Document:

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                                                                    EXHIBIT 10.1

                             VOTING PROXY AGREEMENT

         THIS VOTING PROXY AGREEMENT (hereinafter this "Agreement"), made and
entered this 8th day of November, 2002, by and among WMS Industries Inc., a
Delaware corporation, (hereinafter the "Company"), Phyllis G. Redstone
(hereinafter "Mrs. Redstone") and Louis J. Nicastro and Neil D. Nicastro,
individuals, as Proxy Holder (as hereinafter defined).

                              W I T N E S S E T H:

         WHEREAS, the Company is a publicly traded corporation with common
stock, par value $0.50 per share, traded on the New York Stock Exchange; and,

         WHEREAS, the Company is licensed as a manufacturer or distributor of
gaming devices; and,

         WHEREAS, as of the Effective Date (as hereinafter defined), Mrs.
Redstone owns, either beneficially or of record, the number of shares of the
Company's common stock, par value $0.50 per share, as set forth opposite Mrs.
Redstone's name on Exhibit A hereto, or as may be amended in subsequent filings
with the United States Securities and Exchange Commission ("SEC"); and,

         WHEREAS, Mrs. Redstone is a passive investor in the Company, has no
representation on the Board of Directors of the Company and has no involvement
in the management of the Company; and,

         WHEREAS, Mrs. Redstone has voluntarily decided to grant to the Proxy
Holder a voting proxy for all of the shares of common stock of the Company that
Mrs. Redstone owns beneficially or of record as set forth opposite Mrs.
Redstone's name on Exhibit A hereto, or as may be amended in subsequent filings
with the SEC; and,

         WHEREAS, in order to assure that the passive investment position of
Mrs. Redstone relative to the Company will not change without prior notification
to the applicable Gaming Authorities (as hereinafter defined), Mrs. Redstone is
amenable to entering this Agreement; and,

         WHEREAS, the Company, the Proxy Holders and Mrs. Redstone have the
ability to perform under this Agreement.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, it is agreed as follows:

                                    ARTICLE 1
                         DEFINITIONS AND INTERPRETATION

         Unless otherwise stated in this Agreement:

         "Affiliate" shall have the meaning ascribed to that term by Section
15.482-3 of the Regulations of the Nevada Gaming Commission.

         "Common Stock" means all voting equity securities of the Company
beneficially owned by Mrs. Redstone individually or through her ownership and
control of any other Person.

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         "Effective Date" is the date first above written. It is the intention
of the parties that this Voting Proxy will include the voting of the shares at
the Company's Annual Meeting of Shareholders to be held on November 14, 2002.

         "Gaming Authorities" means any gaming regulatory jurisdiction within
which the Company or its subsidiaries are licensed or otherwise authorized to do
business.

         "Person" means a natural person, any form of business or social
organization and any other nongovernmental legal entity.

         "Proxy Holder" means Louis J. Nicastro, Chairman of the Board of
Directors of the Company, or, in the event Louis J. Nicastro is unable to
perform the duties and exercise the rights of Proxy Holder, Neil D. Nicastro,
member of the Board of Directors of the Company.

                                    ARTICLE 2
                    CREATION AND TERMINATION OF VOTING PROXY

         2.1 The Proxy Holder shall file a copy of this Agreement in the
registered office of the Company in Delaware.

         2.2 Mrs. Redstone shall perform such further acts and execute such
further documents and instruments as may reasonably be required to confer on the
Proxy Holder the power to carry out the provisions of this Agreement, including
the execution of new or additional proxies.

         2.3 Mrs. Redstone shall be entitled to terminate this Agreement
effective thirty (30) calendar days following service of written notice of such
termination on the Company, Proxy Holder and the applicable Gaming Authorities.

         2.4 Except if, and to the extent, terminated pursuant to paragraph 2.3,
this Agreement shall remain effective as to any Common Stock, other than the
Common Stock previously in such ownership of Mrs. Redstone that is sold or
otherwise disposed of in a transfer to a Person that is not an Affiliate of Mrs.
Redstone.

         2.5 Failure by the Company to comply with the notice requirement
described in paragraph 4.1 hereof shall be deemed an automatic termination of
this Agreement as to any subject matter for which such notice was not properly
given by the Company.

         2.6 Unless sooner terminated as provided in paragraphs 2.3 through 2.5
hereof, this Agreement shall continue in force until ten (10) years from the
date hereof (hereinafter the "Voting Proxy Term"). Two (2) years before the
expiration of ten (10) years from the date hereof, the parties may agree to
extend this Agreement for another ten (10) years.

                                    ARTICLE 3
                    POWERS, RIGHTS AND DUTIES OF PROXY HOLDER

         3.1 As of the Effective Date of this Agreement, Mrs. Redstone, by this
Agreement, with respect to the Common Stock, does hereby constitute and appoint
the Proxy Holder, with full power of substitution, during and for the Voting
Proxy Term, as her true and lawful attorney-in-fact and proxy, for and in their
name, place and stead, to vote all shares of the Common Stock as the proxy of
Mrs. Redstone, at every annual, special or adjourned meeting of the shareholders
of the Company, including the right to sign the Proxy Holder's name as Mrs.
Redstone to any consent, certificate or other document relating to

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the Company that the law of the State of Delaware may permit or require on any
and all matters which may be presented to the shareholders of the Company.
Actions to be taken by Proxy Holder shall be determined by Proxy Holder in his
sole and absolute discretion. Without limiting the foregoing, Proxy Holder may
exercise all of the voting rights of Mrs. Redstone, including for example, the
right to vote or consent to amendment of the Certificate of Incorporation of
Company, sale of all corporate assets, mergers, consolidations, reductions of
capital and dissolutions, except that Proxy Holder shall not sell, assign or
otherwise dispose of the Common Stock. This Agreement shall continue and be
applicable with respect to any securities of the Company having any voting
rights issued by the Company to Mrs. Redstone in substitution or exchange for,
or as a distribution on, the Common Stock.

         3.2 Proxy Holder shall serve without compensation as Proxy Holder. The
Company will be responsible for the payment of all expenses and charges incurred
by Proxy Holder, including the expenses and charges of such agents and attorneys
as Proxy Holder may deem necessary and proper to employ in the performance of
his duties under this Agreement.

         3.3 In voting the Common Stock, Proxy Holder shall use his best
judgment from time to time to the end that the affairs of the Company shall be
properly managed. Proxy Holder may cause himself to be elected as director of
the Company and Proxy Holder may act as an employee, officer or agent of the
Company and be reasonably compensated for his services in such capacity as fully
as though he were not a Proxy Holder.

         3.4 Proxy Holder shall not be liable to the Company or Mrs. Redstone
for any act or omission of the Proxy Holder, or any agent of the Proxy Holder,
or be held to any personal liability whatsoever in tort, contract, or otherwise
in connection with the performance of the Proxy Holder's obligations pursuant to
this Agreement, except for liabilities arising from the Proxy Holder's bad
faith, willful misfeasance or reckless disregard of duty. The Proxy Holder shall
not be liable except for the performance of any duties and obligations as are
specifically set forth in this Agreement and no implied covenants or obligations
shall be read into the Agreement against the Proxy Holder. The Proxy Holder
shall not be liable with respect to any action taken or omitted to be taken by
the Proxy Holder in good faith. In addition to, and not in limitation of, the
foregoing, no successor Proxy Holder shall in any way be liable for the acts or
omissions of any Proxy Holder or agent of the Proxy Holder occurring prior to
the date on which he became a Proxy Holder.

         3.5 Proxy Holder may consult with counsel, auditors or other experts,
and the advice or opinion of such counsel, auditors, or other experts shall be
full and complete personal protection to Proxy Holder in respect of any action
taken or suffered by the Proxy Holder in good faith and in reliance upon or in
accordance with such advice or opinion. In discharging his duties, the Proxy
Holder may rely upon financial statements of the Company represented to the
Proxy Holder to be correct by the Person having charge of the Company's books of
account, or stated in a written report by an independent certified public
accountant to present fairly the financial position of the Company. The Proxy
Holder may rely, and shall be personally protected in acting upon any
instrument, certificate, opinion, report, notice, order or other document of any
sort whatsoever delivered to him in connection with this Agreement reasonably
believed by him to be genuine.

         3.6 Proxy Holder shall not resign or cease to act as Proxy Holder until
a successor Proxy Holder is appointed by the Company's Board of Directors. In
the event of the death or in the event that Proxy Holder is adjudicated an
incompetent, and a guardian or conservator is appointed for his person,
business, assets or estate, and such adjudication is not set aside or reversed
or stayed within sixty (60) days from the date of such adjudication, or, in the
event of the total physical or mental disability of Proxy Holder which persists
for a continuous period of six (6) months, the Board of Directors of the Company
shall select a successor Proxy Holder to serve until the termination of this
Agreement. The successor

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Proxy Holder shall be a member of the Company's Board of Directors or a bank or
trust company licensed by the United States (hereinafter the "Institutional
Proxy Holder"), with capital in excess of $100,000,000.00.

                                    ARTICLE 4
                   POWERS, RIGHTS AND DUTIES OF MRS. REDSTONE

         4.1 Mrs. Redstone shall receive from the Company written notice of any
subject matter that will be presented for approval, consent or ratification to
the shareholders of the Company at least forty-five (45) calendar days prior to
the date on which the shareholders of the Company shall vote on, or consent, to
such subject matter.

         4.2 The terms of this Agreement do not obligate any Person other than
Mrs. Redstone, her Affiliates, the Company, and the Proxy Holder and will
terminate as to any shares of Common Stock of the Company transferred by Mrs.
Redstone in accordance with the provisions of paragraph 2.4 hereof.

         4.3 Mrs. Redstone shall submit to the Company a copy of any report,
form or other document filed by Mrs. Redstone with the SEC, relative to the
Company contemporaneously with filing such report, form or document with the
SEC.

         4.4 Mrs. Redstone shall submit to the Company written notice within ten
(10) business days of the sale or other disposition of the Common Stock or any
other securities issued by the Company owned by Mrs. Redstone. The written
notice required by this paragraph 4.4 shall specify the type and number of
securities involved in a reported transaction, and the consideration provided
for the disposition of such.

                                    ARTICLE 5
                 REPRESENTATIONS AND WARRANTIES OF MRS. REDSTONE

         Mrs. Redstone hereby represents and warrants to the Company and the
Proxy Holder that she is the record or beneficial owner of the shares of Common
Stock as set forth in Exhibit A, or as amended in subsequent filings with the
SEC, to this Agreement, free and clear of any proxy or voting restrictions other
than pursuant to this Agreement.

                                    ARTICLE 6
                            MISCELLANEOUS PROVISIONS

         6.1 Irrevocable Proxy. Except as provided in paragraphs 2.3 through 2.6
and 4.2 hereof, the proxy created by this Agreement is irrevocable.

         6.2 Titles and Subtitles. Titles of paragraphs and subparagraphs are
placed herein for convenient reference only and shall not to any extent have the
effect of modifying, amending or changing the express terms and provisions of
this Agreement.

         6.3 Words and Gender or Number. As used herein, unless the context
clearly indicates the contrary, the singular number shall include the plural,
the plural the singular, and the use of any gender shall be applicable to all
genders.

         6.4 Execution in Counterpart. This Agreement may be executed in any
number of counterparts, each of which shall be taken to be an original.

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         6.5 Severability. In the event any parts of this Agreement are found to
be void, the remaining provisions of this Agreement shall nevertheless be
binding with the same effect as though the void parts were deleted.

         6.6 Effective Dates. This Agreement shall be effective only upon the
execution by all of the proposed parties.

         6.7 Waiver. No waiver of any provisions of this Agreement shall be
valid unless in writing and signed by the person or party against whom charged.

         6.8 Applicable Law. Except as provided in paragraph 6.9 hereof, this
Agreement shall be subject to and governed by the laws of the State of Delaware.

         6.9 Regulatory Jurisdiction. This Agreement is subject to the
jurisdiction of the applicable Gaming Authorities.

         6.10 Entire Agreement. This Agreement contains the entire agreement
between the parties.

         6.11 Certain Judicial Remedies. The parties to this Agreement
acknowledge and agree that irreparable damage would result in the event any
provision of this Agreement was not performed in accordance with the terms
hereof and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or in equity.

         6.12 Notices. Every and all notice required hereunder shall be given by
personal service, telecopy transmittal or by overnight courier, to the parties
at the following addresses listed in this Agreement; provided, however, any
party may change its address by written notice to the other parties.

         As to the Company:                  WMS Industries Inc.
                                             800 South Northpoint Boulevard
                                             Waukegan, IL  60085
                                             Attn:  Orrin J. Edidin
                                             Telecopy No.:  (847) 785-3789

         As to the Proxy Holder:             Louis J. Nicastro
                                             Neil D. Nicastro
                                             800 South Northpoint Boulevard
                                             Waukegan, IL  60085
                                             Telecopy No.:  (847) 785-3787

         As to Mrs. Redstone:                Mrs. Phyllis G. Redstone
                                             c/o Leonard L. Lewin, Esq.
                                             Gadsby Hannah LLP
                                             225 Franklin Street
                                             Boston, MA  02110
                                             Telecopy No.: (617) 345-7050

         6.13 Assignment. This Agreement shall not be assigned by operation of
law or otherwise.

<PAGE>

         IN WITNESS WHEREOF, the parties have entered into this Agreement
effective this 8th day of November, 2002.

WMS INDUSTRIES INC.

By:   /s/  Brian R. Gamache                    /s/  Phyllis G. Redstone
   ------------------------------------      -----------------------------------
Brian R. Gamache                             Phyllis G. Redstone
President and Chief Executive Officer

   /s/  Louis J. Nicastro
---------------------------------------
Louis J. Nicastro

   /s/  Neil D. Nicastro
---------------------------------------
Neil D. Nicastro

Exhibit A
                        SCHEDULE OF AFFECTED COMMON STOCK

Name of Stockholder                                          Number of Shares
-------------------                                          ----------------

Phyllis Redstone                                                 3,085,700Restated LTPIP and Amendment to 2000 Stock Plan

 

Exhibit 10(a)

CONFORMED AMENDED AND RESTATED

LONG-TERM PERFORMANCE INCENTIVE PROGRAM (“LTPIP”)

SEARS, ROEBUCK AND CO.

as conformed and restated through August 14, 2002

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. and Lands’ End, Inc. 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.

Plan 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 strategic goals, relative stock price performance, and continuing eligibility as part of the
executive leadership team.
	 
	•	 	All participants will have either the Sears LTPIP Goals or the Lands’ End LTPIP Goals as set forth on pages 3 and 4
(although goals may be weighted differently for different participants).
	 
	•	 	Performance against the goals is measured through December 31, 2004. The Compensation Committee will determine whether,
as of that day, each of the goals 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 distributed in Sears
shares. Each performance share will equal between .5 and 1.5 Sears shares
depending upon the

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	 	 	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.
The other half will also be distributed in February,
2005 as restricted shares, and will vest one year
after issuance.

ELIGIBILITY

The Compensation Committee of the Sears Board of Directors will identify those
executives that have the broadest strategic impact. Any executives deemed
eligible by the Compensation Committee prior to December 31, 2001 will receive
a full award with no proration. The Compensation Committee will determine
whether each eligible executive award will be subject to the Sears LTPIP Goals
or the Lands’ End LTPIP Goals.

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. At the
date of grant, the shares awarded will consist of a commitment by Sears to
distribute a number of Sears shares equal to the number of performance shares
multiplied by the applicable Total Shareholder Return multiple set forth on
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 delivered will be more
or less than the number of performance shares awarded, based on the achievement
of pre-defined goals, Sears’ TSR performance relative to the market, and the
participant’s continuing eligibility as part of the executive leadership team.

2

 

Performance Period

The performance period for the four strategic 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

The Sears LTPIP Goals and the Lands’ End LTPIP Goals and their related measures
are as outlined below. The Compensation Committee will determine whether each
eligible executive award will be subject to the Sears LTPIP Goals or the Lands’
End LTPIP Goals.

Sears LTPIP Goals

	 	 	 
	GOAL	 	REQUIRED PERFORMANCE
	
	 	

	Achieve significant
operating income
improvement for Retail and
Related Services Segment	 	
Operating income in 2004 of $1.6 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, occupancy, depreciation, supply chain,
and other margin expenses.
	 	 	 
	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

Lands’ End LTPIP Goals

	 	 	 
	GOAL	 	REQUIRED PERFORMANCE
	
	 	

	Achieve significant
bottom-line performance
improvement for all channels
selling Lands’ End merchandise	 	
2004 Performance of $495 million
(Components: Lands’ End Pre-Tax Income +
Gross Margin $- Marketing Expense on
Lands’ End merchandise sold through Sears
Full-line Stores)
	 	 	 
	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, occupancy, depreciation,
supply chain, and other margin expenses.
	 	 	 
	Achieve significant revenue
growth for Lands’ End
merchandise sold through all
channels in 2004	 	
Achieve $2,766 million in revenue of
Lands’ End merchandise through all
channels in 2004

3

 

Weighting of Goals and Calculation of Award

Each executive’s grant will specify the weight that has been assigned to the
above goals.

	•	 	The weighting of the grant will reflect the proportion of impact on the
four strategic goals, and will equal 100% of the performance shares
awarded

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 under your award will
equal

	•	 	The number of performance shares originally granted, multiplied by
	 
	•	 	The percentage that represents 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 delivered for each performance
shares earned by a participant. Performance levels will be based on Sears TSR
performance ranking versus the companies in the Standard & Poors 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

4

 

will be used in the calculation to determine Sears TSR performance for the
period, as well as that of 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.

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 between the 50th and 60th percentile, 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 restricted
stock at the same time, and will vest 100% one year after issuance.

	•	 	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 Fair Market

5

 

	 	 	Value of Sears shares on the date of distribution. “Fair Market Value”
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.
	 
	•	 	February, 2006 Unrestriction — In February, 2006 the restricted shares
will become exchangeable for unrestricted Sears common shares (one year
after issuance). 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 the
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 fair market value
of the distribution will be considered as ordinary income to the executive and
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 election that must be

6

 

made within 30 days of receiving the award of restricted shares. Because this
election 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 30, 2005
	
	 	
	 	

	- 
Voluntary Termination (not retirement) or
	 
	
All shares forfeited

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

	 
	 
	 
	 
	 

	- Retirement without company consent or
	 
	 
	 
	- Remaining shares
are forfeited

	 
	 
	 
	 
	 

	- Involuntary Termination (with cause)
	 
	 
	 
	 

	 
	 
	 
	 
	 

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

	 
	 
	 
	 
	 

	- Permanent and Total
Disability
	 
	 
	 
	- Accelerated
distribution of
remaining unvested
shares. No prorated
vesting will apply.

	 
	 
	 
	 
	 

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

	- 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

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

		 
	 
	 
	 

		 
	- Upon CIC

Termination, vesting

accelerated on all

unvested shares (1)

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

	 
	 
	 
	 
	 

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

7

 

(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 plan are not considered qualifying compensation
for purposes of any Sears retirement plan or other benefits.

Nothing in this plan 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 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 plan to the Senior Vice President,
Human Resources. Any determinations by the Committee regarding this Plan 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

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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

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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

10

 

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.

CONFORMING AMENDMENT TO THE

SEARS, ROEBUCK AND CO. 2000 EMPLOYEES STOCK PLAN

FOR PURPOSES OF THE LTPIP

Resolution of the Board of Directors of Sears, Roebuck and Co.

dated October 20, 2001

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.

11

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