|
Item 1.03.
|
Bankruptcy or Receivership.
|
As previously disclosed, on October 15, 2018 (the “Petition Date”), Sears Holdings Corporation (the “Company”) and certain of its
subsidiaries (together with the Company, the “Debtors”) filed voluntary petitions (the “Chapter 11 Cases”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) seeking
relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), on April 17, 2019, the Debtors filed a proposed Joint Chapter 11 Plan with the Bankruptcy Court, on May 16, 2019, the Debtors filed an amended
proposed Joint Chapter 11 Plan with the Bankruptcy Court, and on June 28, 2019, the Debtors filed a Second Amended Joint Chapter 11 Plan with the Bankruptcy Court.
The Chapter 11 Cases are being jointly administered under the caption “In re Sears Holdings Corporation, et al., Case
No. 18-23538.” Documents filed on the docket of and other information related to the Chapter 11 Cases are available free of charge online at https://restructuring.primeclerk.com/sears.
Documents and other information available on such website are not part of this Current Report on Form 8-K (this “Form 8-K”) and shall not be deemed
incorporated by reference in this Form 8-K.
Confirmation of Revised Modified Second Amended Joint Chapter 11
Plan and Treatment of Claims and Interests
On September 13, 2019, the Debtors filed a Modified Second Amended Joint Chapter 11 Plan with the
Bankruptcy Court. On October 1, 2019, the Debtors filed a Revised Modified Second Amended Joint Chapter 11 Plan (the “Plan”) with the Bankruptcy Court.
On October 15, 2019, the Bankruptcy Court entered an order, Docket No. 5370 (the “Confirmation Order”) confirming the Plan. A copy of the
Confirmation Order, with a copy of the Plan as confirmed attached thereto, is attached as Exhibit 2.1 to this Form 8-K and is incorporated herein by reference. Any description of the terms of the Plan in this
Form 8-K are qualified in their entirety to Exhibit 2.1 to this Form 8-K. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the
Plan.
The effective date of the Plan (the “Effective Date”) is subject to the satisfaction of all conditions precedent to the Plan, including
that all definitive documentation shall be in form and substance reasonably acceptable to the Debtors and the official committee of unsecured creditors; the waiver of administrative or superpriority administrative expense claim in the Chapter 11
Cases by KCD IP, LLC; all actions, documents, agreements, approvals, and consents necessary to implement and consummate the Plan shall have been effected, executed, and obtained; and full funding of the Carve Out Account. Although the Debtors are
targeting occurrence of the Effective Date as soon as reasonably practicable, the Debtors can make no assurances as to when, or ultimately if, the Plan will become effective.
The Plan provides for the orderly wind down of the Debtors’ Estates and the following treatment of claims against and interests in the Debtors:
|
|
•
|
|
All Priority Tax Claims, Priority Non-Tax Claims, and Secured Claims will
be paid in full on the Effective Date in accordance with the applicable sections of the Plan.
|
|
|
•
|
|
All Administrative Expense Claims will be paid in full on the Effective Date in accordance with the applicable
sections of the Plan, subject to the Administrative Expense Claims Consent Program (described below).
|
|
|
•
|
|
Holders of the PBGC Claims will receive a single Allowed General Unsecured Claim in the amount of
$800 million and the Liquidating Trust Priority Interest, which entitles PBGC to and be secured by the first $97.5 million of Net Proceeds of Specified Causes of Action and Other Causes of Action (after payment in full of senior Claims),
provided that the PBGC will not participate in any distribution of Excess PBGC Amounts in accordance with Section 9.2(a)(viii) of the Plan.
|
|
|
•
|
|
Holders of General Unsecured Claims (other than Guarantee Claims and General Unsecured Claims at Kmart Corp.)
will receive their pro rata share of certain Liquidating Trust Interests and shall be satisfied from Net Proceeds of General Assets, proceeds from the Wind Down Account, and Net Proceeds of the Specified Causes of Action and the Credit Bid Release
Consideration (after payment in full of all senior Claims).
|
|
|
•
|
|
Holders of Guarantee Claims and General Unsecured Claims at Kmart Corp. will receive their pro rata share of
certain enhanced Liquidating Trust Interests (as compared to holders of General Unsecured Claims at all other Debtors) and will be satisfied from Net Proceeds of General Assets, proceeds from the Wind Down Account, Net Proceeds of the Specified
Causes of Action and the Credit Bid Release Consideration (after payment in full of all senior Claims and the PBGC Liquidating Trust Priority Interest), and Excess PBGC Amounts.
|
|
|
•
|
|
Holders of ESL Unsecured Claims (other than at Kmart Corp.) will receive their pro rata share of certain
Liquidating Trust Interests and will be satisfied from Net Proceeds of General Assets and proceeds from the Wind Down Account (after payment in full of all senior Claims and the PBGC Liquidating Trust Priority Interest).
|
|
|
•
|
|
Holders of ESL Unsecured Claims at Kmart Corp. will receive their pro rata share of certain enhanced Liquidating
Trust Interests (as compared to ESL Unsecured Claims at all other Debtors) and will be satisfied from Net Proceeds of General Assets, proceeds from the Wind Down Account (after payment in full of all Administrative Expense Claims, Priority Non-Tax Claims, Priority Tax Claims, Other 507(b) Priority Claims, Secured Claims, and the PBGC Liquidating Trust Priority Interest), and Excess PBGC Amounts.
|
On the Effective Date, all Liquidating Trust Assets of the Debtors will be transferred to the Liquidating Trust in accordance with the Plan and all Debtors
shall be dissolved without the necessity for any other or further actions to be taken by or on behalf of such dissolving Debtor or its stockholder(s) or any payments to be made in connection therewith, other than the filing of a certificate of
dissolution with the appropriate governmental authorities. All directors and officers of the dissolved Debtors shall be deemed to have resigned in their capacity as of the Effective Date.
Settlements, Administrative Expense Claims Consent Program, Releases, and Exculpations
Below is a summary of the key terms of various settlements incorporated in the Plan:
|
|
•
|
|
PBGC Settlement: The PBGC Settlement provides for settlement of PBGC’s Claims, the consensual
termination of the Pension Plans, PBGC’s support of the Plan, mutual releases, and the PBGC’s agreement to take all reasonable actions to ensure that any claim of KCD against the Debtors is waived in full.
|
|
|
•
|
|
Plan Settlement: The Plan Settlement resolves inter-estate and inter-creditor issues in relation to
Intercompany Claims, and provides for the settlement of substantive consolidation. All of the Debtors’ Assets will be consolidated and treated as Liquidating Trust Assets, and holders of certain claims that may be adversely impacted by the
consolidation will receive an appropriate Plan Settlement Premium.
|
|
|
•
|
|
Creditors’ Committee Settlement: The Creditors’ Committee Settlement provides for the settlement
of post-Effective Date corporate governance and the selection process for the Liquidating Trustee and the Primary Trust Liquidation Counsel.
|
Pursuant to the Administrative Expense Claims Consent Program, each holder of an Administrative Expense Claim who affirmatively opts in to the Program will be
entitled to a pro rata share of an initial cash distribution of $21 million on or about December 1, 2019, and will receive 75% of their Allowed Administrative Expense Claim amount in full and final satisfaction of such Claim. Further, each
holder of an Administrative Expense Claim who does not affirmatively opt in to or timely opt out of such Program will be entitled an accelerated distribution (subject to certain reserves necessary to continue to administer the Estates and pursue
affirmative Estate litigation), and will receive 80% of their Allowed Administrative Expense Claim amount in full and final satisfaction of such Claim. Holders of an Administrative Expense Claim that affirmatively opt out of the Administrative
Expense Claims Consent Program retain the right to receive payment of the Allowed 100% of such Claim, but payment of such Claim shall not occur earlier than the Effective Date and holders of opt-out Claims
will not participate in any distribution until the Plan has become effective or the Settled Administrative Expense Claims have been satisfied in full in accordance with the Administrative Expense Claims Consent Program.
The Plan also provides releases and exculpations for the benefit of the Debtors, the Creditors’ Committee, and other parties related thereto, each in
their capacity as such, from various claims and causes of action, as further set forth in Article XV of the Plan.
Treatment of the Company’s
Common Stock and Warrants to Purchase Common Stock under the Plan
Pursuant to the Plan, the Company’s common stock and warrants to purchase
shares of common stock outstanding immediately before the Effective Date will be cancelled and of no further force or effect after the Effective Date. As of October 16, 2019, the Company had (i) 410,956,500 shares of common stock
outstanding and (ii) 21,993,338 warrants to purchase shares of common stock outstanding, which warrants shall expire on December 15, 2019 (assuming the Effective Date has not yet occurred).
Certain Information Regarding Assets and Liabilities of the Company
Information as to the assets and liabilities of the Debtors as of the most recent practicable date was included in the Monthly Operating Report for the period
from August 4, 2019 to August 31, 2019 (discussed further below, the “August Monthly Operating Report”), which was not prepared for the purpose of providing the basis for an investment decision relating to any of the securities
of the Company or any of its subsidiaries. The August Monthly Operating Report is limited in scope, covers a limited time period and has been prepared solely for the purpose of complying with the monthly reporting requirements of the Bankruptcy
Court. The August Monthly Operating Report was not audited or reviewed by independent accountants, was not prepared in accordance with generally accepted accounting principles in the United States, is in a format prescribed by applicable bankruptcy
laws or rules, and is subject to future adjustment and reconciliation. There can be no assurance that, from the perspective of an investor or potential investor in the Company’s securities, the August Monthly Operating Report is complete.
Results set forth in the August Monthly Operating Report should not be viewed as indicative of future results.