8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 7, 2005

SEARS HOLDINGS CORPORATION

(Exact name of registrant as specified in charter)

Delaware
(State or Other Jurisdiction
of Incorporation) 000-51217
(Commission File Number) 20-1920798
(IRS Employer
Identification No.)

3333 Beverly Road
Hoffman Estates, Illinois
(Address of principal executive offices) 60179
(Zip code)

Registrant’s telephone number, including area code: (847) 286-2500

(Former name or former address, if changed since last report): Not Applicable

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Section 1 -	Registrant’s Business and Operations
Item 1.01.	Entry into a Material Definitive Agreement.
	On September 7, 2005, the Registrant entered into an Amended and Restated Employment Agreement (the “Amended Agreement”), dated September 7, 2005, with Alan J. Lacy, the current Vice Chairman and Chief Executive Officer of the Registrant. The Amended Agreement amends and restates the Employment Agreement by and among Sears, Roebuck & Co., Kmart Holding Corporation and Mr. Lacy dated as of November 16, 2004 (the “Original Agreement”). Most of the terms and conditions of the Amended Agreement are identical to those in the Original Agreement. The material changes to the terms and conditions in the Original Agreement are summarized in the following paragraph.
	The Amended Agreement provides for a term of employment commencing on September 30, 2005 and ending March 23, 2010. During the term, Mr. Lacy will continue to serve as Vice Chairman of the Registrant and a member of its Office of the Chairman and its Board of Directors. He will receive an annual base salary of not less than $1,000,000 and a target 2005 bonus of $2,250,000. The Compensation Committee of the Registrant’s Board of Directors will reduce the 2005 bonus to a pro-rata amount to reflect the period of time during the fiscal year that Mr. Lacy served as the company’s Chief Executive Officer.
	The terms and conditions of the Amended Agreement summarized below are identical to those contained in the Original Agreement.
	Mr. Lacy will be eligible for, and receive benefits under, employee benefit and perquisite arrangements no less favorable than those generally applicable or made available to senior executives of the Registrant. Under the Original Agreement, Mr. Lacy previously received a grant of 75,000 shares of restricted stock of the Registrant, and a grant of options to purchase 200,000 shares of the Registrant’s’ common stock, and these grants will continue to be governed by the provisions of their respective grant documents. Mr. Lacy did not receive any additional grants of restricted stock or options in connection with the Amended Agreement.
	If Mr. Lacy’s employment is terminated by the Registrant without cause (as defined in the Amended Agreement) or Mr. Lacy resigns with good reason (as defined below), Mr. Lacy will be entitled, subject to execution of a release in favor of the Registrant, to receive severance benefits, including:

• If the date of termination occurs prior to the date that Mr. Lacy has received payment of his 2005 bonus, the amount equal to his 2005 bonus;

• The amount equal to $7.5 million (the dollar amount of the amount payable under the Original Agreement’s formula);

• Two additional years of age and service credit under all welfare benefit plans, programs, agreements and arrangements of the Registrant;

• Accelerated vesting of equity-based awards and three years to exercise any vested options; and

• Continued welfare benefits for two years.

For purposes of the agreement, “good reason” means (1) the assignment to Mr. Lacy, after the effective date of the Amended Agreement, of duties inconsistent with, or any diminution of, the position, authority, duties or responsibilities called for by the Amended Agreement, (2) the failure to pay Mr. Lacy his compensation under the agreement, (3) Mr. Lacy’s relocation of employment, (4) the failure of the Registrant to require the assumption of the Amended Agreement by a successor or (5) the failure to elect or reelect Mr. Lacy to the Registrant’s board of directors. In addition, “good reason” means any termination by Mr. Lacy during the 30-day period immediately following June 30, 2006.

If Mr. Lacy’s employment is terminated due to his death or disability (as defined in the Amended Agreement), Mr. Lacy (or his estate) will be entitled to receive, if applicable, payment of the unpaid portion of his 2005 bonus, accelerated vesting of equity-based awards and three years to exercise vested options and continued welfare benefits for two years.

Under the Amended Agreement, Mr. Lacy is restricted from revealing confidential information of the Registrant and, for one year following Mr. Lacy’s termination of employment during the term for any reason, Mr. Lacy may not solicit for employment any employees of the Registrant and may not compete with the Registrant. In the event that any payments to Mr. Lacy are subject to an excise tax under Section 4999 of the Internal Revenue Code, Mr. Lacy will be entitled to an additional gross-up payment so that he remains in the same after-tax position he would have been in had the excise tax not been imposed.

A copy of the Amended Agreement is attached hereto as Exhibit 10.1 and is incorporated herein by this reference. The foregoing description of the Amended Agreement is qualified in its entirety by reference to the full text of the Amended Agreement.

Section 2 -	Financial Information
Item 2.02.	Results of Operations and Financial Condition.
	On September 8, 2005, the Registrant issued a press release regarding its second quarter 2005 earnings. The press release is attached hereto as Exhibit 99.1.
Section 5 -	Corporate Governance and Management
Item 5.02.	Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.
	On September 8, 2005, the Registrant issued a press release announcing that Aylwin B. Lewis will assume the position of Chief Executive Officer and President of the Registrant, effective September 30, 2005. Alan J. Lacy will continue as Vice Chairman and a Director and as a member of the Office of the Chairman. Mr. Lacy will also continue to serve as the Chairman of the Board of Directors of Sears Canada and will focus on merger integration and strategic issues. Exhibit 99.1 is hereby incorporated by this reference into this Item 5.02.
Section 7 -	Regulation FD
Item 7.01.	Regulation FD Disclosure.
	On September 8, 2005 the Chairman of the Registrant issued a letter to shareholders. The letter will be available on the company’s website, www.searsholdings.com, and is attached hereto as Exhibit 99.2.

Section 9 -	Financial Statements and Exhibits
Item 9.01	Financial Statements and Exhibits.
	(c) Exhibits
	Exhibit 10.1 – Amended and Restated Employment Agreement, dated September 7, 2005, between Sears Holdings Corporation and Allan J. Lacy.
	Exhibit 99.1 – Press release, dated September 8, 2005, furnished pursuant to Item 2.02.
	Exhibit 99.2 – Letter from the Chairman, dated September 8, 2005, furnished pursuant to Item 7.01.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

SEARS HOLDINGS CORPORATION
By:	/s/ William K. Phelan
	William K. Phelan
	Vice President and Controller

Date: September 8, 2005

Exhibit Index

10.1   Amended and Restated Employment Agreement, dated September 7, 2005, between Sears Holdings Corporation and Allan J. Lacy.

99.1   Press release, dated September 8, 2005.

99.2   Letter from the Chairman, dated September 8, 2005.

EX-10.1

Exhibit 10.1

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

     This Employment Agreement between Sears Holdings Corporation (the “Company”) and Alan J. Lacy (the “Executive”) dated September 7, 2005 (the “Agreement”) amends and restates the Employment Agreement by and among Sears, Roebuck & Co., a New York corporation, Kmart Holding Corporation, a Delaware corporation and Alan J. Lacy (the “Executive”) dated as of the 16th day of November, 2004.

     1. Effective Date. The “Effective Date” shall mean September 30, 2005.

     2. Employment Period. The Company hereby agrees to continue to employ the Executive, and the Executive hereby agrees to serve the Company, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending March 23, 2010 (the “Employment Period”).

     3. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, the Executive shall serve as the Vice Chairman of the Company and a member of the Office of the Chairman with such duties and responsibilities as are reasonably assigned by the Chairman of the Company to such positions. The Executive shall report directly and exclusively to the Board of Directors of the Company (the “Board”). The Executive shall also serve as Chairman of Sears Canada and shall continue to serve on the Board during the Employment Period, subject to election by the shareholders of the Company, without additional consideration.

          (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his business attention and time to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive’s reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period, it shall not be a violation of this Agreement for the Executive to (A) subject to the approval of the Board, serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Time and set forth on Schedule A hereto, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Time shall not thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company.

     (b) Compensation (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary (“Annual Base Salary”) at a rate of not less than $1,000,000 payable in accordance with the Company’s normal payroll policies.

          (ii) Annual Bonus. With respect to the 2005 fiscal year of the Company, the Executive shall continue to be eligible to receive an annual bonus (the “2005 Bonus”) with a target of $2,250,000. The actual Annual Bonus shall be based on the attainment of performance objectives as determined by the Compensation Committee of the Board (the “Committee”), and it is understood that Committee will reduce the resulting bonus (which could be higher or lower than $2,250,000) to a pro-rata amount to reflect the period of time during the fiscal year that the Executive served as the Company’s Chief Executive Officer. Thereafter, no Annual Bonus will be paid to the Executive. The 2005 Bonus shall be paid to the Executive when bonuses for 2005 are generally paid to executives of the Company, but no later than March 15, 2006.

          (iii) Equity-Based Grants. The Executive has received a grant of 75,000 restricted shares of the Company (the “Restricted Shares”) and a grant of options to purchase 200,000 shares of the Company’s common stock (the “Stock Options”), and such grants shall continue to be governed by the provisions of their respective grant documents.

          (iv) Other Employee Benefit Plans. During the Employment Period, the Executive and/or the Executive’s family, as the case may be, shall be eligible for participation in and shall receive all benefits under savings and retirement plans that are tax-qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”), in plans that are supplemental to any such tax-qualified plans, and welfare benefit plans, practices, policies and programs provided by the Company (including, without limitation, medical, prescription, dental, vision, disability, salary continuance, group life and supplemental group life, accidental death, travel accident insurance, sick leave and vacation plans, practices, policies and programs), but not any severance plan, practice, policy or program, on a basis that is no less favorable than those generally applicable or made available to other senior executives of the Company. The Executive shall be eligible for participation in fringe benefits and perquisite plans, practices, policies and programs (including, without limitation, expense reimbursement plans, practices, policies and programs) on a basis that is no less favorable than those generally applicable or made available to other senior executives of the Company.

     4. Termination of Employment. (a) Death or Disability. The Executive’s employment shall terminate automatically upon the Executive’s death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may provide the Executive with written notice in accordance with Section 10(b) of this Agreement of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive’s duties. For purposes of this Agreement, “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time basis for 180 consecutive days as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative.

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     (b) Cause. The Company may terminate the Executive’s employment during the Employment Period either with or without Cause. For purposes of this Agreement, “Cause” shall mean:

          (i) the Executive is convicted of, or pleads guilty or nolo contendere to a charge of commission of, a felony; or

          (ii) the Executive has engaged in willful gross neglect or willful gross misconduct in carrying out his duties, which results in material economic harm to the Company or in reputational harm causing quantifiable material injury to the Company.

For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive’s action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Board or the Chairman of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in clause (ii) above, and specifying the particulars thereof in detail.

     (c) Good Reason. The Executive’s employment may be terminated by the Executive with or without Good Reason. For purposes of this Agreement, “Good Reason” shall mean in the absence of a written consent of the Executive:

          (i) the assignment to the Executive, after the Effective Date, of any duties inconsistent with the Executive’s position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a) of this Agreement, or any other action by the Company, after the Effective Date, which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial or inadvertent action not taken in bad faith and which is remedied by the Company within 30 days after receipt of notice thereof given by the Executive;

          (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial or inadvertent failure not occurring in bad faith and which is remedied by the Company within 30 days after receipt of notice thereof given by the Executive;

          (iii) any requirement by the Company that the Executive’s services be rendered primarily at a location or locations other than Hoffman Estates, Illinois;

          (iv) any failure by the Company to comply with Section 9(c) of this Agreement;

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          (v) any failure to elect or reelect the Executive to the Board.

For purposes of this provision, “Good Reason” shall cease to exist for an event on the ninetieth day after the Executive first has knowledge of such event, unless the Executive has given the Company written notice thereof prior to such date. Anything in this Agreement to the contrary notwithstanding, a termination by the Executive for any reason pursuant to a Notice of Termination given during the 30-day period immediately following June 30, 2006 shall be deemed to be a termination for Good Reason for all purposes of this Agreement.

     (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 10(b) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than 30 days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

     (e) Date of Termination. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive with or without Good Reason, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive’s employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be.

     (f) Resignation. Upon termination of the Executive’s employment for any reason, the Executive agrees to resign, as of the Date of Termination, to the extent applicable, from any positions that the Executive holds with the Company and its affiliated companies, the Board (and any committees thereof) and the Board of Directors (and any committees thereof) of any of the affiliated companies.

     5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive’s employment other than for Cause, death or Disability or the Executive shall terminate employment for Good Reason:

          (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination (except that the amount described in clause B below

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shall be paid when annual bonuses are paid to senior executives generally, but no later than March 15, 2006) the aggregate of the following amounts:

     A. the sum of (1) the Executive’s accrued Annual Base Salary and any accrued vacation pay through the Date of Termination, and (2) the Executive’s business expenses that have not been reimbursed by the Company as of the Date of Termination that were incurred by the Executive prior to the Date of Termination in accordance with the applicable Company policy (the sum of the amounts described in clauses (1) and (2), shall be hereinafter referred to as the “Accrued Obligations”); and

     B. if the Date of Termination occurs prior to the date that the Executive has received payment of the 2005 Bonus (described in Section 3(b)(ii)), the 2005 Bonus shall be paid to the Executive; and

     C. the amount equal to $7.5 million; and

          (ii) the Executive shall receive two additional years of age and service credit under all welfare benefit plans, programs, agreements and arrangements of the Company; and

          (iii) any equity-based awards granted to the Executive, including the Restricted Shares and the Stock Options shall vest and become free of restrictions immediately, any stock options granted to the Executive, including the Stock Options, shall be exercisable for a period of three years after his termination of employment, without regard to any provisions relating to earlier termination of the stock options based on termination of employment (the “Equity Benefits”); and

          (iv) for the two-year period following the Date of Termination, the Company shall continue to provide medical and dental benefits to the Executive and his eligible dependents as if the Executive remained an active employee of the Company, and the Executive and his eligible dependents shall be eligible to participate in the Company’s post-retirement welfare benefit programs in effect for senior executives of the Company (collectively “Welfare Benefits”). The applicable period of health benefit continuation under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) shall begin on the Date of Termination; and

          (v) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”). As used in this Agreement, the term “affiliated companies” shall include any company controlled by, controlling or under common control with the Company.

In the event of the Executive’s termination during the Employment Period by the Company other than for Cause or Disability or by the Executive for Good Reason, each of the Executive and the Company agree to execute a mutual general release in favor of the other party, substantially in

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the form attached hereto as Exhibit A. The payments and provision of benefits to the Executive required by Section 5(a) (other than the Accrued Obligations and Other Benefits) shall be conditioned upon the Executive’s delivery (and non-revocation prior to the expiration of the revocation period contained in the release) of such release in favor of the Company, subject to the Company’s delivery to the Executive of such release in favor of the Executive.

     (b) Death. If the Executive’s employment is terminated by reason of the Executive’s death during the Employment Period, this Agreement shall terminate without further obligations to the Executive’s legal representatives under this Agreement, other than for (i) payment of Accrued Obligations, (ii) the timely payment or provision of Other Benefits, (iii) if applicable, payment of the unpaid portion of the 2005 Bonus, (iv) the Welfare Benefits and (v) the Equity Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination and the 2005 Bonus shall be paid to the Executive’s estate or beneficiary, as applicable, on the date specified in Section 5(a)(i). With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(b) shall include death benefits for which the Company pays as in effect on the date of the Executive’s death and the continued provision of the Welfare Benefits. The applicable period of health benefit continuation under COBRA shall begin on the Date of Termination.

     (c) Disability. If the Executive’s employment is terminated by the Company by reason of the Executive’s Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for (i) payment of Accrued Obligations, (ii) the timely payment or provision of Other Benefits, (iii) if applicable, payment of the unpaid portion of the 2005 Bonus, (iv) the Welfare Benefits and (v) the Equity Benefits. Accrued Obligations shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination and the 2005 Bonus shall be paid to the Executive’s estate or beneficiary, as applicable, on the date specified in Section 5(a)(i). With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 5(c) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and the continued provision of Welfare Benefits. The applicable period of health benefit continuation under COBRA shall begin on the Date of Termination.

     (d) Cause; Other than for Good Reason. If the Executive’s employment shall be terminated by the Company for Cause or the Executive terminates his employment without Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (i) the Accrued Obligations through the Date of Termination and (ii) Other Benefits, in each case to the extent theretofore unpaid. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.

     6. Full Settlement. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and, such amounts shall

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not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest by the Company, any of its affiliates or their respective predecessors, successors or assigns, the Executive, his estate, beneficiaries or their respective successors and assigns of the validity or enforceability of, or liability under, any provision of this Agreement (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement); provided, that the Executive prevails on at least one material claim.

     7. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company or any of its affiliates to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.

     (b) Subject to the provisions of Section 7(c), all determinations required to be made under this Section 7, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by Deloitte & Touche LLP or such other nationally recognized certified public accounting firm reasonably acceptable to the Executive as may be designated by the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 7, shall be paid by the Company to the Executive or directly to the Internal Revenue Service, in the sole discretion of the Company, within five days of the later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 7(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

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     (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:

          (i) give the Company any information reasonably requested by the Company relating to such claim,

          (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,

          (iii) cooperate with the Company in good faith in order effectively to contest such claim, and

          (iv) permit the Company to participate in any proceedings relating to such claim;

provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 7(c), the Company shall control all proceedings taken in connection with such contest, and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either pay the tax claimed to the appropriate taxing authority on behalf of the Executive and direct the Executive to sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company pays such claim and directs the Executive to sue for a refund, the Company shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such payment or with respect to any imputed income in connection with such payment; and provided, further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which the Gross-Up Payment would be payable hereunder, and the Executive shall be entitled to

8

settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

     (d) If, after the receipt by the Executive of a payment by the Company of an amount on the Executive’s behalf pursuant to Section 7(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of Section 7(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after payment by the Company of an amount on the Executive’s behalf pursuant to Section 7(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then the amount of such payment shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

     8. Confidential Information; Non-Solicit of Employees; Non-Compete. (a) The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive’s employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive’s employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it or as may be required by applicable law, court order, a regulatory body or arbitrator or other mediator.

     (b) In consideration of the grant of the Stock Options and the Company’s obligations under Section 5 hereof:

          (i) During the one-year period following the Executive’s termination of employment during the Employment Period for any reason (the “Restricted Period”), the Executive will not, directly or indirectly, on behalf of the Executive or any other person, become associated with, whether as a principal, partner, employee, consultant or shareholder (other than as a holder of 5% or less of the outstanding voting shares of any publicly traded company), a Competitor. For purposes of this Section 8(b) a “Competitor” shall mean any entity that is actively engaged in any retail business with more than $1 billion in annual revenue from such retail business; provided, however, that if the Executive terminates employment for any reason pursuant to a Notice of Termination given during the 30-day period immediately following June 30, 2006, a “Competitor” shall mean only Wal-Mart Stores, Inc., The Home Depot, Inc., Target Corporation, J. C. Penney Company, Inc., Lowe’s Companies, Inc., Best Buy Co., Inc., Circuit City Stores, Inc., or Kohl’s Corporation, or any successor thereto.

          (ii) During the Restricted Period, the Executive shall not, directly or indirectly, solicit or encourage any person to leave his or her employment with the Company or assist in any way with the hiring of any Sears employee by any other business.

9

     (c) The Executive acknowledges that the Company would be irreparably injured by a violation of this Section 8 and the Executive or the Company, as applicable, agrees that the Company or the Executive, as applicable, in addition to any other remedies available to it for such breach or threatened breach, shall be entitled, without posting a bond, to a preliminary injunction, temporary restraining order, or other equivalent relief, restraining the Executive or the Company (including its executive officers and directors), as applicable, from any actual or threatened breach of this Section 8.

     9. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives, heirs or legatees.

     (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.

     (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise.

     10. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. If, under any such law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation or ordinance, such portion shall be deemed to be modified or altered to conform thereto. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.

     (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Executive:	At the most recent address
	on file at the Company.
If to the Company:	Sears Holdings Corp.
	3333 Beverly Road
	Hoffman Estates, Illinois 60179
	Attention: General Counsel

or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.

10

     (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.

     (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation.

     (e) The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement, except as set forth in Section 4(c).

     (f) Except as otherwise expressly provided herein, from and after the Effective Time, this Agreement shall supersede any other employment, severance or change of control agreement between the parties and between the Executive and Sears, with respect to the subject matter hereof (including without limitation, the Executive Non-Disclosure and Non-Solicitation of Employees Agreement and the Executive Severance/Non-Compete Agreement between the Executive and Sears, each dated as of November 26, 2001). Any provision of this Agreement that by its terms continues after the expiration of the Employment Period or the termination of the Executive’s employment shall survive in accordance with its terms.

11

     IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.

ALAN J. LACY
/s/ Alan J. Lacy
SEARS HOLDINGS CORP.
By	/s/ Andrea L. Zopp
Name:	Andrea L. Zopp
Title:	Senior Vice President, General Counsel and Secretary

EXHIBIT A

     For and in consideration of the payments and other benefits described in the employment agreement dated as of September 7, 2005 (the “Agreement”) between Alan J. Lacy (“Executive”), and Sears Holdings Corp. (the “Company”) and for other good and valuable consideration, Executive hereby releases the Company, its divisions, affiliates, subsidiaries, parents, branches, predecessors, successors, assigns, officers, directors, trustees, employees, agents, shareholders, administrators, representatives, attorneys, insurers and fiduciaries, past, present and future (the “Released Parties”) from any and all claims of any kind arising out of, or related to, his employment with the Company, its affiliates and subsidiaries (collectively, with the Company, the “Affiliated Entities”), his separation from employment with the Affiliated Entities or derivative of Executive’s employment, which Executive now has or may have against the Released Parties, whether known or unknown to Executive, by reason of facts which have occurred on or prior to the date that Executive has signed this Release. Such released claims include, without limitation, any and all claims under federal, state or local laws pertaining to employment, including, without limitation, the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. Section 2000e et. seq., the Fair Labor Standards Act, as amended, 29 U.S.C. Section 201 et. seq., the Americans with Disabilities Act, as amended, 42 U.S.C. Section 12101 et. seq. the Reconstruction Era Civil Rights Act, as amended, 42 U.S.C. Section 1981 et. seq., the Rehabilitation Act of 1973, as amended, 29 U.S.C. Section 701 et. seq., the Family and Medical Leave Act of 1992, 29 U.S.C. Section 2601 et. seq., and any and all state or local laws regarding employment discrimination and/or federal, state or local laws of any type or description regarding employment, including but not limited to any claims arising from or derivative of Executive’s employment with the Affiliated Entities, as well as any and all claims under state contract or tort law.

     Executive has read this Release carefully, acknowledges that Executive has been given at least 21 days to consider all of its terms and has been advised to consult with any attorney and any other advisors of Executive’s choice prior to executing this Release, and Executive fully understands that by signing below Executive is voluntarily giving up any right which Executive may have to sue or bring any other claims against the Released Parties, including any rights and claims under the Age Discrimination in Employment Act. Executive also understands that Executive has a period of seven days after signing this Release within which to revoke his agreement, and that neither the Company nor any other person is obligated to make any payments or provide any other benefits to Executive pursuant to the Agreement until eight days have passed since Executive’s signing of this Release without Executive’s signature having been revoked, other than the Accrued Obligations and the Other Benefits (in each case, as defined in the Agreement). Finally, Executive has not been forced or pressured in any manner whatsoever to sign this Release, and Executive agrees to all of its terms voluntarily.

A-1

     For and in consideration of the obligations upon Executive as set forth in the Agreement, and for other good and valuable consideration, the Company hereby (on its own behalf and that of the other Affiliated Entities, the divisions and predecessors and successors of the Affiliated Entities and the directors and officers of the Company in their capacity as such (collectively, the “Releasing Entities”)) releases Executive and his heirs, executors, successors and assigns (the “Executive Released Parties”) of and from all debts, obligations, promises, covenants, collective bargaining obligations, agreements, contracts, endorsements, bonds, controversies, suits, claims or causes of every kind and nature whatsoever, arising out of, or related to, his employment with the Affiliated Entities, his separation from employment with the Affiliated Entities or derivative of Executive’s employment, which the Releasing Entities now have or may have against the Executive Released Parties, whether known or unknown, by reason of facts which have occurred on or prior to the date that the Company has signed this Release; provided, however, that nothing contained in this Release shall release the Executive Released Parties from any claim or form of liability arising out of acts or omissions by Executive which constitute a violation of the criminal or securities laws of any applicable jurisdiction.

     Notwithstanding anything else herein to the contrary, this Release shall not affect: the obligations of the Company or Executive set forth in the Agreement or other obligations that, in each case, by their terms, are to be performed after the date hereof by the Company or Executive (including, without limitation, obligations to Executive under any stock option, stock award or agreements or obligations under any pension plan or other benefit or deferred compensation plan, all of which shall remain in effect in accordance with their terms); obligations to indemnify Executive respecting acts or omissions in connection with Executive’s service as a director, officer or employee of the Affiliated Entities; or any right Executive may have to obtain contribution in the event of the entry of judgment against Executive as a result of any act or failure to act for which both Executive and any of the Affiliated Entities are jointly responsible.

     This Release, and the attached covenants, are final and binding and may not be changed or modified except in a writing signed by both parties.

Date	ALAN J. LACY
Date	SEARS HOLDINGS CORP.

EX-99.1

Exhibit 99.1

NEWS MEDIA CONTACT:
Sears Holdings Public Relations
(847) 286-8371

FOR IMMEDIATE RELEASE:
September 8, 2005

SEARS HOLDINGS CORPORATION REPORTS
SECOND QUARTER 2005 RESULTS AND
ANNOUNCES LEADERSHIP CHANGES

AYLWIN LEWIS NAMED SEARS HOLDINGS CEO

     HOFFMAN ESTATES, Ill. — Sears Holdings Corporation (Nasdaq: SHLD) issued its financial statements for the quarter ended July 30, 2005. Sears Holdings Corporation (“Holdings” or the “Company”) was created in connection with the merger of Kmart Holding Corporation (“Kmart”) and Sears, Roebuck and Co. (“Sears”) which was completed on March 24, 2005. Sears Holdings is the nation’s third largest broadline retailer with approximately 2,300 full-line and 1,200 specialty retail stores in the United States operating through Kmart and Sears and 368 full-line and specialty stores in Canada operating through Sears Canada Inc. (“Sears Canada”), a 54%-owned subsidiary.

The statements of operations included below for the 13 and 26 weeks ended July 30, 2005 are not comparable to the prior year periods because the prior year periods do not include Sears results. Additionally, the statement of operations for the 26 weeks ended July 30, 2005 is not representative of the Company’s on-going results as it only includes the results of Sears from March 25, 2005 forward. In order to provide information on the trends and on-going performance of the combined Company, pro forma results are presented as though Kmart and Sears had been combined as of the beginning of 2004. The Company has also provided its calculation of Pro Forma Adjusted EBITDA for Holdings, including a breakdown of Pro Forma Adjusted EBITDA between its domestic and Canadian operations. Reconciliation of the pro forma results of operations to the GAAP results of operations has also been included.

Financial Position

As of July 30, 2005, Holdings had approximately $30 billion of assets and $11 billion of equity, as follows:

	July 30,		July 28,		Jan. 26,
(in billions)	2005		2004(1)		2005(1)
Total assets	$	30.4	$	6.6	$	8.7
Total liabilities		19.1		4.1		4.2
Shareholders’ equity	$	11.3	$	2.5	$	4.5

⁽¹⁾ For accounting purposes, the business combination was treated as a purchase of Sears by Kmart. As such, the historical financial statements of Kmart become the historical financial statements for Holdings.

As of July 30, 2005, the Company had over $2.0 billion of cash and cash equivalents (approximately $1.9 billion domestically), up from $1.6 billion at the end of the first quarter. During the second quarter of 2005, the Company reduced its outstanding debt and capital lease obligations by $227 million to $4.2 billion ($3.4 billion domestically).

Holdings’ inventory level at July 30, 2005 was approximately $9.0 billion, an increase of $5.8 billion over the prior year as a result of the merger. As of the end of the prior year period, the combined inventory on a FIFO basis of Sears and Kmart was approximately $9.4 billion. The merchandise payable balance was $3.5 billion at July 30, 2005 compared to $3.8 billion for Sears and Kmart combined as of July 28, 2004.

1

Exhibit 99.1

During the quarter ended July 30, 2005, the Company spent $114 million on capital expenditures compared to $69 million and $218 million spent by Kmart and Sears, respectively, during their second quarters of the prior year.

Comparable Sales in Second Quarter

Kmart comparable store sales and total sales decreased 0.3% and 3.2%, respectively, for the 13-week period ended July 30, 2005 compared to the 13-week period ended July 28, 2004. Total sales were negatively impacted by a reduction in the total number of operating Kmart stores. While Kmart’s same-store sales declined as a result of lower transaction volumes, several businesses, including apparel, had positive same-store sales during the period.

Sears Domestic sales declined 3.0% for the quarter. The decline was due to a 7.4% decrease in domestic comparable store sales partially offset by strong home services sales. The decline in Sears Domestic comparable store sales reflects efforts initiated in 2005 to improve gross margin by reducing reliance on certain promotional events and reducing inventory levels to lower merchandise holding costs.

Statements of Operations

Holdings’ statements of operations for the 13 and 26 weeks ended July 30, 2005 and July 28, 2004 are as follows:

	13 Weeks Ended						26 Weeks Ended
	July 30,			July 28,			July 30,			July 28,
(in millions, except per share amounts)	2005			2004			2005			2004
Total revenues	$	13,192		$	4,797		$	20,818		$	9,424
Cost of sales, buying and occupancy		9,550			3,607			15,205			7,152
Selling and administrative		2,984			983			4,699			1,928
Depreciation and amortization		280			4			387			8
Gain on sales of assets		(4	)		(72	)		(10	)		(104	)
Provision for uncollectible accounts		16			—			17			—
Restructuring charges		42			—			45			—
Total costs and expenses		12,868			4,522			20,343			8,984
Operating income		324			275			475			440
Interest expense, net		(72	)		(33	)		(114	)		(61	)
Bankruptcy-related recoveries		15			5			32			12
Other income		2			—			11			3
Income before income taxes, minority interest and cumulative effect of change in accounting principle		269			247			404			394
Income taxes		103			93			155			149
Minority interest		5			—			7			—
Income before change in accounting principle	$	161		$	154		$	242		$	245
Cumulative effect of change in accounting principle		—			—			(90	)		—
Net income	$	161		$	154		$	152		$	245
Per share (diluted basis)
Earnings per share before change in accounting principle	$	0.98		$	1.54		$	1.66		$	2.47
Cumulative effect of change in accounting principle		—			—			(0.61	)		—
Earnings per share	$	0.98		$	1.54		$	1.05		$	2.47
Diluted weighted average shares outstanding		165.1			101.5			145.4			101.1

Operating income for the quarter increased $49 million reflecting the inclusion of Sears, which had $225 million in operating income in the quarter, partially offset by $68 million less in gains on the sale of assets realized this year and $42 million in restructuring charges recognized in the current quarter related to the merger. In addition, the effect of purchase accounting adjustments that resulted from the merger reduced operating income by $75 million. On a combined basis, the merger-related restructuring charges and purchase accounting adjustments reduced reported earnings per share by $0.41 for the quarter. These costs were partially offset by bankruptcy-related recoveries of $15 million ($0.06 per share). Going forward, purchase accounting adjustments will continue to impact the Company’s reported EPS although they should not impact its cash flows.

2

Exhibit 99.1

A $90 million after-tax charge was recorded as a cumulative effect of change in accounting in the first quarter of 2005 resulting from the Company’s decision to change its method of accounting for certain indirect overhead costs included in inventory.

Leadership Changes

Sears Holdings also announced several organizational and executive changes effective September 30, 2005. Aylwin B. Lewis will assume the position of Chief Executive Officer and President of Sears Holdings, with responsibility for the Company’s 3,900 stores, as well as home services, finance, legal, supply chain, information technology, and human resources. Edward S. Lampert, Sears Holdings’ Chairman, will lead Sears Holdings’ initiatives to become more responsive to its customers. Mr. Lampert will direct the marketing, merchandising, design, and on-line businesses of Sears Holdings, as well as Lands’ End, to ensure that these initiatives are clearly focused on responding to customer needs. William C. Crowley, Sears Holdings’ Chief Financial Officer, will assume additional responsibilities associated with the newly created role of Chief Administrative Officer. Alan J. Lacy will continue to serve as Vice Chairman and a Director and as a member of the Office of the Chairman. Mr. Lacy will also continue to serve as the Chairman of the Board of Directors of Sears Canada and, together with Mr. Lampert, will focus on merger integration and strategic issues.

Mr. Lampert said, “Alan, Aylwin and I believe these changes will achieve greater clarity in our operating management and align this corporate structure with our vision of Sears Holdings. Our goal is to build one company with multiple ways of connecting with our customers, including our various store formats, on-line offerings, service relationships, and credit products. Alan will continue to make substantial contributions to Sears Holdings and to provide his leadership and judgment on our merger integration opportunities and strategic issues.”

Mr. Lacy said, “As a result of the hard work and commitment of the Sears Holdings executives and associates, we have made rapid progress in integrating the two companies. This is the next logical step in the transformation of the Company into a more customer-focused organization.”

Mr. Lewis said, “Sears Holdings has the potential to be a great retailer, and we are striving to create a great retail experience for consumers wherever and however they choose to shop. Our focus will be the customer.”

Sale of Sears Canada Credit Card Business

On August 31, 2005, Sears Canada announced that it had entered into an agreement to sell its Credit and Financial Services business to JP Morgan Chase & Co. The sale is expected to generate cash proceeds to Sears Canada of $1.8 billion and to close by the end of 2005, subject to regulatory approvals and closing conditions. Although Sears Canada has not yet made any final determination as to the use of the proceeds, it expects to return a substantial portion of the proceeds to shareholders.

Pro Forma Results

The statements of operations for the 13 and 26 weeks ended July 30, 2005 are not comparable to the prior year periods because the prior periods do not include the results of Sears. Additionally, the statement of operations for the 26 weeks ended July 30, 2005 is not representative of the Company’s on-going results as it only includes Sears results from March 25, 2005 forward. Therefore, the Company believes that an understanding of trends and on-going performance is not complete without presenting results on a pro forma basis that include Sears results for all periods presented.

The following pro forma statements of operations summarize the results of Holdings assuming that the merger occurred at the beginning of 2004.

3

Exhibit 99.1

	13 Weeks Ended						26 Weeks Ended
(in millions, except per share amounts)	July 30,			July 28,			July 30,			July 28,
	2005			2004			2005(1)			2004
				Pro Forma			Pro Forma			Pro Forma
Total revenues	$	13,192		$	13,472		$	25,955		$	26,241
Cost of sales, buying and occupancy		9,550			9,914			18,877			19,341
Gross margin rate		27.2	%		26.0	%		26.8	%		25.8	%
Selling and administrative		2,984			3,035			6,024			5,987
Selling and administrative expense as a percentage of total revenues		22.6	%		22.5	%		23.2	%		22.8	%
Depreciation and amortization		280			305			563			588
Provision for uncollectible accounts		16			10			33			26
Gain on sales of assets		(4	)		(77	)		(11	)		(113	)
Restructuring charges		42			41			45			41
Total costs and expenses		12,868			13,228			25,531			25,870
Operating income		324			244			424			371
Interest expense, net		(72	)		(90	)		(147	)		(185	)
Bankruptcy-related recoveries		15			5			32			12
Other income		2			24			21			49
Income before income taxes, minority interest and cumulative effect of change in accounting principle		269			183			330			247
Percent to revenues		2.0	%		1.4	%		1.3	%		0.9	%
Income taxes		103			69			144			95
Minority interest		5			4			13			7
Income before change in accounting principle	$	161		$	110		$	173		$	145
Cumulative effect of change in accounting principle		—			—			(90	)		—
Net income	$	161		$	110		$	83		$	145
Diluted earnings per share	$	0.98		$	0.67		$	0.51		$	0.89

⁽¹⁾ Includes $34 million of transaction costs related to the merger.

The pro forma information is not indicative of the results of operations that would have been achieved if the merger had taken place at the beginning of 2004 or that may result in the future. The pro forma information has not been adjusted to reflect any operating efficiencies that may be realized as a result of the merger.

Pro Forma Adjusted EBITDA

For purposes of evaluating operating performance, the Company’s management uses a Pro Forma Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Pro Forma Adjusted EBITDA”) measurement computed as operating income on the statement of operations less depreciation and amortization and gains/(losses) on sales of assets. In addition, it is adjusted to exclude certain merger-related costs and restructuring charges. Pro Forma Adjusted EBITDA is used by management to evaluate the operating performance of the Company’s businesses for comparable periods. Pro Forma Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. Management compensates for this limitation by using GAAP financial measures as well in managing the Company’s businesses.

While Pro Forma Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:

1.	EBITDA excludes the effect of financing and investing activities by eliminating the effect of interest and depreciation costs; and
2.	Management considers gains (losses) on the sale of assets to result from investing decisions rather than ongoing operations.

4

Exhibit 99.1

Pro Forma Adjusted EBITDA is determined as follows:

	13 Weeks Ended						26 Weeks Ended
	July 30, 2005			July 28, 2004			July 30, 2005			July 28, 2004
				Pro Forma			Pro Forma			Pro Forma
Operating income per statement of operations	$	324		$	244		$	424		$	371
Plus depreciation and amortization		280			305			563			588
Less gain on sale of assets		(4	)		(77	)		(11	)		(113	)
Before excluded items		600			472			976			846
Merger transaction costs		—			—			34			—
Restructuring charges		42			41			45			41
Pro Forma Adjusted EBITDA as defined	$	642		$	513		$	1,055		$	887
% to revenues		4.9	%		3.8	%		4.1	%		3.4	%

Pro Forma Adjusted EBITDA for the Company’s domestic (United States operations) and Sears Canada operations is as follows:

	13 Weeks Ended										26 Weeks Ended
	Pro Forma Adjusted										Pro Forma
	EBITDA				% To Revenues						Adjusted EBITDA				% To Revenues
	July 30,		July 28,		July 30,			July 28,			July 30,		July 28,		July 30,			July 28,
	2005		2004		2005			2004			2005		2004		2005			2004
								Pro Forma							Pro Forma			Pro Forma
Domestic operations	$	588	$	449		4.9	%		3.6	%	$	952	$	776		4.0	%		3.2	%
Sears Canada		54		64		4.5	%		5.8	%		103		111		4.5	%		5.2	%
Total Pro Forma Adjusted EBITDA	$	642	$	513		4.9	%		3.8	%	$	1,055	$	887		4.1	%		3.4	%

* * * * * * * * * * * * * * * * *

For a detailed discussion of the Company’s financial results, please see the Company’s Quarterly Report on Form 10-Q, which has been filed with the Securities and Exchange Commission and posted to the Company’s website at www.searsholdings.com.

About Sears Holdings Corporation

Sears Holdings Corporation is the nation’s third largest broadline retailer, with approximately $55 billion in annual revenues, and with approximately 3,900 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as one of the leading retailers of tools, lawn and garden, home electronics and automotive repair and maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands’ End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands. It also has Martha Stewart Everyday products, which are offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. The Company is the nation’s largest provider of home services, with more than 14 million service calls made annually. For more information, visit Sears Holdings’ website at www.searsholdings.com.

Forward-Looking Statements

This press release contains forward-looking statements about Sears Holdings’ expectations regarding the sale of Sears Canada’s Credit and Financial Services business to JP Morgan Chase & Co., including statements concerning expected benefits to Sears Holdings and the timing of closing of the transaction. Statements preceded by, followed by or that otherwise include the word “expects” and similar expressions or future or conditional verbs are generally forward-looking in nature and not historical facts. These forward-looking statements are based on assumptions about the future that are subject to risks and uncertainties, and actual results may differ materially from the results projected in the forward looking statements. Risks and uncertainties include the possibility that the Sears Canada transaction

5

Exhibit 99.1

does not close or other factors outside the control of Sears Holdings. The Company intends these forward-looking statements to speak only as of the time of this release and does not undertake to update or revise them as more information becomes available.

PRO FORMA RECONCILIATION

The following table provides the as reported results for the 13-week period ended July 30, 2005 and a reconciliation from the as reported results to the pro forma results presented above for Sears Holdings for the 13-week period July 28, 2004, respectively.

Holdings

	13 Weeks
	Ended
	July 30,
	2005			13 Weeks Ended July 28, 2004
(millions, except per share data)							Pre-
	As						merger			Purchase			Pro
	reported			As reported			Activity(1)			Acctng			Forma
Merchandise sales and services	$	13,114		$	4,797		$	8,594		$	—		$	13,391
Credit and financial products revenues		78			—			81			—			81
Total revenue		13,192			4,797			8,675			—			13,472
Cost of sales, buying and occupancy		9,550			3,607			6,304			3	(2)		9,914
Gross margin rate		27.2	%		24.8	%		26.6	%					26.0	%
Selling and administrative		2,984			983			2,029			23	(3)		3,035
Selling and administrative as % of total revenues		22.6	%		20.5	%		23.4	%					22.5	%
Depreciation and amortization		280			4			252			49	(4)		305
Provision for uncollectible accounts		16			—			10			—			10
Gain on sales of assets		(4	)		(72	)		(5	)		—			(77	)
Restructuring charges		42			—			41			—			41
Total costs and expenses		12,868			4,522			8,631			75			13,228
Operating income (loss)		324			275			44			(75	)		244
Interest (expense) income, net		(72	)		(33	)		(64	)		7	(5)		(90	)
Bankruptcy-related recoveries		15			5			—			—			5
Other income		2			—			24			—			24
Income before income taxes, minority interest and cumulative effect of change in accounting principle		269			247			4			(68	)		183
Income tax expense (benefit)		103			93			2			(26	)(6)		69
Minority interest		5			—			4			—			4
Income before cumulative effect of change in accounting principle		161			154			(2	)		(42	)		110
NET INCOME (LOSS)	$	161		$	154		$	(2	)	$	(42	)	$	110
Diluted earnings per share	$	0.98		$	1.54								$	0.67

(1)	Represents the 2004 results of operations for the period May 2, 2004 through July 31, 2004 for Sears Domestic and the period April 4, 2004 through July 3, 2004 for Sears Canada.
(2)	Represents an increase to cost of sales, buying and occupancy expense resulting from the adjustment to Sears’ inventory based on the adjustment of such assets to fair value.
(3)	Represents an increase to selling and administrative expense resulting from the adjustment to Sears’ pension and postretirement plans based on the adjustment of such liabilities to fair value.
(4)	Represents an increase in depreciation and amortization expense resulting from the adjustment to Sears’ property and equipment and identifiable intangible assets based on the adjustment of such assets to fair value.
(5)	Represents a decrease to interest expense resulting from the adjustment to Sears debt based on the adjustments of such liabilities to fair value.
(6)	Represents the aggregate pro forma income tax effect (38.4%) of notes (2) through (5) above.

6

Exhibit 99.1

The following table provides a reconciliation from the as reported results to the pro forma results presented above for Holdings for the 26-week periods ended July 30, 2005 and July 28, 2004, respectively.

Holdings

	26 Weeks Ended July 30, 2005												26 Weeks Ended July 28, 2004
(millions, except per share data)				Pre-												Pre-
				merger												merger
	As			Activity			Purchase			Pro			As			Activity			Purchase			Pro
	reported			(1)			Acctng			forma			reported			(1)			Acctng			forma
Merchandise sales and services	$	20,731		$	5,051		$	—		$	25,782		$	9,424		$	16,649		$	—		$	26,073
Credit and financial products revenues		87			86			—			173			—			168			—			168
Total revenue		20,818			5,137			—			25,955			9,424			16,817			—			26,241
Cost of sales, buying and occupancy		15,205			3,672			—			18,877			7,152			12,181			8	(2)		19,341
Gross margin rate		26.7	%		27.3	%					26.8	%		24.1	%		26.8	%					25.8	%
Selling and administrative		4,699			1,314			11	(3)		6,024			1,928			4,018			41	(3)		5,987
Selling and administrative as % of total revenues		22.6	%		25.6	%					23.2	%		20.5	%		23.9	%					22.8	%
Depreciation and amortization		387			147			29	(4)		563			8			484			96	(4)		588
Provision for uncollectible accounts		17			16			—			33			—			26			—			26
Gain on sales of assets		(10	)		(1	)		—			(11	)		(104	)		(9	)		—			(113	)
Restructuring charges		45			—			—			45			—			41			—			41
Total costs and expenses		20,343			5,148			40			25,531			8,984			16,741			145			25,870
Operating income (loss)		475			(11	)		(40	)		424			440			76			(145	)		371
Interest (expense) income, net		(114	)		(35	)		2	(5)		(147	)		(61	)		(134	)		10	(5)		(185	)
Bankruptcy-related recoveries		32			—			—			32			12			—			—			12
Other income		11			10			—			21			3			46			—			49
Income before income taxes, minority interest and cumulative effect of change in accounting principle		404			(36	)		(38	)		330			394			(12	)		(135	)		247
Income tax expense (benefit)		155			4			(15	)(6)		144			149			(4	)		(50	)(6)		95
Minority interest		7			6			—			13			—			7			—			7
Income before cumulative effect of change in accounting principle		242			(46	)		(23	)		173			245			(15	)		(85	)		145
Cumulative effect of change in accounting principle, net of tax		(90	)		—			—			(90	)		—			—			—			—
NET INCOME (LOSS)	$	152		$	(46	)	$	(23	)	$	83		$	245		$	(15	)	$	(85	)	$	145
Diluted earnings per share	$	1.05								$	0.51		$	2.47								$	0.89
Diluted earnings per share before cumulative effect of change in accounting principle	$	1.66								$	1.06		$	2.47								$	0.89

(1)	Represents the 2005 results of operations for the period January 30, 2005 through March 24, 2005 for Sears Domestic and the period January 2, 2005 through March 24, 2005 for Sears Canada and the 2004 results of operations for the period February 1, 2004 through July 31, 2004 for Sears Domestic and the period January 4, 2004 through July 3, 2004 for Sears Canada.
(2)	Represents an increase to cost of sales, buying and occupancy expense resulting from the adjustment to Sears’ inventory based on the adjustment of such assets to fair value.
(3)	Represents an increase to selling and administrative expense resulting from the adjustment to Sears’ pension and postretirement plans based on the adjustment of such liabilities to fair value.
(4)	Represents an increase in depreciation and amortization expense resulting from the adjustment to Sears’ property and equipment and identifiable intangible assets based on the adjustment of such assets to fair value.
(5)	Represents a decrease to interest expense resulting from the adjustment to Sears debt based on the adjustments of such liabilities to fair value.
(6)	Represents the aggregate pro forma income tax effect (38.4%) of notes (2) through (5) above.

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Exhibit 99.1

The following table reconciles Pro Forma Adjusted EBITDA to net income as reported for the 13-week periods ended:

	July 30,			July 28,
	2005			2004
Pro Forma Adjusted EBITDA	$	642		$	513
Restructuring charges		(42	)		(41	)
Pro Forma Adjusted EBITDA after restructuring charges		600			472
Depreciation and amortization		(280	)		(305	)
Less gain on sale of assets		4			77
Pro Forma operating income		324			244
Interest expense, net		(72	)		(90	)
Bankruptcy-related recoveries		15			5
Other income		2			24
Income tax expense		(103	)		(69	)
Minority interest expense		(5	)		(4	)
Pro Forma net income		161			110
Less pre-merger activity		—			2
Less effect of purchase accounting adjustments		—			42
Net income as reported	$	161		$	154

The following table reconciles Pro Forma Adjusted EBITDA to net income as reported for the 26-week periods ended:

	July 30,			July 28,
	2005			2004
Pro Forma Adjusted EBITDA	$	1,055		$	887
Merger transaction costs		(34	)		—
Restructuring charges		(45	)		(41	)
Pro Forma Adjusted EBITDA after merger-related items and restructuring charges		976			846
Depreciation and amortization		(563	)		(588	)
Less gain on sale of assets		11			113
Pro Forma operating income		424			371
Interest expense, net		(147	)		(185	)
Bankruptcy-related recoveries		32			12
Other income		21			49
Income tax expense		(144	)		(95	)
Minority interest expense		(13	)		(7	)
Change in accounting principle		(90	)		—
Pro Forma net income		83			145
Less pre-merger activity		46			15
Less effect of purchase accounting adjustments		23			85
Net income as reported	$	152		$	245

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EX-99.2

Exhibit 99.2

To Our Shareholders:

I know all of our Sears Holdings’ associates join me in wishing the people of New Orleans and the Gulf Coast and their loved ones as rapid a recovery as is possible from the incredibly devastating effects of Hurricane Katrina. The images and words of the suffering are forever seared in our minds and are a reminder of how quickly and unexpectedly things can change. I want to especially thank all of the many Sears Holdings associates who have been working literally around the clock to provide assistance to the impacted areas and to restore our operations.

Our entire company put forth a heroic effort in response to the unspeakable destruction left by Hurricane Katrina, and we responded as only Sears and Kmart can respond. In very short order we formulated a plan of support for associates, customers and residents ravaged by the disaster. Sears, Lands’ End, and Kmart will make at least $500,000 in merchandise and Kmart and Sears gift cards available to the American Red Cross. In addition, our company committed to match customer contributions up to another $500,000. Sears Auto Centers pitched in with free tire repair for weather-related damage. Kmart and Sears stores will be accepting American Red Cross vouchers in all stores, and in partnership with Citigroup, Sears credit customers in hardest hit areas will have a waiver of late fees and interest on their cards during this time of need. We continue to assess the effects of Hurricane Katrina on our facilities and operations and will develop an approach to meeting our customers’ needs in the affected areas.

We will continue to work through the challenges to our company arising from Hurricane Katrina —  including those directly affecting our stores and those which are due to its impact on the US economy. The significant increase in gas prices earlier this year and the increases after Hurricane Katrina directly affect the purchasing power of our customers. This has inevitably had an impact on our sales and we expect that our customers will continue to be impacted by these costs for the foreseeable future.

The merger of Sears and Kmart was completed on March 24, 2005. Our second quarter report reflects on the roughly four months of progress that we have made as a combined company since that time. We are working to build a great company, and one that can withstand the unexpected events of the business world.

Leadership and Organization:

We announced several important leadership and organizational changes today:

• Aylwin B. Lewis will assume the position of Chief Executive Officer and President of Sears Holdings, with responsibility for the company’s 3,900 stores, as well as home services, finance, legal, supply chain, information technology, and human resources. This change reflects the Board’s confidence in Aylwin’s leadership and is an extension of his previous role as CEO of both the Sears and Kmart retail businesses.

• Alan J. Lacy will continue to serve as Vice Chairman, a Director and as a member of the Office of the Chairman and will also continue to serve as the Chairman of the Board of Directors of Sears Canada. I would like to thank Alan for his leadership and partnership through the initial phase of the merger integration process. We will continue to benefit from his leadership and judgment on our merger integration opportunities and strategic issues.

• I will be taking on additional responsibilities in order to allow me to become more directly involved in creating the customer-oriented organization Sears Holdings strives to be and further support our efforts to respond to customer needs.

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Alan, Aylwin, and I believe that these changes will achieve greater clarity in our operating management and will align our corporate structure with our vision of Sears Holdings.

My decision to become more deeply involved in certain aspects of Sears Holdings’ business reflects the Board’s and my desire to make the company more responsive to our customers and to involve me more directly in the renewal of the company. I intend to serve without compensation, either in cash or stock options, consistent with my belief that large owners who serve as Chairman or CEO are best compensated by increasing the value of the company over time for all shareholders rather than through large compensation packages.

The new leadership structure reflects our determination to go to market as one company and to bring all of our strengths together to service our customers. One of our historic weaknesses was our tendency to interact with customers on a less cohesive basis. We intend to fix this through changes to our corporate culture, continuing to build the strength and depth of our leadership team and the energy, hard work, and talent of our associates.

We view leadership as a privilege and a responsibility. We have asked the leaders of our company to embrace the challenge of making Sears Holdings a great company once again as we contend with some of the most ferocious competitors in the business world. To win, we must collectively raise the bar of our expectations and our standards.

Associates and Culture:

The merger of Sears and Kmart has given us an opportunity to create a performance-oriented company. We continue to work on steps to make Sears Holdings more customer-focused and more profitable in order to compete in the 21^st century. Many of our retail competitors have much lower cost structures that allow them to run different business models that are valued by both employees and customers alike. The most effective companies, such as GE, Microsoft, and Procter & Gamble, engage in continuous talent assessment and have embedded cost management in their everyday business processes. Greatness requires the ability to change and adapt; we are just beginning.

As our strategy unfolds over the next several years, we hope that we will be able to demonstrate both financial and operational excellence. We intend to build on the historic strengths of both companies, while overcoming some of the more recent weaknesses. This will require the effort of all of our associates, and we will need to provide them with the direction and the tools to be successful. We have begun efforts to enhance the communication channels and feedback mechanisms in the company, and we intend to continue to strengthen them over time. We understand that change engenders criticism and uncertainty, but we also understand that we may need to make changes both to our approach and to our resources to demonstrate with clarity the seriousness of our purpose and the strength of our vision. We know we cannot please everybody, but we believe that people generally value clarity and consistency.

We continue to make progress in integrating the two organizations. Over 400 Kmart associates who were previously based in Troy, Michigan have relocated to Hoffman Estates. We are very happy with the number of Kmart associates who have been willing to relocate and we want to thank those who have chosen not to do so for their service to the company. We expect to retain a significant presence in Troy, Michigan for the foreseeable future and will have both permanent as well as transitional associates in that location.

We hope to become widely recognized as a company that attracts and retains great people and imbues them with an analytic and commercial focus that will lead them to succeed at Sears Holdings. We intend to create a culture sufficiently challenging and attractive so that we keep these great people and become a magnet to the best and brightest.

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Customer Focused Company:

Our leadership, organizational, and culture changes are all designed to make Sears Holdings more customer focused. Sears Holdings touches our customers in a variety of ways and through our various formats. Our goal is to make our products, brands, and services more responsive to the needs of our customers and to build a long term trusting relationship with our customers. Our leadership team has adopted the following vision statement:

“Sears Holdings is committed to improving the lives of our customers by providing quality services, products and solutions that earn their trust and build lifetime relationships.”

We understand that we have much work to do to achieve our goal, but we believe we have the assets, brands, associates, and heritage to make this a reality.

Financial Results and Accomplishments:

Sears Holdings has generated over $1 billion of pro forma adjusted EBITDA in the first six months of 2005 (the pro forma information includes the results of Sears and Kmart from the beginning of the fiscal year, while in the reported results Sears’ performance is included since March 25, 2005). In our situation, we believe EBITDA is a more appropriate measure of performance than GAAP net income, because EBITDA is stated before the impact of historical depreciation that reflects past capital expenditure policies at Sears that entailed spending significantly higher amounts than what we believe will be required going forward, and before purchase price adjustments required by GAAP that significantly increase non-cash charges which are not reflective of the underlying business performance. On a GAAP basis, our net income in the first six months of 2005 was $152 million. Please see our earnings release for a full reconciliation of pro forma adjusted EBITDA to GAAP net income.

When we assumed control of Kmart, one of our primary goals was to have the company become consistently profitable, not only year to year, but within each year. Historically, Sears and Kmart have relied heavily on the Christmas season and fourth quarter of each year for its annual profitability and cash flow. While fourth quarter results are expected to continue to be a disproportionate contributor to annual cash flow and earnings, the performance of Sears Holdings for the first half of this year is a very positive sign that we can achieve both significant profitability and consistent profitability throughout the year.

Specific accomplishments since the closing of the merger have included:

1.	Beginning the conversion to almost 50 Sears Essentials stores in 2005
2.	Reduction in our domestic cost structure as a result of headcount reductions and benefit changes, as evidenced by the $90 million reduction in domestic selling and administrative expenses realized in the second quarter compared to last year, on a pro forma basis
3.	Reduction in domestic debt by over $200 million in the latest quarter and the increase in domestic cash to almost $2 billion
4.	Introduction of Sears appliances and tools, including Kenmore and Craftsman, into Kmart stores
5.	Consolidation of Sears’ advertising with Young & Rubicam, which we believe will bring more coherence and clarity to our customer messages
6.	Identification of excess capital in specific businesses where we can reduce the capital and improve the operating performance

In my last letter I described our investor relations philosophy: to clarify, we believe that describing the business issues and performance to shareholders is crucially important for management; what we believe detracts from value is having senior management spend an inordinate amount of time on this activity, to the detriment of a company’s operating performance.

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We have chosen to describe in writing, rather than orally or through presentations, our areas of focus and to incorporate additional pro forma descriptive analysis to bridge GAAP numbers to numbers that we think more appropriately describe our business performance. We have tried to provide the financial information that we would want to see if we were analyzing the company independently. We believe this approach provides investors with the information needed to draw their own conclusions.

Vendor Relationships:

As we consider our merchandise choices in Sears, Kmart, and Sears Essentials, we are paying particular attention to development of close relationships with our vendors. Many of our vendors will see increased sales as a result of working with us to lower our costs and to improve our customer presentation and experience. There will be others who do not see their long term interest aligned with ours, and they may see their business with us reduced or eliminated. In certain cases, we have attempted to structure long term relationships with some of our brand partners. We will continue to invest behind our powerful proprietary brands and to provide the appropriate customer experience for the national brands that we carry. We are very comfortable with our long term vision for our brands and our considerable design capabilities. We look forward to creating long term success that accrues to the benefit of both Sears Holdings and our vendors.

We now look forward to an improved relationship with Footstar, which has operated, under a license granted by Kmart, the footwear departments in Kmart. We recently resolved the dispute between Footstar and Kmart that resulted from the filing of bankruptcy by Footstar in 2004. As a result, we have terms for our business relationship that are fair to Kmart and we will assume control over the Kmart footwear operations beginning January 1, 2009. Over the next few years we will work closely with Footstar to bring the Kmart footwear business back to preeminence in the value channel and to ensure a smooth transition to our full control beginning in 2009.

During the second quarter we also announced that we have consolidated the Sears advertising relationship with Young & Rubicam. We felt it was best to organize our advertising under one agency so that we can make future communications with our customers more organized, unified, and clear. We are pleased with this outcome and look forward to working closely with Y&R, and to draw on its parent and other affiliated companies as needed.

On August 31, 2005, Sears Canada announced that it had entered into an agreement to sell its Credit and Financial Services business to JP Morgan Chase & Co. From our perspective, this transaction is less a sale, and more fundamentally the creation of a long term and close business relationship between Sears Canada and JP Morgan Chase & Co. We believe this transaction is a significant positive for Sears Canada for three reasons. First, the upfront and ongoing payments by JP Morgan Chase & Co. recognize the very significant value represented by the Sears Canada credit card, an institution in Canada with 10 million total accounts, and approximately US$2 billion of receivables. Although Sears Canada has not yet made any final determination as to the use of the anticipated US$1.8 billion in proceeds, it expects to return a substantial portion of the proceeds to shareholders, including Sears Holdings. Second, we look forward to working in partnership with JP Morgan Chase & Co., a leading provider of credit card and financial products, to provide even better value to our Sears Canada customers. The basis for our confidence in the prospects for this arrangement comes from the experience that Sears has had with Citigroup in a similar undertaking. Since November 2003 Sears and Citigroup have worked closely together to improve our relationships with our customers and we expect Sears Canada and JP Morgan Chase & Co. to have a similar experience. Third, we believe the sale of the credit card business will both allow and require the management of Sears Canada to focus on creating value in the core retail operations. In this regard, Sears Canada has also announced that it plans to take actions to reduce its expenses in order to become more competitive.

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Thank you for your confidence in Sears Holdings. We look forward to sharing our progress with you in the future.

Sincerely,
 

Edward S. Lampert

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