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Notes to Consolidated Financial Statements



The Company remains a party to two cases arising from the Company's purchase of garments produced under allegedly illegal labor conditions on the island of Saipan in the Commonwealth of the Northern Marianas Islands. The two actions were filed on January 13, 1999, the first on behalf of ten "Doe" plaintiffs in the United States District Court for the Central District of California against eighteen domestic clothes retailers and eleven foreign clothing suppliers (which case subsequently was transferred to the United States District Court for the District of Hawaii), and the second by various interest groups, purportedly on behalf of the general public of the State of California, in the San Francisco County Superior Courts. Plaintiffs in the suits seek various injunctive relief, damages (including punitive and treble damages), restitution and disgorgement of profits, interest, and attorney fees and costs. On February 23, 2000, the Company entered into a settlement agreement with the plaintiffs that provides for the dismissal of both cases with respect to the Company. While continuing to deny plaintiffs' claims and contentions, the Company agreed to an immaterial one-time cash payment to the plaintiffs. The Company further agreed that following the effective date of the agreement, it would only purchase garments produced in Saipan from factories that adhere to the terms of a monitoring program provided for in the settlement agreement. The settlement of the cases is subject to the final approval of both courts. In the event that the settlement is not approved and the cases continue against the Company, their consequences are not presently determinable, but in the opinion of the management of the Company, the ultimate liability is not expected to have a material effect on the results of operations, financial position, liquidity or capital resources of the Company.

The Company is subject to various other legal and governmental proceedings, many involving routine litigation incidental to the business. Other matters contain allegations that are nonroutine and involve compensatory, punitive or treble damage claims in very large amounts, as well as other types of relief. The consequences of these matters are not presently determinable but, in the opinion of management of the Company after consulting with legal counsel, the ultimate liability in excess of reserves currently recorded is not expected to have a material effect on annual results of operations, financial position, liquidity or capital resources of the Company.

  Annual Report 1999 

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1999 Sears, Roebuck and Co. -