 2005.

1/2 of shares earned will be distributed early in 2005

 * Accelerated distribution of remaining unvested shares. No prorated vesting
   will apply.

Death

Target award prorated through the date of death , distributed in shares of Sears
stock within 90 days of end of service (1)

1/2 of shares earned will be distributed early in 2005 Accelerated distribution
of remaining unvested shares. No prorated vesting will apply.

Change-in-control ("CIC")

At CIC, target number of shares granted is fully vested unless equivalent award
substituted Upon CIC Termination, vesting accelerated on all unvested shares (1)

1/2 of shares earned will be distributed early in 2005

 * At CIC, accelerated distribution of remaining unvested shares are distributed
   unless equivalent award substituted

 * Upon CIC Termination, vesting is accelerated on all unvested shares

 

(1) Target award in Sears shares equals the number of performance shares granted
at the beginning of the performance cycle without respect to any subsequent
adjustments for meeting all four goals or relative TSR performance.

All prorations are based on a fraction, the numerator of which is the number of
full months worked during period January 1, 2002 through December 31, 2004 and
the denominator of which is 36 months.

 

 

 

ADMINISTRATIVE PROVISIONS

LTPIP awards are made under the 2000 Employees Stock Plan and are consistent
with the measures provided in the Long Term Incentive Compensation Plan, both of
which have been approved by shareholders. Since the shares awarded under this
Program are granted pursuant to the 2000 Employees Stock Plan, in the event of
any conflict between this document and the 2000 Employees Stock Plan, the
provisions of the 2000 Employees Stock Plan govern.

Amounts distributed under this Program are not considered qualifying
compensation for purposes of any Sears retirement plan or other benefits.

Nothing in this Program or grant will confer on a participant any right to
continue in the employ of Sears or in any way affect Sears' ability to terminate
the participant's employment in accordance with applicable laws.

 

The Compensation Committee

The LTPIP is administered by the Compensation Committee of the Board of
Directors of Sears, Roebuck and Co., which has delegated the authority to make
administrative decisions regarding this Program to the Senior Vice President,
Human Resources. Any determinations by the Committee regarding this Program are
binding on all participants.

The Committee may make additional changes that it deems appropriate for the
effective administration of the LTPIP. These changes may not increase or reduce
the benefits to which participants may become entitled under the LTPIP, nor
change the pre-established measures and goals that have been approved.

 

Extraordinary Events

The Committee will consider the effect of any extraordinary or non-recurring
events in determining whether or not a goal has been "met." For purposes of
calculating financial performance, the negative effect of all non-recurring or
extraordinary items shall be excluded from the calculations; provided that the
Committee may apply "negative discretion" in reducing the results based on
including or excluding the effects of any non-recurring or extraordinary items
that it deems appropriate. For these purposes, non-recurring or extraordinary
items shall include any such item as determined by the Company's independent
accountants in accordance with GAAP, losses resulting from discontinued
operations, the cumulative effect of changes in accounting standards and other
unusual, non-recurring items of gain or loss that are separately identified and
quantified in the Company's audited financial statements.

 

 

Change in Control

A Change of Control shall mean:

(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the
then outstanding common shares of the Company (the "Outstanding Company Common
Shares") or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control: (i) any
acquisition directly from the Company (excluding an acquisition by virtue of the
exercise of a conversion privilege); (ii) any acquisition by the Company or any
of its subsidiaries; (iii) any acquisition by any employee benefit plan (or any
related trust) sponsored or maintained by the Company of any of its
subsidiaries; or (iv) any acquisition by any corporation pursuant to a
reorganization, merger or consolidation, if, following such reorganization,
merger or consolidation, the conditions described in clauses (i), (ii) and (iii)
of (c) below are satisfied; or

(b) Individuals who, as of the date hereof, constitute the Board of Directors of
the Company (the "Board") (as of the date hereof, the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the date hereof
whose election, or nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used under Section 14 of the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board; or

(c) Consummation of a reorganization, merger or consolidation unless, following
such reorganization, merger or consolidation, (i) more than 60% of,
respectively, the then outstanding common shares of the corporation resulting
from such reorganization, merger of consolidation and the combined voting power
of the then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Shares
and Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Shares and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding the Company,
any of its subsidiaries, any employee benefit plan (or related trust) sponsored
or maintained by the Company, any of its subsidiaries or such corporation
resulting from such reorganization, merger or consolidation and any Person
beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 20% or more of the Outstanding Company
Common Shares or Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding common shares of the corporation resulting from such
reorganization, merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such reorganization, merger
or consolidation were members of the Incumbent Board at the time of the
execution of the initial agreement providing for such reorganization, merger or
consolidation: or

(d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company; or

(e) Consummation of the sale or other disposition of all or substantially all of
the assets of the Company, other than to a corporation, with respect to which
following such sale or other disposition, (i) more than 60% of, respectively,
the then outstanding common shares of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Shares and Outstanding Company Voting Securities immediately prior to such sale
or other disposition in substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the Outstanding Company
Common Shares and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding the Company, any of its subsidiaries, and any employee
benefit plan (or related trust) sponsored or maintained by the Company, any of
its subsidiaries or such corporation and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or indirectly, 20%
or more of the Outstanding Company Common Shares or Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then outstanding common shares of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors and (iii) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other disposition of
assets of the Company.

For purposes of the foregoing definition of "Change of Control", a "subsidiary"
of the Company shall mean any corporation in which the Company, directly or
indirectly, holds a majority of the voting power of such corporation's
outstanding shares of capital stock.

 

 

 

 

APPENDIX A

Relative Total Shareholder Return: Share Multiplier Values

Percentile Rank

Share Multiplier

Percentile Rank

Share Multiplier

Percentile Rank

Share Multiplier

Percentile Rank

Share Multiplier

Percentile Rank

Share Multiplier

50.0

0.500

55.0

1.000

60.0

1.000

65.0

1.167

70.0

1.333

50.1

1.000

55.1

1.000

60.1

1.003

65.1

1.170

70.1

1.337

50.2

1.000

55.2

1.000

60.2

1.007

65.2

1.173

70.2

1.340

50.3

1.000

55.3

1.000

60.3

1.010

65.3

1.177

70.3

1.343

50.4

1.000

55.4

1.000

60.4

1.013

65.4

1.180

70.4

1.347

50.5

1.000

55.5

1.000

60.5

1.017

65.5

1.183

70.5

1.350

50.6

1.000

55.6

1.000

60.6

1.020

65.6

1.187

70.6

1.353

50.7

1.000

55.7

1.000

60.7

1.023

65.7

1.190

70.7

1.357

50.8

1.000

55.8

1.000

60.8

1.027

65.8

1.193

70.8

1.360

50.9

1.000

55.9

1.000

60.9

1.030

65.9

1.197

70.9

1.363

51.0

1.000

56.0

1.000

61.0

1.033

66.0

1.200

71.0

1.367

51.1

1.000

56.1

1.000

61.1

1.037

66.1

1.203

71.1

1.370

51.2

1.000

56.2

1.000

61.2

1.040

66.2

1.207

71.2

1.373

51.3

1.000

56.3

1.000

61.3

1.043

66.3

1.210

71.3

1.377

51.4

1.000

56.4

1.000

61.4

1.047

66.4

1.213

71.4

1.380

51.5

1.000

56.5

1.000

61.5

1.050

66.5

1.217

71.5

1.383

51.6

1.000

56.6

1.000

61.6

1.053

66.6

1.220

71.6

1.387

51.7

1.000

56.7

1.000

61.7

1.057

66.7

1.223

71.7

1.390

51.8

1.000

56.8

1.000

61.8

1.060

66.8

1.227

71.8

1.393

51.9

1.000

56.9

1.000

61.9

1.063

66.9

1.230

71.9

1.397

52.0

1.000

57.0

1.000

62.0

1.067

67.0

1.233

72.0

1.400

52.1

1.000

57.1

1.000

62.1

1.070

67.1

1.237

72.1

1.403

52.2

1.000

57.2

1.000

62.2

1.073

67.2

1.240

72.2

1.407

52.3

1.000

57.3

1.000

62.3

1.077

67.3

1.243

72.3

1.410

52.4

1.000

57.4

1.000

62.4

1.080

67.4

1.247

72.4

1.413

52.5

1.000

57.5

1.000

62.5

1.083

67.5

1.250

72.5

1.417

52.6

1.000

57.6

1.000

62.6

1.087

67.6

1.253

72.6

1.420

52.7

1.000

57.7

1.000

62.7

1.090

67.7

1.257

72.7

1.423

52.8

1.000

57.8

1.000

62.8

1.093

67.8

1.260

72.8

1.427

52.9

1.000

57.9

1.000

62.9

1.097

67.9

1.263

72.9

1.430

53.0

1.000

58.0

1.000

63.0

1.100

68.0

1.267

73.0

1.433

53.1

1.000

58.1

1.000

63.1

1.103

68.1

1.270

73.1

1.437

53.2

1.000

58.2

1.000

63.2

1.107

68.2

1.273

73.2

1.440

53.3

1.000

58.3

1.000

63.3

1.110

68.3

1.277

73.3

1.443

53.4

1.000

58.4

1.000

63.4

1.113

68.4

1.280

73.4

1.447

53.5

1.000

58.5

1.000

63.5

1.117

68.5

1.283

73.5

1.450

53.6

1.000

58.6

1.000

63.6

1.120

68.6

1.287

73.6

1.453

53.7

1.000

58.7

1.000

63.7

1.123

68.7

1.290

73.7

1.457

53.8

1.000

58.8

1.000

63.8

1.127

68.8

1.293

73.8

1.460

53.9

1.000

58.9

1.000

63.9

1.130

68.9

1.297

73.9

1.463

54.0

1.000

59.0

1.000

64.0

1.133

69.0

1.300

74.0

1.467

54.1

1.000

59.1

1.000

64.1

1.137

69.1

1.303

74.1

1.470

54.2

1.000

59.2

1.000

64.2

1.140

69.2

1.307

74.2

1.473

54.3

1.000

59.3

1.000

64.3

1.143

69.3

1.310

74.3

1.477

54.4

1.000

59.4

1.000

64.4

1.147

69.4

1.313

74.4

1.480

54.5

1.000

59.5

1.000

64.5

1.150

69.5

1.317

74.5

1.483

54.6

1.000

59.6

1.000

64.6

1.153

69.6

1.320

74.6

1.487

54.7

1.000

59.7

1.000

64.7

1.157

69.7

1.323

74.7

1.490

54.8

1.000

59.8

1.000

64.8

1.160

69.8

1.327

74.8

1.493

54.9

1.000

59.9

1.000

64.9

1.163

69.9

1.330

74.9

1.497

75.0

1.500