Why are Shorts Scrambling?
This is why:
SUMMARY OF MATERIAL TERMS OF THE SUCCESSFUL BID1
Sellers
Preamble
Sears Holdings Corporation, a Delaware corporation (“SHC” or the “Seller” and together with each of its Subsidiaries party to the Asset Purchase Agreement, the “Sellers”).
Buyer
Preamble
Transform Holdco LLC, a Delaware Limited Liability Company (together with any applicable Affiliated Designee, “Buyer”).
Acquired Assets
(Section 2.1)
The Successful Bid involves the purchase of substantially all of the Assets of the Company, including:
a. A go-forward retail footprint of approximately 425 retail stores under the “Sears” and “Kmart” brands (the “Retail Stores”) and certain other owned and leased real estate interests;
b. The Target Businesses, including, among others, businesses conducted at the Retail Stores, the “Sears Auto Centers” brand, the “PartsDirect” brand, the “ServiceLive” brand, the “Sears Home Services” brand, the “Wally” brand, the “Kenmore” and “Diehard” businesses, the “Monark Premium Appliance Co.” brand, a home delivery and retail installation business, various websites, the “Shop Your Way” membership program, and the “Sears Home Improvement” brand (in certain circumstances only);
c. Certain contracts and agreements related to the Target Businesses including rights to have the Sellers assume and assign to Buyer certain leases after the closing occurs under the Asset Purchase Agreement (including certain manufacturer’s warranties and repaid services contracts);
d. All “Acquired Inventory”, all “Acquired Receivables”, all “Acquired Equipment” and all “Acquired Improvements” and the right to receive certain “Pending Inventory”;
1 Capitalized terms used in this section but not defined therein shall have the respective meanings ascribed to such terms in the Asset Purchase Agreement.
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e. Certain intellectual property owned by the Sellers (including certain “Collateral” assets;
f. Certain goodwill associated with the Business;
g. Certain data owned or controlled by the Sellers;
h. Certain claims, causes of action, claims, rights of recovery or rights of set- off held by the Sellers related to intellectual property matters;
i. Certain prepaid taxes and certain rights to any refund, rebate or credit of taxes;
j. Rights to certain books and records held by the Sellers including non- disclosure or confidentiality, non-compete or non solicitation agreements related to the Business, marketing materials and manuals;
k. Certain plans and permits related to the Business;
l. Certain security deposits held by the Sellers;
m. Certaininsuranceproceeds;
n. Subject to compliance with the Asset Purchase Agreement including obtaining the required Bermuda Monetary Authority approval, certain Notes issued by KCD IP, LLC;
o. All equity interests of SRC O.P. LLC owned by SRC Sparrow 2 LLC as Seller (subject to certain conditions);
p. Certain actions and other rights, rebates, refunds, audits, rights of recovery, rights of setoff, rights of recoupment, rights of reimbursement, rights of indemnity or contribution and other similar rights;
q. Certain “Credit Card Claims” arising from Seller’s involvement as a class plaintiff in the class actions consolidated in the multi-district litigation In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, No. 1:05-MD-01720 (E.D.N.Y.) against Visa Inc., Mastercard Inc., JPMorgan Chase & Co, Citigroup N.A., Bank of America N.A., and other defendants, and any proceeds or settlement proceeds thereof;
r. The proceeds from the closing of the sale under the SHIP Purchase Agreement (in the amount of approximately $45,000,000), or, if the transactions under the SHIP Purchase Agreement are not consummated, certain assets as described in the SHIP Purchase Agreement;
s. Cash held at the Retail Stores in an amount not to exceed $17,000,000;
t. To the extent permitted by law, all licenses or permits issued by governmental authorities; and
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u. Any proceeds from the sale or other disposition of the collateral pledged to secure the applicable debt obligations with respect to certain credit bids.
Purchase Price
(Section 3.1)
The Successful Bid includes the following consideration (in connection with which, the Buyer has paid a Deposit Amount of $120,000,000):
a. A “Closing Payment Amount” equal to (i) $1,408,450,000; plus (ii) an amount in cash equal to the store cash (in an amount not to exceed $17,000,000) as of 12:00 a.m. New York City time on the closing date; plus (iii) the credit bid release consideration of $35,000,000; less (iv)the aggregate amount of (A) the credit bid relating to the outstanding obligations under the “FILO Facility” plus (B) the credit bid in an aggregate amount equal to $433,450,000 (related to the “Second Lien Term Loan”, the “Second Lien Line of Credit Facility” and the “Second Lien PIK Notes”), plus (C) the “FILO Facility Buyout Amount” (if any);
b. Subject to Bankruptcy Court approval, a credit bid pursuant to Section 363(k) of the Bankruptcy Code of:
i. all outstanding obligations held by Buyer and its Affiliates as of the Closing Date under the IP/Ground Lease Term Loan Facility (together with the IP/Ground Lease Buyout Amount, approximately $231,000,000);
ii. all outstanding obligations held by Buyer and its Affiliates as of the Closing Date under the FILO Facility (together with the FILO Buyout Amount, approximately $125,000,000);
iii. obligations held by Buyer and its Affiliates as of the Closing Date under the Real Estate Loan 2020 (together with the Real Estate Loan 2020 Buyout Amount, in an amount equal to $544,000,000); and
iv. obligations held by Buyer and its Affiliates as of the Closing Date in an aggregate amount equal to $433,450,000 under (x) the Second Lien Term Loan; (y) the Second Lien Line of Credit Facility; and (z) the Second Lien PIK Notes.
c. Cash in the amount of the outstanding obligations owed to lenders other than Buyer or its Affiliates as of the Closing Date under (i) the IP/Ground Lease Term Loan Facility (the “IP/Ground Lease Buyout Amount”), (ii) the FILO Facility (the “FILO Facility Buyout Amount”), and (iii) the Real Estate Loan 2020 (the “Real Estate Loan 2020 Buyout Amount”), unless such lender(s) provide written confirmation to the Sellers that such cash payment and the obligations owed to lenders by the Seller under the IP/Ground Lease Term Loan Facility, the FILO Facility or the Real Estate Loan 2020, as applicable, are permanently waived and discharged against the Sellers;
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Assumption of Liabilities (Sections 2.3, 3.5)
d. The “Securities Consideration” which means debt or equity securities in Buyer, in an amount and form to be determined by Buyer in an amount and form reasonably acceptable to Buyer, including as to subordination;
e. The “Junior DIP Consideration” consisting of evidence reasonably satisfactory to the Sellers that all obligations (including any accrued and unpaid interest) of the Sellers with respect to $350,000,000 aggregate principal amount outstanding under the Junior DIP Term Loan Agreement (or such lesser aggregate principal amount outstanding thereunder to the extent that the junior DIP facility under the Junior DIP Credit Agreement is not fully drawn as of the Closing Date) have been satisfied and released;
f. The “L/C Facility Consideration” consisting of evidence reasonably satisfactory to the Sellers that all obligations of Sellers with respect to amounts outstanding or commitments under the Citi L/C Facility (but in no event with respect to a principal amount of greater than $271,000,000) have been satisfied and released, including as contemplated by the Cyrus Financing; and
g. The
assumption of certain of the Sellers’ liabilities including:
i. All Liabilities of the Seller or any of its Subsidiaries arising out of the ownership of the Acquired Assets or operation of the Business or the Acquired Assets on or after the Closing Date that are Related to any Acquired Asset or to certain payment or performance of obligations with respect to the Assigned Agreements;
ii. Certain liabilities related to any claim, arbitration, audit, hearing, investigation, suit, litigation or other proceedings arising out of the Assumed Liabilities, the Acquired Assets, or the operation of the Business on or after the Closing Date;
iii. Buyer’s obligation to pay the Buyer Occupancy Costs;
iv. Certain Liabilities for warranties and protection agreements or other services contracts (other than warranties relating to Intellectual Property) for the goods and services of Sellers sold or performed prior to the Closing, including any Liabilities owed by Sears Re to any Seller in respect of reinsurance of such warranties and protection agreements;
v. All Assumed Customer Credits (which relate to existing customer loyalty programs, Shop Your Way, and any gift cards, gift certificates, merchandise credits, return credits, customer membership or customer loyalty discount programs, coupons, groupons or other similar credits or programs issued by, on behalf of or in relation to Sellers since January 1, 2018);
vi. All Cure Costs solely with respect to the Assigned Agreements;
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vii. Certain tax related Liabilities including Excluded Asset-Sale Taxes;
viii. Certain employment related Liabilities including with respect to the Transferred Employees to the extent arising as a result of an event, action or omission that occurs on or following the Closing;
ix. The Severance Reimbursement Obligations, Assumed 503(b)(9) Liabilities, Other Payables and all payment obligations with respect to the Ordered Inventory in accordance with various terms set forth in the Asset Purchase Agreement provided that (A) the Severance Reimbursement Obligations shall not exceed $43,000,000 in the aggregate, (B) the Assumed 503(b)(9) Claims shall not exceed $139,000,000 in the aggregate, (C) the Other Payables shall not exceed $166,000,000 in the aggregate and (D) in certain circumstances, the amount of these Liabilities will be reduced.
x. The Assumed Property Tax Liabilities;
xi. The SHIP Purchase Agreement Liabilities (if the SHIP Closing shall not have occurred prior to the Closing Date);
xii. All Liabilities relating to amounts required to be paid by Buyer under the Transaction Documents; and
xiii. Certain environmental liabilities.
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