Item 1.01
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Entry into a Material Definitive Agreement
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On May 18, 2018, Sears Holdings
Corporations (the Companys) subsidiaries Sears, Roebuck and Co. (Sears) and Sears Brands Business Unit Corporation (as successor in interest to Sears Intellectual Property Management Company) and Citibank, N.A.
(as successor in interest to Citibank (South Dakota), N.A., which was successor in interest to Citibank (USA. N.A.) (Citibank) entered into an amendment (the Amendment) to the Amended and Restated Program Agreement, dated as
of July 15, 2003, amended and restated as of November 3, 2003, by and between Sears, Sears Intellectual Property Management Company and Citibank USA, N.A. (as amended from time to time, the Program Agreement), pursuant to which
Citibank offers Sears proprietary and
co-branded
credit cards and administers the associated Sears credit card program (the Program).
Program Extension
The
Amendment provides for a five year extension of the Program through November 2, 2025, with Sears having the right to elect to extend the Program for an additional two year term through November 2, 2027, subject to the satisfaction of
certain financial performance conditions relating to spending under new credit card accounts opened under the Program.
Payment on
Entry into Amendment; Letter of Credit
The Amendment provides for Citibank to pay Sears $425 million no later than the first
business day following the parties entry into the Amendment, and for the simultaneous establishment by Sears of a reserve for the benefit of Citibank in the amount of $25 million, which reserve will be funded by Sears with an irrevocable
standby letter of credit from a third party financial institution (subject to Citibank initially funding the reserve by withholding $25 million of the above-referenced $425 million payment).
Removal of Certain Credit Card Accounts from the Program
The Amendment removes Sears credit cards, other than Sears proprietary cards, not enrolled in a rewards program or enrolled in the Thank
You rewards program (the TY/NR Portfolio) from the Program. Under a separate marketing agreement entered in conjunction with the Amendment, Sears will continue to receive payments from Citibank in respect of the TY/NR Portfolio,
which payments will be determined substantially consistent with how such payments were determined under the Program prior to the Amendment through December 31, 2020 and will thereafter be based on total sales for the TY/NR Portfolio. Credit
cards in the TY/NR Portfolio will continue to be accepted in Sears sales channels.
Sharing of Program Economics with Sears
The Amendment provides for Sears to continue to receive payments from Citibank in respect of the remaining card portfolio under the
Program, which payments will be determined substantially consistent with how such payments were determined under the Program prior to the Amendment through December 31, 2020 and will thereafter be based on new account spend and total sales for
the credit card portfolio.
Sears Right to Purchase Program Assets
The Amendment removes Sears right to purchase, or arrange for a third party to purchase, Program-related assets in certain circumstances,
including upon termination or expiry of the Program, except that Sears will have such right if it elects to extend the Program through November 2, 2027, subject to the satisfaction of the performance conditions discussed above, and the Program
continues through such date, or in certain circumstances if Sears terminates the Program Agreement because of an uncured material breach of Citibanks obligations thereunder. Sears will have no right to purchase the TY/NR Portfolio being
removed from the Program.
The foregoing is a brief description of the terms and conditions of the Amendment material to the Company and
does not purport to be complete. The Company expects to file a copy of the Amendment with the Securities and Exchange Commission as an exhibit to the Companys Quarterly Report on Form
10-Q
for the
quarter ending August 4, 2018.
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