Item 1.01. Entry into a Material Definitive Agreement.
On September 12, 2018, Sears Holdings Corporation (the “Company”), through Sears, Roebuck and Co., Kmart Stores of Illinois LLC, Kmart of
Washington LLC, Kmart Corporation, SHC Desert Springs, LLC, Innovel Solutions, Inc., Sears Holdings Management Corporation, MaxServ, Inc., Troy Coolidge No. 13, LLC, Sears Development Co. and Big Beaver of Florida Development, LLC
(collectively, the “Borrowers”), entities wholly-owned and controlled, directly or indirectly by the Company, entered into a First Amendment (the “Amendment”) to the Third Amended and Restated Loan Agreement (the
“Consolidated Loan Agreement” and as amended by the Amendment, the “Amended Loan Agreement”), with JPP, LLC, as Agent, and JPP, LLC, JPP II, LLC and Cascade Investment, L.L.C. (“Cascade”), as lenders (collectively, the
“Lenders”). Mr. Edward S. Lampert, the Company’s Chief Executive Officer and Chairman, is the sole stockholder, chief executive officer and director of ESL Investments, Inc., which controls JPP, LLC and JPP II, LLC
(collectively, “JPP”).
Immediately prior to the effectiveness of the Amendment, a loan of approximately $756.4 million was outstanding
under the Consolidated Loan Agreement, which loan was secured by a first priority lien on 68 real properties owned by the Borrowers. In connection with the Amendment, the Lenders made an additional advance to certain of the Borrowers (the
“Amendment Date Advance Borrowers”) in an aggregate principal amount of $75.0 million (the “Additional Advance”), such that the aggregate principal amount of the loan outstanding under the Amended Loan Agreement was
approximately $831.4 million. Pursuant to the Amendment the Amendment Date Advance Borrowers also granted the Lenders a first priority lien on an additional 20 real properties (the “New Properties”). The Amendment Date Advance
Borrowers used the proceeds of the Additional Advance to repay obligations under the Third Amended and Restated Credit Agreement, dated as of July 21, 2015, as amended, among the Company, Sears Roebuck Acceptance Corp., Kmart Corporation,
certain of the Company’s other subsidiaries, the lenders party thereto from time to time, Bank of America, N.A. as administrative agent and
co-collateral
agent, and Wells Fargo Bank, National Association,
as
co-collateral
agent. The loan under the Amended Loan Agreement, including the amount of the Additional Advance, matures on July 20, 2020 and is guaranteed by the Company. No Borrower other than
Amendment Date Advance Borrowers shall have any liabilities or obligations in connection with the Additional Advance.
After giving effect to the
Additional Advance, approximately $108.1 million of the loan under the Amended Loan Agreement, which as of closing is held by Cascade, is structured as a “first out” tranche evidenced by promissory note “A” (“Note
A”) and bears interest at LIBOR plus 6.50% per annum. The remainder of the loan under the Amended Loan Agreement is evidenced by promissory note “B” (“Note B”), which as of closing is held by JPP and bears interest at LIBOR
plus 9.00% per annum.
The Amendment Date Advance Borrowers paid approximately $0.4 million in upfront fees to the Lenders in connection with the
Additional Advance. In addition, to the extent any portion of the loan evidenced by Note A remains outstanding on March 12, 2019, the Borrowers must pay the Lenders holding Note A an additional fee of 1.00% of the principal amount outstanding
under Note A as of such date (the “Delayed Origination Fee”), and to the extent any portion of the loan evidenced by Note A remains outstanding on September 12, 2019, the Borrowers must pay the Lenders holding Note A an additional fee
of 2.00% of the principal amount outstanding under Note A as of such date (the “Second Delayed Origination Fee”).
The Borrowers have the right,
at any time prior to October 15, 2018, to request an additional advance under the Amended Loan Agreement in an amount not to exceed $50.0 million. The making of any such additional advance and the amount thereof shall be subject to the
Lenders’ sole discretion and the payment of an origination fee equal to 0.5% of the amount so advanced. If no such additional advance is made, or if an additional advance is made in an amount less than $50.0 million, the Lenders shall
reasonably promptly release their liens on certain of the New Properties.
To the extent permitted under other debt of the Company or its affiliates, the
loan under the Amended Loan Agreement may be prepaid at any time in whole or in part, without penalty or premium. The Borrowers are required to apply the net proceeds of the sale of any real property collateral to repay the loan. Any such
prepayments or repayments will be applied first to Note A until Note A is repaid in full, and then to Note B; provided, that the holder of Note A shall have the right to waive any such prepayment or repayment (other than in connection with a
repayment of the Loan in full at maturity or any other prepayment in full or repayment in full of the Loan), in which case (x) such prepayment or repayment shall be applied to Note B and (y) such amount shall reduce the principal amount of
indebtedness deemed outstanding under Note A solely for the purpose of calculating the Delayed Origination Fee and the Second Delayed Origination Fee.