Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an
Off-Balance
Sheet Arrangement of a Registrant.
On January 3, 2017, Sears Holdings Corporation (the
Company), through Sears, Roebuck and Co., Kmart Stores of Illinois LLC, Kmart of Washington LLC and Kmart Corporation (collectively, Borrowers), entities wholly-owned and controlled, directly or indirectly by the Company,
obtained a $500 million secured loan facility (the Loan Facility) from JPP, LLC and JPP II, LLC (collectively, the Lenders). Mr. Edward S. Lampert, the Companys 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. $321 million was funded under the Loan Facility on January 3, 2017, and, subject to the satisfaction of certain
conditions, including pledging additional properties as collateral, up to an additional $179 million may be drawn by the Company prior to July 3, 2017. The Loan Facility matures on July 20, 2020. The Company expects to use the
proceeds of the Loan Facility for general corporate purposes.
The Loan Facility will have an annual base interest rate of 8%, with accrued interest
payable monthly during the term of the Loan Facility. The Borrowers paid an upfront commitment fee equal to 1.0% of the full principal amount of the Loan Facility and also are required to pay a funding fee equal to 1.0% of the amounts drawn under
the Loan Facility at the time such amounts are drawn.
The Loan Facility is guaranteed by the Company, is currently secured by a first priority lien on 46
real properties owned by the Borrowers, and is required to be secured by additional real properties if the remaining $179 million loan commitment is drawn. In certain circumstances, the Lenders and the Borrowers may elect to substitute one or
more properties as collateral. To the extent permitted under other debt of the Company or its affiliates, the Loan Facility 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 for the Loan Facility to repay the loan.
The Loan Facility includes certain representations and
warranties, indemnities and covenants, including with respect to the condition and maintenance of the real property collateral. The Loan Facility has certain events of default, including (subject to certain materiality thresholds and grace periods)
payment default, failure to comply with covenants, material inaccuracy of representation or warranty, and bankruptcy or insolvency proceedings. If there is an event of default, the Lenders may declare all or any portion of the outstanding
indebtedness to be immediately due and payable, exercise any rights they might have under any of the Loan Facility documents (including against the collateral), and require the Borrowers to pay a default interest rate equal to the greater of (i)
2.5% in excess of the base interest rate and (ii) the prime rate plus 1%.
The foregoing description of the Loan Facility does not purport to be
complete and is qualified in its entirety by reference to the Loan Agreement, a copy of which is filed herewith as Exhibit 10.1 and is incorporated by reference herein.