As filed with the Securities and Exchange Commission on August 31, 2012
Registration No. 333-181051
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 6
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Sears Hometown and Outlet Stores, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 5311 | 80-0808358 | ||
(State or Other Jurisdiction of Incorporation or Organization) |
(Primary Standard Industrial Classification Number) |
(IRS Employer Identification Number) |
3333 Beverly Road
Hoffman Estates, Illinois 60179
(847) 286-2500
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
W. Bruce Johnson
Chief Executive Officer and President
Sears Hometown and Outlet Stores, Inc.
3333 Beverly Road
Hoffman Estates, Illinois 60179
(847) 286-2500
(Name, address, including zip code, and telephone number, including area code, of agent for service)
with copies to:
Dane A. Drobny Senior Vice President, General Counsel and Corporate Secretary Sears Holdings Corporation 3333 Beverly Road Hoffman Estates, Illinois 60179 (847) 286-2500 |
Steven J. Slutzky
Debevoise & Plimpton LLP 919 Third Avenue New York, New York 10022 (212) 909-6000 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: x
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: ¨
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||||||
Non-accelerated filer | x | (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PROSPECTUS
SUBJECT TO COMPLETION, DATED AUGUST 31, 2012
Sears Hometown and Outlet Stores, Inc.
Up To 23,100,000 Shares of Common Stock Issuable Upon the Exercise of Subscription Rights At $15.00 Per Share
Subscription Rights to Purchase Shares of Common Stock
This prospectus is being furnished to you as a holder of common stock of Sears Holdings Corporation, or Sears Holdings, in connection with the planned distribution by Sears Holdings to each holder of its common stock as of the close of business on September 7, 2012, or the record date, at no charge, transferable subscription rights, or the subscription rights, to purchase up to an aggregate of 23,100,000 shares of common stock, par value $0.01 per share, of Sears Hometown and Outlet Stores, Inc., or SHO, at a price of $15.00 per whole share, or the rights offering. Sears Holdings will distribute to each holder of its common stock as of the record date one subscription right for each full common share owned by that stockholder as of the record date, except that holders of Sears Holdings restricted stock that is unvested as of the record date will receive cash awards in lieu of subscription rights. Each subscription right will entitle its holder to purchase from Sears Holdings of a share of SHO common stock. Additionally, holders of subscription rights who fully exercise all of their basic subscription rights, after giving effect to any purchases or sales of subscription rights by them prior to such exercise, may also make a request to purchase additional shares of SHO common stock, through exercise of the over-subscription privilege, although we cannot assure you that any over-subscriptions will be filled.
The subscription rights will expire if they are not exercised by 5:00 p.m., New York City time, on , 2012. Immediately prior to the closing of the rights offering, Sears Holdings will hold all of SHOs common stock. As a result of the rights offering, Sears Holdings will dispose of up to all of its shares of SHO common stock and SHO will become a publicly traded company independent from Sears Holdings, or the separation. In connection with the separation, we have entered into various agreements with Sears Holdings which, among other things, (1) govern the principal transactions relating to this offering and aspects of our relationship with Sears Holdings following the separation, (2) establish terms under which subsidiaries of Sears Holdings will provide us with services following the separation and (3) establish terms pursuant to which subsidiaries of Sears Holdings will obtain merchandise for us, collectively, the separation transactions.
To the extent you properly exercise your over-subscription privilege for an amount of shares of common stock that exceeds the number of the unsubscribed shares allocated to you, the subscription agent will return to you any excess subscription payments, without interest or penalty, as soon as practicable following the expiration of the rights offering. We are not requiring a minimum individual or overall subscription to complete the rights offering. We have engaged Computershare Inc. to serve as the subscription agent and Georgeson Inc. as information agent for the rights offering. The subscription agent will hold in escrow the funds we receive from subscribers until we complete or cancel the rights offering.
The subscription rights will expire if they are not exercised by 5:00 p.m., New York City time, on , 2012, the 20 th business day following the distribution of the rights, but Sears Holdings may extend the rights offering for additional periods ending no later than , 2012. The rights offering is subject to the satisfaction or waiver of certain conditions. In addition, Sears Holdings has the right to withdraw and cancel the rights offering if, at any time prior to its expiration, the board of directors of Sears Holdings determines, in its sole discretion, that the rights offering is not in the best interest of Sears Holdings or its stockholders, or that market conditions are such that it is not advisable to consummate the rights offering. If Sears Holdings cancels the rights offering, the subscription agent will return all subscription payments received, without interest or penalty, as soon as practicable. See The Rights OfferingConditions, Withdrawal and Cancellation.
ESL Investments, Inc. and its affiliates, including Edward S. Lampert, or, collectively, ESL, beneficially owns approximately 62% of the outstanding common stock of Sears Holdings as of the date hereof. Mr. Lampert, on behalf of himself and investment funds affiliated with ESL for which he has the power to direct new investments, has advised Sears Holdings that he and the investment funds affiliated with ESL for which he has the power to direct new investments intend to exercise their subscription rights and their respective over-subscription privilege in full, such that they will purchase the maximum number of shares allocated to them under the over-subscription privilege, subject to the successful completion of the separation transactions, though they have not entered into any agreement to do so. As a result, we expect that ESL will hold more than 50% of our common stock, and that we expect to qualify and elect to be a controlled company under the NASDAQ Marketplace rules following the completion of the rights offering. This election would allow us to rely on exemptions from certain corporate governance requirements otherwise applicable to NASDAQ-listed companies.
You should carefully consider whether to exercise your subscription rights before the rights offering expires. All exercises of subscription rights are irrevocable. The purchase of shares of our common stock involves a high degree of risk.
You should read Risk Factors beginning on page 30, and all other information included in this prospectus, before you decide to exercise your subscription rights. Neither Sears Holdings nor SHOs board of directors is making any recommendation regarding your exercise of the subscription rights.
The subscription rights are transferable during the course of the subscription period, until , 2012, the fourth business day prior to the expiration of the rights offering and we have applied to list the rights for trading on the NASDAQ Capital Market under the symbol SHOSR, however, we cannot assure you that a market for the subscription rights will develop. We have applied to list shares of our common stock for trading on the NASDAQ Capital Market under the symbol SHOS. No public market currently exists for our common stock or for the subscription rights.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is , 2012
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Security Ownership of Certain Beneficial Owners and Management |
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You should rely only on information contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. We have not authorized anyone to provide you with additional or different information. Neither this prospectus nor any free writing prospectus constitutes an offer to sell, or a solicitation of an offer to buy, any of the securities offered hereby by any person in any jurisdiction in which it is unlawful for such person to make such an offering or solicitation. The information contained in this prospectus is accurate only as of the date of this prospectus or such free writing prospectus, as applicable.
For investors outside the United States and Canada: Neither we nor Sears Holdings have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States and Canada. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States and Canada.
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This summary highlights information contained elsewhere in this prospectus and may not contain all of the information that may be important to you. For a more complete understanding of our business and the rights offering, you should read this summary together with the more detailed information and financial statements appearing elsewhere in this prospectus. You should read this entire prospectus carefully, including the Risk Factors and Cautionary Statement Concerning Forward-Looking Statements sections. This prospectus contains important information that you should consider when making your investment decision. Unless otherwise stated or the context otherwise requires, the terms we, us, our, SHO and the Company refer to Sears Hometown and Outlet Stores, Inc. and our subsidiaries.
Our Company
We are a national retailer primarily focused on selling home appliances, hardware, tools and lawn and garden equipment. As of April 28, 2012, we and our dealers and franchisees operated 1,238 stores across all 50 states and Puerto Rico, Guam and Bermuda.
In addition to merchandise, we provide our customers with access to a full suite of services, including home delivery and handling and extended service contracts.
We operate through two segmentsthe Sears Hometown and Hardware segment and the Sears Outlet segment. Our Sears Hometown and Hardware segments stores are designed to provide our customers with in-store and online access to a wide selection of national brands of home appliances, tools, lawn and garden equipment, sporting goods, consumer electronics and household goods, depending on the particular store. Our Sears Outlet stores are designed to provide our customers with in-store and online access to purchase new, one-of-a-kind, out-of-carton, discontinued, obsolete, used, reconditioned, overstocked and scratched and dented products, collectively, outlet-value products, across a broad assortment of merchandise categories, including home appliances, lawn and garden equipment, apparel, mattresses, televisions, sporting goods and tools, and at prices that are significantly lower than manufacturers suggested retail prices.
As of April 28, 2012, the Sears Hometown and Hardware segment consists of 1,116 stores as follows:
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944 Sears Hometown StoresPrimarily independently owned stores, predominantly located in smaller communities and offering appliances, consumer electronics, lawn and garden equipment, and hardware. Most of our Sears Hometown Stores carry proprietary Sears brand products, such as Kenmore, Craftsman, and DieHard, as well as a wide assortment of other national brands. |
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96 Sears Hardware StoresNeighborhood hardware stores that carry Craftsman brand tools and lawn and garden equipment, DieHard brand batteries and a wide assortment of other national brands and other home improvement products. 93 of these locations also offer a selection of Kenmore and other national brands of home appliances. |
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76 Sears Home Appliance ShowroomsInnovative stores that have a simple, primarily appliance, showroom design that are predominantly located in metropolitan areas. |
As of April 28, 2012, the Sears Outlet segment consists of 122 Sears Outlet Stores. These locations offer new, one-of-a-kind, out-of-carton, discontinued, obsolete, used, reconditioned, overstocked and scratched and dented products, including home appliances, lawn and garden equipment, apparel, mattresses, televisions, sporting goods and tools at prices that are significantly lower than manufacturers suggested retail prices.
Of the 1,238 stores (as of April 28, 2012), we closed five Sears Hometown Stores (net of new store openings), eight Sears Hardware Stores and one Sears Outlet Store since the first quarter of 2012 and intend to close one Sears Hardware Store in the second half of 2012.
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Risk Factors
Our business is subject to various risks, such as those highlighted in the section entitled Risk Factors beginning on page 30 of this prospectus, including:
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our continued reliance on Sears Holdings following the separation to provide us with most key products and services for our business; |
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our ability to offer merchandise and services desirable to our customers and compete effectively in the highly competitive home appliance and hardware industries; |
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the impact on our revenues of adverse worldwide and national economic conditions and, in particular, economic factors that negatively impact the home appliance and hardware industries; and |
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our ability to manage the costs and difficulties of operating as a standalone company following the separation from Sears Holdings. |
The Separation
We are a recently formed legal entity organized on April 23, 2012 that will, immediately prior to our separation from Sears Holdings, be comprised of all of the assets and liabilities of Sears Holdings current Sears Hometown business, Sears Outlet business and hardware stores. Currently, and at all times prior to the separation, Sears Holdings will own 100% of our common stock.
In connection with the separation transactions we expect to enter into an asset-based senior secured revolving credit facility, or the Senior ABL Facility, which we expect will provide for aggregate maximum borrowings (subject to availability under a borrowing base) of $250 million. Prior to the separation, we expect to draw $100 million under the Senior ABL Facility to pay a cash dividend to Sears Holdings.
Our Relationship with Sears Holdings
Prior to the closing of the rights offering, we will operate as businesses within Sears Holdings. Following the closing of this offering (1) we will be a publicly traded company independent from Sears Holdings, and (2) Sears Holdings will not retain any ownership interest in us except to the extent that the subscription rights are not exercised in full and that shares not purchased through the exercise of basic subscription rights are not purchased pursuant to the over-subscription privilege. To the extent that Sears Holdings retains ownership of shares of SHO common stock after the completion of the rights offering, Sears Holdings may dispose of its remaining shares, including through sales into the public market or otherwise.
In connection with the separation we have entered into various agreements with Sears Holdings which, among other things, (1) govern the principal transactions relating to this offering and aspects of our relationship with Sears Holdings following the separation, (2) establish terms under which subsidiaries of Sears Holdings will provide us with services following the separation, and (3) establish terms pursuant to which subsidiaries of Sears Holdings will obtain merchandise for us, collectively, the separation transactions. Although these agreements have been executed prior to the distribution of the subscription rights, the effectiveness of the agreements is conditioned upon the consummation of the rights offering and the completion of the separation of the Company from Sears Holdings. The terms of these agreements were agreed to in the context of a parent-subsidiary relationship and in the overall context of our separation from Sears Holdings. Accordingly, the terms of these agreements may be more or less favorable than those we could have negotiated with unaffiliated parties. For more information regarding the agreements between us and Sears Holdings, see Certain Relationships and Related Party TransactionsAgreements with Sears Holdings.
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Principal Stockholder
Assuming that the rights offering is subscribed in full by all holders of subscription rights, we anticipate that immediately following the completion of the rights offering ESL, which beneficially owns approximately 62% of Sears Holdings common stock as of the date hereof, will beneficially own at least approximately 62% of our outstanding common stock. However, as further described in The Rights OfferingPrincipal Stockholder, under certain circumstances, ESL may only beneficially own approximately 58% of our common shares assuming the subscription rights are exercised in full by all other holders of rights. ESL may increase its percentage beneficial ownership of SHO through its exercise of the over-subscription privilege, through open market purchases of subscription rights or SHO common stock or otherwise. As a result of ESL holding more than 50% of our common stock, we expect to qualify as a controlled company under the NASDAQ Marketplace rules following the completion of the rights offering and, as a result, currently intend to rely on exemptions from certain corporate governance requirements otherwise applicable to NASDAQ-listed companies.
Trademarks and Service Marks
We have entered into license agreements with subsidiaries of Sears Holdings for the use of, and sale of merchandise bearing, trade names and trademarks owned by subsidiaries of Sears Holdings, including SEARS ® , KENMORE ® , CRAFTSMAN ® , DIEHARD ® and SHOPYOURWAY ® .
Trade names, trademarks and service marks of other companies appearing in this prospectus, including those of Sears Holdings, are the property of their respective owners. We do not intend our use or display of other companies trade names, trademarks or service marks to imply relationships with, or endorsements of us by, these other companies.
Corporate Information
We were incorporated in Delaware on April 23, 2012 and our corporate offices are located at 3333 Beverly Road, Hoffman Estates, Illinois 60179. Our telephone number is (847) 286-2500. Our website address is www.shos.com. None of the information contained on, or that may be accessed through, our websites or any other website identified herein is part of, or incorporated into, this prospectus. All website addresses in this prospectus are intended to be inactive textual references only.
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The Rights Offering
The following summary describes the principal terms of the rights offering, but it is not intended to be a complete description of the offering. See The Rights Offering in this prospectus for a more detailed description of the terms and conditions of the distribution of rights and the offering of SHO common shares.
Securities Offered |
Sears Holdings is distributing, at no charge, to holders of shares of Sears Holdings common stock as of the record date, transferable subscription rights to purchase up to an aggregate of 23,100,000 shares of SHO, at a price of $15.00 per whole share. Sears Holdings will distribute to each holder of its common stock as of the record date, one subscription right for each full common share owned by that stockholder as of the record date, except that holders of Sears Holdings restricted stock that is unvested as of the record date will receive cash awards in lieu of subscription rights. Each subscription right will entitle its holder to purchase from Sears Holdings of a share of SHO common stock. Each subscription right entitles the holder to a basic subscription right and an over-subscription privilege, as described below. The subscription rights will expire if they are not exercised by 5:00 p.m. New York City time, on , 2012. Sears Holdings expects the gross proceeds from the rights offering and the exercise of the subscription rights will be approximately $346.5 million, assuming that the subscription rights are exercised in full. |
Basic Subscription Right |
The basic subscription right gives holders of the subscription rights the right to purchase from Sears Holdings, in the aggregate, shares of SHO common stock at a subscription price of $15.00 per whole share. Sears Holdings has distributed to each stockholder of record on the record date one subscription right for every share of Sears Holdings common stock such stockholder owned at that time. Fractional shares or cash in lieu of fractional shares will not be issued in the rights offering. Instead, fractional shares resulting from the exercise of the basic subscription right will be eliminated by rounding down to the nearest whole share. ESL, which beneficially owns approximately 62% of the common stock of Sears Holdings as of the date hereof, has advised Sears Holdings that it intends to exercise its subscription rights in full, subject to the successful completion of the separation transactions, though it has not entered into any agreement to do so. |
Over-subscription Privilege |
If you purchase all of the shares of SHO common stock available to you pursuant to your basic subscription right, after giving effect to any purchases or sales of subscription rights by you prior to such exercise, you may also choose to subscribe for a portion of any shares of SHO common stock that other holders of subscription rights do not purchase through the exercise of their basic subscription rights. ESL, which beneficially owns approximately 62% of the common stock of Sears Holdings as of the date hereof, is also eligible to exercise the over-subscription privilege and has indicated to Sears Holdings that it intends to exercise its over-subscription privilege in full such that it |
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will purchase the maximum number of shares allocated to it under the over-subscription privilege, though it has not entered into any agreement to do so. To the extent that shares of our common stock are available pursuant to the over-subscription privilege, ESL is expected to increase its percentage beneficial ownership in our common stock to greater than approximately 62%. |
Subscription Price |
$15.00 per whole share. To be effective, any payment related to the exercise of a subscription right must be by cashiers or certified check drawn upon a United States bank payable to the subscription agent at the address set forth below. Personal checks and wire transfers will not be accepted. |
Sears Holdings engaged Duff & Phelps LLC, or Duff & Phelps, to act as a financial advisor in connection with the separation of the SHO businesses to provide, among other things, an opinion with respect to the fair market value of the equity of SHO. In determining the subscription price, the board of directors of Sears Holdings considered, among other things, (1) the opinion of Duff & Phelps, (2) the desirability of broad participation in the rights offering by Sears Holdings stockholders and of the development of a trading market for both the subscription rights and the SHO common stock and (3) Sears Holdings liquidity needs and the aggregate amount of proceeds to be paid to Sears Holdings pursuant to the dividend and the rights offering if the rights offering were fully subscribed. See Determination of Subscription PriceDetermination by Sears Holdings Board of Directors of the Exercise Price.
Record Date |
5:00 p.m., New York City time, on September 7, 2012. |
Expiration of the Rights Offering |
5:00 p.m., New York City time, on , 2012, unless Sears Holdings extends the rights offering period. Rights not exercised by the expiration time will be void, of no value and will cease to be exercisable for SHO common shares. |
Use of Proceeds |
SHO will not receive any proceeds from the exercise of the rights or the sale of its common shares by Sears Holdings. Assuming the subscription rights are exercised in full, Sears Holdings expects to receive cash proceeds of approximately $346.5 million as a result of the sale of SHOs common shares. All of the gross proceeds of the sale of SHO common shares upon exercise of the rights, net of any selling expenses incurred by it, will be payable to and received by Sears Holdings. See Use of Proceeds. |
Share Ownership |
As of the record date, Sears Holdings owned 100% of the common stock of SHO. As of the date hereof, ESL beneficially owns approximately 62% of the common stock of Sears Holdings. |
Assuming the subscription rights are exercised in full, Sears Holdings will dispose of all of its shares of SHO common stock as a result of
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the rights offering and will cease to be a stockholder of SHO. To the extent that the subscription rights are not exercised in full and that shares not purchased through the exercise of basic subscription rights are not purchased pursuant to the over-subscription privilege, Sears Holdings will retain ownership of a portion of our common stock. To the extent that Sears Holdings retains ownership of shares of SHO common stock after the completion of the rights offering, Sears Holdings may dispose of its remaining shares, including through sales into the public market or otherwise.
ESL has advised Sears Holdings that it intends to exercise its subscription rights in full, subject to the successful completion of the separation transactions, though it has not entered into any agreement to do so. In addition, ESL has indicated to Sears Holdings that it intends to exercise its over-subscription privilege in full, such that it will purchase the maximum number of shares allocated to it under the over-subscription privilege, though it has not entered into any agreement to do so. As a result, following the completion of the rights offering, we expect ESL will beneficially own at least approximately 62% of our common shares. However, as further described in The Rights OfferingPrincipal Stockholder, under certain circumstances, ESL may only beneficially own approximately 58% of our common shares assuming the subscription rights are exercised in full by all other holders of rights. ESL may increase its percentage beneficial ownership of SHO through its exercise of the over-subscription privilege, through open market purchases of its subscription rights or SHO common stock or otherwise.
Transferability of Rights |
You may transfer your subscription rights during the course of the subscription period. We have applied to list the subscription rights on the NASDAQ Capital Market under the symbol SHOSR and we currently expect that they will begin to trade on the first business day following the distribution of the subscription rights, and will continue to trade until 4:00 p.m., New York City time, on , 2012, the fourth business day prior to the scheduled expiration date of the rights offering (or if the offer is extended, on the fourth business day immediately prior to the extended expiration date). Although you may transfer or sell your subscription rights if you do not want to exercise them to purchase shares of SHO common stock, the subscription rights are a new issue of securities with no prior public trading market and neither we nor Sears Holdings can provide you with any assurances as to the liquidity of any trading market for the subscription rights or the market value of the subscription rights. See The Rights OfferingTransferability of Subscription Rights. |
No Revocation |
All exercises of subscription rights are irrevocable, even if you later learn of information that you consider to be unfavorable to the exercise of your subscription rights. You should not exercise your subscription rights unless you are certain that you wish to purchase shares of SHO common stock at a price of $15.00 per whole share. |
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Rights Offering Conditions |
Sears Holdings obligation to close the rights offering and to distribute the shares of SHOs common stock subscribed for in the rights offering is conditioned upon the satisfaction or waiver of the following conditions: |
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the Sears Holdings board of directors shall have authorized and approved the separation and related transactions and not withdrawn such authorization and approval, and shall have declared the dividend of the subscription rights to Sears Holdings stockholders; |
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each of the agreements to be entered into between Sears Holdings and SHO governing the separation transactions shall have been executed by each party thereto and all actions required to be performed prior to the closing of the rights offering shall have been completed; |
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the Securities and Exchange Commission, or the SEC, shall have declared effective our Registration Statement on Form S-1, of which this prospectus forms a part, under the Securities Act of 1933, as amended, or the Securities Act, and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the SEC; |
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our common stock and the subscription rights shall have been accepted for listing on the NASDAQ Capital Market or another national securities exchange or quotation system approved by Sears Holdings, subject to official notice of issuance; |
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no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the separation shall be in effect, and no other event outside the control of Sears Holdings shall have occurred or failed to occur that prevents the consummation of the separation; |
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the individuals listed as members of our post-separation board of directors in this prospectus shall have been duly elected, and such individuals shall be the members of our board of directors immediately after the separation; |
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prior to the separation, Sears Holdings shall deliver or cause to be delivered to SHO resignations, effective as of immediately after the separation, of each individual who will be an officer or director of SHO after the separation and who is an officer or director of Sears Holdings immediately prior to the separation; and |
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immediately prior to the separation, our Certificate of Incorporation and Bylaws, each in substantially the form filed as an exhibit to the Registration Statement of which this prospectus forms a part, shall be in effect. |
The fulfillment of the foregoing conditions will not create any obligation on the part of Sears Holdings to close the rights offering. In
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addition, Sears Holdings reserves the right to withdraw and cancel the rights offering if, at any time, the board of directors of Sears Holdings determines, in its sole discretion, that the offering is not in the best interest of Sears Holdings or its stockholders, or that market conditions are such that it is not advisable to consummate the rights offering. See The Rights OfferingConditions, Withdrawal and Cancellation.
Material U.S. Federal Income Tax Considerations |
Although the treatment of the receipt, sale, exercise, expiration and cancellation of the subscription rights for U.S. federal income tax purposes is not entirely clear: |
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A stockholder that receives a subscription right from Sears Holdings should expect to have taxable dividend income equal to the fair market value (if any) of the subscription right on the date of its distribution by Sears Holdings, and |
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A stockholder that allows a subscription right to expire without exercising it should expect to have short-term capital loss upon the expiration of such right in an amount equal to such stockholders tax basis (if any) in such right. |
Because a short-term capital loss generally cannot be used to offset taxable dividend income, you may owe tax as a result of the receipt of a subscription right from Sears Holdings even if you take no action. |
In certain circumstances, withholding tax or backup withholding tax may apply to the distribution by Sears Holdings of the subscription rights. If withholding tax or backup withholding tax applies to the distribution of the subscription rights to a stockholder, the stockholders broker (or other applicable withholding agent) will be required to remit any such withholding tax or backup withholding tax in cash to the Internal Revenue Service. Depending on the circumstances, the broker (or other applicable withholding agent) may obtain the funds necessary to remit any such withholding tax by asking the stockholder to provide the funds, by using funds in the stockholders account with the broker or by selling (on the stockholders behalf) all or a portion of the subscription rights or by another means (if any) available.
For a detailed discussion of the material U.S. federal income tax considerations relating to the receipt, sale, exercise, expiration and cancellation of the subscription rights, see Material United States Federal Income Tax Considerations. Stockholders should consult their own tax advisors regarding the U.S. federal, state and local and non-U.S. income, estate and other tax considerations relating to the receipt, sale, exercise, expiration and cancellation of the subscription rights in light of their particular circumstances.
Extension and Cancellation |
The rights offering is subject to the satisfaction or waiver of certain conditions. In addition, Sears Holdings has the right to withdraw and |
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cancel the rights offering if, at any time prior to its expiration, the board of directors of Sears Holdings determines, in its sole discretion, that among other things the rights offering is not in the best interest of Sears Holdings or its stockholders, or that market conditions are such that it is not advisable to consummate the rights offering. |
If Sears Holdings cancels the rights offering, due to the lack of satisfaction of one or more conditions to the rights offering or otherwise, the subscription rights will be void, of no value and will cease to be exercisable for SHO common shares. If Sears Holdings cancels the rights offering, any money received from subscribing stockholders will be returned, without interest or penalty, as soon as practicable. If you purchase subscription rights during the subscription period and Sears Holdings cancels the rights offering, you will lose the entire purchase price paid to acquire such subscription rights in the market and neither Sears Holdings, SHO nor the subscription agent will be under any obligation to refund to you the purchase price you paid for the purchased subscription rights, however any subscription payments received by the subscription agent will be returned to you, without interest or penalty, as soon as practicable. Sears Holdings may also extend the rights offering for additional periods ending no later than , 2012.
Procedures for Exercising Subscription Rights |
To exercise your subscription rights, you must take the following steps: |
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If you are a registered holder of Sears Holdings common stock and you wish to participate in the rights offering, you must deliver payment and a properly completed and duly executed rights certificate to the subscription agent to be received before 5:00 p.m., New York City time, on , 2012. In certain cases, you may be required to provide additional documentation or signature guarantees. Promptly after the date of this prospectus, the subscription agent will send a subscription rights certificate to each registered holder of Sears Holdings common stock as of the close of business on the record date, based on the stockholder registry maintained at the transfer agent for Sears Holdings common stock. You may deliver the documents and payments by hand delivery, first class mail or courier service. If you use first class mail for this purpose, we recommend using registered mail, properly insured, with return receipt requested. |
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If you are a beneficial owner of shares of Sears Holdings common stock that are registered in the name of a broker, dealer, custodian bank or other nominee, or if you would rather have an institution conduct the transaction on your behalf, you should instruct your broker, dealer, custodian bank or other nominee to exercise your subscription rights on your behalf. Although you will not receive a rights certificate, the Depository Trust Company, or DTC, will electronically issue one subscription right to your nominee record holder for every share of Sears Holdings common stock that you |
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beneficially own as of the record date. Please follow the instructions of your nominee, who may require that you meet a deadline earlier than 5:00 p.m., New York City time, on , 2012. |
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If you purchased subscription rights during the subscription period through a broker, dealer, custodian bank or other nominee, you will not receive a rights certificate. Instead, your broker, dealer, custodian bank or other nominee must exercise the subscription rights on your behalf. If you wish to exercise your subscription rights and purchase our common stock through the rights offering, you should contact your nominee as soon as possible. Please follow the instructions of your nominee. Your nominee may establish a deadline that may be before the expiration date of the rights offering. See The Rights OfferingMethod of Exercising Subscription Rights. |
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If you purchased subscription rights during the subscription period directly from a registered holder of Sears Holdings common stock, you should contact the subscription agent as soon as possible regarding the exercise of your subscription rights. Please follow the instructions of the subscription agent in order to properly exercise your subscription rights. See The Rights OfferingMethod of Exercising Subscription Rights. |
Reason for Rights Offering Structure |
Sears Holdings is separating SHO through the rights offering because it believes it will provide additional liquidity to Sears Holdings and enhance the ability of Sears Holdings to focus on its core business. |
In addition, Sears Holdings believes that the rights offering will give its stockholders the ability to avoid dilution by retaining their ownership percentage in the two companies. However, stockholders may wish to sell their subscription rights to fund any tax incurred upon the receipt of the subscription rights, which would decrease the amount of shares of SHO common stock available to such stockholders. If the distribution of the subscription rights to a stockholder is subject to withholding tax, the stockholders broker (or other applicable withholding agent) may sell all or a portion of the subscription rights to fund the withholding tax, which would decrease the number of shares of SHO common stock available to such stockholder. See Material United States Federal Income Tax Considerations.
Shares Outstanding Before the Rights Offering |
23,100,000 shares of our common stock were outstanding as of August 31, 2012. Prior to the rights offering, 100% of our common stock was held by Sears Holdings. |
Shares Outstanding After Completion of the Rights Offering |
No new shares of our common stock will be issued or outstanding as a result of the rights offering. All of the shares of common stock purchased as a result of the exercise of subscription rights will be purchased from Sears Holdings. |
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Fees and Expenses |
Sears Holdings is not charging any fee or sales commission to distribute subscription rights to you or for the delivery of shares of SHO common stock to you if you exercise your subscription rights. If you exercise your subscription rights through your broker, dealer, custodian bank or other nominee, you are responsible for paying any fees such intermediary may charge you. |
Trading Market and Symbol |
We have applied to list the subscription rights on the NASDAQ Capital Market under the symbol SHOSR. We have applied to list shares of our common stock for trading on the NASDAQ Capital Market under the ticker symbol SHOS. |
Relationship with Sears Holdings After the Rights Offering |
In connection with the separation, we have entered into various agreements with Sears Holdings which, among other things, (1) govern the principal transactions relating to this offering and certain aspects of our relationship with Sears Holdings following the separation, (2) establish terms under which subsidiaries of Sears Holdings will provide us with certain services following the separation and (3) establish terms pursuant to which subsidiaries of Sears Holdings will obtain certain merchandise for us. Although these agreements have been executed prior to the distribution of the subscription rights, the effectiveness of the agreements is conditioned upon the consummation of the rights offering and the completion of the separation of the Company from Sears Holdings. The terms of these agreements were agreed to in the context of a parent-subsidiary relationship and in the overall context of our separation from Sears Holdings. The terms of these agreements may be more or less favorable than those we could have negotiated with unaffiliated parties. We describe these arrangements in greater detail under Certain Relationships and Related Party TransactionsAgreements with Sears Holdings and describe some of the risks of these arrangements under Risk FactorsRisks Relating to our Separation from, and Continued Dependence on, Sears Holdings. |
No Board Recommendation Regarding Exercise of Subscription Rights |
Neither the Sears Holdings nor SHO board of directors is making any recommendation regarding whether exercise of the subscription rights or the over-subscription privilege is or is not in your best interests. Stockholders who exercise subscription rights will incur investment risk on new money invested. Neither Sears Holdings nor SHO can predict the price at which shares of SHOs common stock will trade after the completion of the rights offering. The market price for SHOs common stock may decrease to an amount below the subscription price, and if you purchase shares of common stock at the subscription price, you may not be able to sell the shares in the future at the same price or a higher price. You should make your decision based on your assessment of SHOs business and financial condition, its prospects for the future, the terms of the rights offering and the information contained in this prospectus. See Risk FactorsRisks Relating to our Common Stock for a discussion of some of the risks involved in investing in our common stock. |
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ESL beneficially owns approximately 62% of Sears Holdings outstanding shares of common stock as of the date hereof. Edward S. Lampert is the Chairman of the Board of Sears Holdings and Chairman and Chief Executive Officer of ESL. Sears Holdings is controlled by ESL and, after completion of the rights offering, SHO is expected to be controlled by ESL. You should not view the intentions of ESL or Mr. Lampert as a recommendation or other indication, by them or any member of the Sears Holdings or SHO board of directors, regarding whether the exercise of the subscription rights is or is not in your best interests. |
Risk Factors |
Before you exercise your subscription rights to purchase shares of SHO common stock, you should carefully consider the risks described in the section entitled Risk Factors, beginning on page 30 of this prospectus. |
Transfer Agent and Registrar |
After the separation, the transfer agent and registrar for our common stock will be Computershare Trust Company, N.A. |
Subscription Agent |
Computershare Inc. |
Information Agent |
Georgeson Inc. If you have questions about the rights offering or need additional copies of the rights offering documents, please contact Georgeson Inc., our information agent, by calling (866) 695-6074 (toll-free) or, if you are a bank, broker or other nominee, (212) 440-9800. |
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SUMMARY HISTORICAL FINANCIAL AND OTHER DATA
The following tables provide a summary of the historical financial and other operating data for the periods indicated, reflects the combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings and is referred to herein as our historical financial and other operating data. The combined statements of income data set forth below for the fiscal years ended January 30, 2010, January 29, 2011 and January 28, 2012 and the combined balance sheet data as of January 29, 2011 and January 28, 2012 are derived from our audited Combined Financial Statements included elsewhere in this prospectus. The combined balance sheet data as of January 30, 2010 are derived from unaudited Combined Financial Statements that are not included in this prospectus. The combined statements of income data set forth below for the 13 weeks ended April 30, 2011 and April 28, 2012 and the combined balance sheet data as of April 30, 2011 and April 28, 2012 are derived from unaudited Condensed Combined Financial Statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of our results to be expected in any future period.
You should read this information together with Selected Historical Financial and Other Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and our Combined Financial Statements and the related notes, which are included elsewhere in this prospectus.
Fiscal Year | 13 Weeks Ended | |||||||||||||||||||
thousands, except store count | 2009 | 2010 | 2011 |
April 30,
2011 |
April 28,
2012 |
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Combined Statement of Income Data (1) |
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Net sales |
$ | 2,329,925 | $ | 2,347,387 | $ | 2,344,199 | $ | 584,632 | $ | 621,078 | ||||||||||
Net income |
$ | 60,115 | $ | 49,756 | $ | 33,056 | $ | 7,415 | $ | 20,593 | ||||||||||
Pro Forma data (unaudited) |
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Pro Forma earnings per share, basic and diluted (2) |
$ | 1.43 | $ | 0.89 | ||||||||||||||||
Combined Balance Sheet Data |
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Total assets |
$ | 629,415 | $ | 641,441 | $ | 651,838 | $ | 668,603 | $ | 670,211 | ||||||||||
Long-term debt (3) |
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Long-term capital lease obligations |
$ | 6,209 | $ | 3,998 | $ | 1,937 | $ | 3,440 | $ | 1,460 | ||||||||||
Other Financial and Operating Data |
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Adjusted EBITDA (4) |
$ | 108,723 | $ | 93,864 | $ | 80,919 | $ | 15,072 | $ | 36,795 | ||||||||||
Number of stores |
1,166 | 1,205 | 1,274 | 1,210 | 1,238 |
(1) | Our fiscal year end is the Saturday closest to January 31 each year. Our first fiscal quarter end is the Saturday closest to April 30 each year. |
(2) | Pro forma earnings per share for the year ended January 28, 2012 and the 13 weeks ended April 28, 2012 are provided to show the pro forma effect of 23,100,000 shares of our common stock that will be outstanding following the separation. |
(3) | The unaudited pro forma condensed combined balance sheet data as of April 28, 2012 included elsewhere in this prospectus reflects the expected borrowing of $100 million pursuant to our expected $250 million revolving credit facility to fund a dividend to Sears Holdings. |
(4) | Adjusted EBITDA In addition to our net income determined in accordance with GAAP, for purposes of evaluating operating performance we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization, or Adjusted EBITDA, which is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our business, as well as executive compensation metrics, for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. Adjusted EBITDA should not be considered as a substitute for GAAP measurements. |
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While Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:
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EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs; and |
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other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of results. |
The following table presents a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP measure for each of the periods indicated:
Fiscal Year | 13 Weeks Ended | |||||||||||||||||||
thousands | 2009 | 2010 | 2011 |
April 30,
2011 |
April 28,
2012 |
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Net income |
$ | 60,115 | $ | 49,756 | $ | 33,056 | $ | 7,415 | $ | 20,593 | ||||||||||
Income tax expense |
39,037 | 32,492 | 21,727 | 4,927 | 13,454 | |||||||||||||||
Other income |
(9 | ) | (207 | ) | (422 | ) | (63 | ) | (226 | ) | ||||||||||
Interest expense |
588 | 421 | 913 | 439 | 669 | |||||||||||||||
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Operating income |
99,731 | 82,462 | 55,274 | 12,718 | 34,490 | |||||||||||||||
Depreciation |
8,992 | 11,402 | 9,774 | 2,354 | 2,305 | |||||||||||||||
Store closing charges and severance costs (1) |
| | 15,871 | | | |||||||||||||||
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Adjusted EBITDA |
$ | 108,723 | $ | 93,864 | $ | 80,919 | $ | 15,072 | $ | 36,795 | ||||||||||
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(1) | See Note 7 to our Combined Financial Statements included herein. |
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QUESTIONS AND ANSWERS ABOUT THE COMPANY AND THE RIGHTS OFFERING
Set forth below are examples of what we anticipate will be commonly asked questions about the rights offering and the transactions contemplated thereby. The answers are based on selected information included elsewhere in this prospectus. The following questions and answers do not contain all of the information that may be important to you and may not address all of the questions that you may have about the rights offering. This prospectus contains more detailed descriptions of the terms and conditions of the rights offering and provides additional information about us and our business, including potential risks related to the rights offering, shares of our common stock and our business.
Exercising the rights and investing in our common stock involves a high degree of risk. We urge you to carefully read the section entitled Risk Factors beginning on page 30 of this prospectus, and all other information in this prospectus in its entirety before you decide whether to exercise your rights.
What is the rights offering?
Sears Holdings is distributing, at no charge, to holders of shares of Sears Holdings common stock as of the record date, transferable subscription rights to purchase shares of SHO common stock that it owns. Sears Holdings is distributing to each holder of its common stock as of the record date, one subscription right for each full common share owned by that stockholder as of the record date, except that holders of Sears Holdings restricted stock that is unvested as of the record date will receive cash awards in lieu of subscription rights. Each subscription right will entitle its holder to purchase from Sears Holdings of a share of SHO common stock. Each subscription right entitles the holder to a basic subscription right and an over-subscription privilege, as described below. We have applied to list the shares of SHO common stock to be issued upon exercise of the subscription rights for trading on the NASDAQ Capital Market under the ticker symbol SHOS.
What is Sears Hometown and Outlet Stores, Inc., or SHO?
We are a national retailer primarily focused on selling home appliances, hardware, tools and lawn and garden equipment. We operate through two segmentsthe Sears Hometown and Hardware segment and the Sears Outlet segment. Our Sears Hometown and Hardware stores are designed to provide our customers with in-store and online access to a wide selection of national brands of home appliances, tools, lawn and garden equipment, sporting goods, consumer electronics and household goods, depending on the particular store. Our Sears Outlet stores are designed to provide our customers with in-store and online access to purchase new, one-of-a-kind, out-of-carton, discontinued, obsolete, used, reconditioned, overstocked and scratched and dented products across a broad assortment of merchandise categories, including home appliances, lawn and garden equipment, apparel, mattresses, televisions, sporting goods and tools, and at prices that are significantly lower than manufacturers suggested retail prices. As of April 28, 2012, we and our dealers and franchisees operated 1,238 stores across all 50 states as well as Puerto Rico, Guam and Bermuda. Our principal executive offices are located at 3333 Beverly Road, Hoffman Estates, Illinois 60179 and our telephone number is (847) 286-2500. Our website address is www.shos.com. None of the information contained on, or that may be accessed through, our websites or any other website identified herein is part of, or incorporated into, this prospectus. All website addresses in this prospectus are intended to be inactive textual references only.
Prior to the closing of the rights offering we operated as businesses within Sears Holdings. Following the closing of the rights offering (1) we will be a publicly traded company independent from Sears Holdings and (2) Sears Holdings will not retain any ownership interest in us except to the extent that the subscription rights are not exercised in full and that shares not purchased through the exercise of basic subscription rights are not purchased pursuant to the over-subscription privilege. To the extent that Sears Holdings retains ownership of shares of SHO common stock after the completion of the rights offering, Sears Holdings may dispose of its remaining shares, including through sales into the public market or otherwise.
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Assuming the rights offering is subscribed in full by all holders of subscription rights, we anticipate that immediately following the separation, ESL, which beneficially owns approximately 62% of Sears Holdings common stock as of the date hereof, will beneficially own at least approximately 62% of our outstanding common stock. However, as further described in The Rights OfferingPrincipal Stockholder, under certain circumstances, ESL may only beneficially own approximately 58% of our common shares assuming the subscription rights are exercised in full by all other holders of rights. ESL may increase its percentage beneficial ownership of SHO through its exercise of the over-subscription privilege, through open market purchases of subscription rights or SHO common stock or otherwise. As a result of ESL holding more than 50% of our common stock, we expect to qualify as a controlled company under the NASDAQ Marketplace rules following the completion of the rights offering and, as a result, currently intend to rely on exemptions from certain corporate governance requirements otherwise applicable to NASDAQ-listed companies.
In connection with the separation we have entered into various agreements with Sears Holdings which, among other things, (1) govern the principal transactions relating to this offering and certain aspects of our relationship with Sears Holdings following the separation, (2) establish terms under which subsidiaries of Sears Holdings will provide us with certain services following the separation, and (3) establish terms pursuant to which subsidiaries of Sears Holdings will obtain certain merchandise for us. Although these agreements have been executed prior to the distribution of the subscription rights, the effectiveness of the agreements is conditioned upon the consummation of the rights offering and the completion of the separation of the Company from Sears Holdings. The terms of these agreements were agreed to in the context of a parent-subsidiary relationship and in the overall context of our separation from Sears Holdings. Accordingly, the terms of these agreements may be more or less favorable than those we could have negotiated with unaffiliated parties. For more information regarding the agreements between us and Sears Holdings, see Certain Relationships and Related Party TransactionsAgreements with Sears Holdings.
What is the basic subscription right?
Holders of the basic subscription rights will have the opportunity to purchase from Sears Holdings, in the aggregate, 23,100,000 shares of SHO common stock at a subscription price of $15.00 per whole share. Sears Holdings has granted to you, as a stockholder of record on the record date, one subscription right for every share of Sears Holdings common stock you owned at that time. Fractional shares or cash in lieu of fractional shares will not be issued in the rights offering. Instead, fractional shares resulting from the exercise of the basic subscription right will be eliminated by rounding down to the nearest whole share.
We determined the number of rights required to purchase one share of SHO common stock by dividing the number of shares of Sears Holdings common stock outstanding on the record date by the number of shares of SHO common stock which are to be sold by Sears Holdings pursuant to the rights offering. Accordingly, each subscription right allows the holder thereof to subscribe for of a share of SHO common stock at the cash price of $15.00 per whole share. As an example, if you owned 1,000 shares of Sears Holdings common stock on the record date, you would receive 1,000 subscription rights pursuant to your basic subscription right that would entitle you to purchase shares of our common stock ( rounded down to the nearest whole share) at a subscription price of $15.00 per whole share. Sears Holdings determined the subscription price of $15.00 by dividing $346.5 million, which is the aggregate exercise price for the rights offering as approved by the Sears Holdings board of directors in connection with the separation, by the total number of shares of our common stock outstanding. See How was the $15.00 per share subscription price determined?
You may exercise all or a portion of your basic subscription right or you may choose not to exercise any subscription rights at all. However, if you exercise less than your full basic subscription right, you will not be entitled to purchase shares of common stock pursuant to the over-subscription privilege.
If you are a registered holder of Sears Holdings common stock, the number of shares of common stock you may purchase pursuant to your basic subscription right will be indicated on the rights certificate that you receive.
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If you hold your shares in the name of a broker, dealer, custodian bank or other nominee who uses the services of the Depository Trust Company, or DTC, you will not receive a rights certificate. Instead, DTC will electronically issue one subscription right to your nominee record holder for every share of Sears Holdings common stock that you own as of the record date. If you are not contacted by your nominee, you should contact your nominee as soon as possible.
What is the over-subscription privilege and how will shares of common stock be allocated in the rights offering?
If you purchase all shares of SHO common stock available to you pursuant to your basic subscription rights, you may also choose to purchase a portion of any shares of common stock that other holders of subscription rights do not purchase through the exercise of their basic subscription rights. Only holders who fully exercise all of their basic subscription rights, after giving effect to any purchases or sales of subscription rights prior to the time of such exercise, may participate in the over-subscription privilege. If you wish to exercise your over-subscription privilege, you must indicate on your rights certificate, or the form provided by your nominee if your shares are held in the name of a nominee, how many additional shares of common stock you would like to purchase pursuant to your over-subscription privilege, and provide payment as described below.
ESL has indicated to Sears Holdings that it intends to exercise its over-subscription privilege in full, such that it will purchase the maximum number of shares allocated to it according to the formula described below, although it has not entered into any agreement to do so.
Shares of our common stock will be allocated in the rights offering as follows:
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First, shares will be allocated to holders of rights who exercise their basic subscription rights at a ratio of of a share of common stock per exercised subscription right. |
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Second, any remaining shares that were eligible to be purchased in the rights offering will be allocated among the holders of rights who exercise the over-subscription privilege, in accordance with the following formula: |
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Each holder who exercises the over-subscription privilege will be allocated a percentage of the remaining shares equal to the percentage that results from dividing (i) the number of basic subscription rights which that holder exercised by (ii) the number of basic subscription rights which all holders who wish to participate in the over-subscription privilege exercised. Such percentage could result in the allocation of more or fewer over-subscription shares than the holder requested to purchase through the exercise of the over-subscription privilege. |
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For example, if Stockholder A holds 200 subscription rights and Stockholder B holds 300 subscription rights and they are the only two stockholders who exercise the over-subscription privilege, Stockholder A will be allocated 40% and Stockholder B will be allocated 60% of all remaining shares available. (Example A) |
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Third, if the allocation of remaining shares pursuant to the formula described above in the second step would result in any holder receiving a greater number of shares of common stock than that holder subscribed for pursuant to the over-subscription privilege, then such holder will be allocated only that number of shares for which the holder over-subscribed. |
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For example, if Stockholder A is allocated 100 shares pursuant to the formula described above but subscribed for only 40 additional shares pursuant to the over-subscription privilege, Stockholder As allocation would be reduced to 40 shares. (Example B) |
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Fourth, any shares of common stock that remain available as a result of the allocation described above being greater than a holders over-subscription request (the 60 additional shares in Example B above) will be allocated among all remaining holders who exercised the over-subscription privilege and whose |
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initial allocations were less than the number of shares they requested. This second allocation will be made pursuant to the same formula described above and repeated, if necessary, until all available shares of our common stock have been allocated or all over-subscription requests have been satisfied in full. |
To properly exercise your over-subscription privilege, you must deliver the subscription payment related to your over-subscription privilege before the rights offering expires. Because we will not know the total number of unsubscribed shares of common stock before the rights offering expires, if you wish to maximize the number of SHO shares you purchase pursuant to your over-subscription privilege, you will need to deliver payment in an amount equal to the aggregate subscription price for the maximum number of shares that could be available to you at the time you exercise your basic subscription rights (i.e., the aggregate payment for both your basic subscription right and for all additional shares you desire to purchase pursuant to your over-subscription request). See The Rights OfferingThe Subscription RightsOver-subscription Privilege. Any excess subscription payments received by the subscription agent, including payments for additional shares you requested to purchase pursuant to the over-subscription privilege but which were not allocated to you, will be returned, without interest or penalty, promptly following the expiration of the rights offering.
Fractional shares resulting from the exercise of the over-subscription privilege will be eliminated by rounding down to the nearest whole share. Computershare Inc., our subscription agent for the rights offering, will determine, in its sole discretion, the over-subscription allocation based on the formula described above.
Why is Sears Holdings conducting the rights offering?
Sears Holdings board of directors has determined that pursuing a disposition of SHO through a rights offering is in the best interests of Sears Holdings and its stockholders, and that separating SHO from Sears Holdings would provide, among other things, financial and operational benefits to both SHO and Sears Holdings, including but not limited to the following expected benefits:
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Strategic Focus and Flexibility . Sears Holdings board of directors believes that following the rights offering, SHO and Sears Holdings will each have more focused businesses and be better able to dedicate resources to pursue appropriate growth opportunities and execute strategic plans best suited to their respective businesses in an efficient manner. |
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Additional Liquidity . The rights offering (including the expected $100 million dividend to be paid to Sears Holdings prior to the separation) is expected to provide Sears Holdings with approximately $446.5 million in gross proceeds, strengthening its balance sheet and liquidity. |
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Stockholder Flexibility to Avoid Dilution . Since the subscription rights are being distributed, at no charge, to Sears Holdings existing stockholders, stockholders will have the choice to hold shares in both companies or in either company separately and the opportunity to retain their existing Sears Holdings ownership percentage in the two companies. However, stockholders may wish to sell their subscription rights to fund any tax incurred upon the receipt of the subscription rights, which would decrease the amount of shares of SHO common stock available to such stockholders. If the distribution of the rights to a stockholder is subject to withholding tax, the stockholders broker (or other applicable withholding agent) may sell all or a portion of the subscription rights to fund the withholding tax, which would decrease the number of shares of SHO common stock available to such stockholder. See Material United States Federal Income Tax Considerations. |
How was the $15.00 per share subscription price determined?
Sears Holdings engaged Duff & Phelps LLC, or Duff & Phelps, to act as a financial advisor in connection with the separation of the SHO businesses to provide, among other things, an opinion with respect to the fair market value of the equity of SHO. In determining the subscription price, the board of directors of Sears Holdings considered, among other things, (1) the opinion of Duff & Phelps, (2) the desirability of broad
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participation in the rights offering by Sears Holdings stockholders and of the development of a trading market for both the subscription rights and the SHO common stock and (3) Sears Holdings liquidity needs and the aggregate amount of proceeds to be paid to Sears Holdings pursuant to the dividend and the rights offering if the rights offering were fully subscribed. See Determination of Subscription PriceDetermination by Sears Holdings Board of Directors of the Exercise Price.
The Sears Holdings board of directors has determined that the subscription price will be $15.00 per whole share. There can be no assurance that our shares of common stock will trade at prices near or above the subscription price after the date of this prospectus. You should not consider the subscription price to be an indication of the price at which SHO common stock will trade following the rights offering.
Am I required to exercise all of the subscription rights I receive in the rights offering?
No. You may exercise any number of your subscription rights or you may choose not to exercise any subscription rights.
If you do not exercise any subscription rights, you will not receive any shares of our common stock. If you exercise all of your basic subscription rights, your ownership interest in SHO will be equivalent to the ownership interest you currently have in Sears Holdings. For example, assuming that the subscription rights are exercised in full by all holders of subscription rights, if you own 1% of Sears Holdings common stock on the record date and exercise your basic subscription rights in full you will own 1% of the common stock of SHO following the rights offering. If you choose to exercise your basic subscription rights in part, your ownership interest in SHO will be diluted by other stockholders who exercise their subscription rights in full. In addition, if you do not fully exercise all your basic subscription rights, after giving effect to any purchases or sales of subscription rights by you prior to such exercise, you will not be entitled to participate in the over-subscription privilege, and you may be subject to adverse tax consequences. See What are the material U.S. federal income tax consequences if I receive and do not sell or exercise the right before it expires?
The number of shares of Sears Holdings common stock that you own, and your percentage ownership, will not change as a result of the rights offering. If you do not exercise your subscription rights to purchase shares of SHO common stock, following the separation you will no longer retain an ownership interest in the SHO businesses as the common stock of Sears Holdings that you hold will not reflect the earnings, assets or liabilities of SHO. In addition, the trading price of Sears Holdings common stock immediately following the rights offering may be higher or lower than immediately prior to the rights offering because the assets and liabilities of SHO will no longer be held by Sears Holdings, the ongoing earnings of SHO will no longer be reflected in Sears Holdings earnings and Sears Holdings will receive cash proceeds of approximately $446.5 million as a result of the sale of SHOs common shares (assuming the subscription rights are exercised in full) and the expected $100 million dividend to be paid prior to the separation.
See Risk FactorsRisks Relating to the Rights OfferingIf you receive and exercise the subscription rights, you may be subject to adverse U.S. federal income tax consequences and Risk FactorsRisks Relating to the Rights OfferingIf you receive but do not sell or exercise the subscription rights before they expire, you may be subject to adverse U.S. federal income tax consequences.
How soon must I act to exercise my subscription rights?
If you received a rights certificate and elect to exercise any or all of your subscription rights, the subscription agent must receive your completed and signed rights certificate and payments before the rights offering expires on , 2012, at 5:00 p.m., New York City time. If you hold your shares in the name of a broker, dealer, custodian bank or other nominee, your nominee may establish a deadline before the expiration of the rights offering by which you must provide it with your instructions to exercise your subscription rights. Although Sears Holdings may, in its discretion, extend the expiration date of the rights offering, it currently does
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not intend to do so. In addition, Sears Holdings may cancel the rights offering for various reasons, see The Rights OfferingConditions, Withdrawal, and Cancellation. If the rights offering is cancelled, all subscription payments received will be returned, without interest or penalty, as soon as practicable.
Although we will make reasonable attempts to provide this prospectus to Sears Holdings stockholders, the rights offering and all subscription rights will expire on the expiration date, whether or not we have been able to locate each person entitled to subscription rights.
May I transfer my subscription rights?
Yes. The subscription rights are transferable during the course of the subscription period and we have applied to list the subscription rights for trading on the NASDAQ Capital Market under the symbol SHOSR. We currently expect that the subscription rights will begin to trade on the first business day following the distribution of the subscription rights, and will continue to trade until 4:00 p.m., New York City time, on 2012, the fourth business day prior to the scheduled expiration date of the rights offering (or, if the offer is extended, on the fourth business day immediately prior to the extended expiration date). As a result, you may transfer or sell your subscription rights if you do not want to exercise them to purchase shares of our common stock. However, the subscription rights are a new issue of securities with no prior trading market, and we cannot provide you with any assurances as to the liquidity of any trading market for the subscription rights or the market value of the subscription rights.
If you hold your shares through a broker, custodian bank or other nominee, you may sell your subscription rights by contacting your broker, custodian bank or other nominee until the close of business on the fourth business day preceding the expiration date of this rights offering. To sell your subscription rights, in addition to any other procedures your broker, custodian bank or other nominee may require, you must deliver your order to sell to your broker, custodian bank or other nominee such that it will be actually received prior to 4:00 p.m., New York City time, on , 2012, the fourth business day prior to the expiration date of this rights offering. If you are a record holder of a subscription rights certificate, you may take your subscription rights certificate to a broker who can sell your subscription rights for you. To do so, you must deliver your properly executed subscription rights certificate, with appropriate instructions, and any additional documentation required by the broker. Commissions and applicable taxes or broker fees may apply if you sell your subscription rights. See The Rights OfferingTransferability of Subscription Rights.
What is the effect of transferring subscription rights?
You may transfer or sell your subscription rights if you do not want to exercise them to purchase shares of our common stock. However, if you transfer all or a portion of your subscription rights, you will be unable to purchase the shares of our common stock underlying such rights. In addition, if you transfer all or a portion of your subscription rights, you will not be entitled to exercise the over-subscription privilege with respect to the portion of your rights so transferred.
What is the effect of purchasing subscription rights?
The subscription rights are transferable during the course of the subscription period and we have applied to list the subscription rights for trading on the NASDAQ Capital Market under the symbol SHOSR. However, the subscription rights are a new issue of securities with no prior trading market, and we cannot provide you with any assurances as to the liquidity of the trading market for the subscription rights or the market value of the subscription rights after your purchase. Additionally, if Sears Holdings cancels the rights offering, the subscription rights will be void, of no value and will cease to be exercisable for SHO common shares. If you purchase subscription rights during the subscription period and Sears Holdings cancels the rights offering, you
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will lose the entire purchase price paid to acquire such subscription rights in the market, however any subscription payments received by the subscription agent will be returned to you, without interest or penalty, as soon as practicable. See Risk FactorsRisks Relating to the Rights OfferingSears Holdings may cancel the rights offering at any time prior to the expiration of the rights offering and in such case neither Sears Holdings nor the subscription agent will have any obligation to you except to return your exercise payments.
Have any stockholders indicated that they will exercise their rights?
Yes. ESL, which beneficially owns approximately 62% of Sears Holdings outstanding shares of common stock as of the date hereof, has indicated that it currently intends to exercise its rights under the basic subscription right in full, though it has not entered into any agreement to do so. As a result, following the completion of the rights offering, we expect ESL will beneficially own at least approximately 62% of our common shares. However, as further described in The Rights OfferingPrincipal Stockholder, under certain circumstances, ESL may only beneficially own approximately 58% of our common shares assuming the subscription rights are exercised in full by all other holders of rights. In addition, ESL has indicated to Sears Holdings that it intends to exercise its over-subscription privilege in full, such that it will purchase the maximum number of shares allocated to it under the over-subscription privilege, though it has not entered into any agreement to do so. ESL has not indicated whether it intends to acquire any additional rights through open market purchases.
Will ESL control SHO following the rights offering?
We expect ESL to control SHO upon completion of the rights offering. ESL will receive subscription rights on a pro rata basis with other Sears Holdings stockholders, based on its ownership of Sears Holdings on the record date. ESL beneficially owns approximately 62% of Sears Holdings common stock as of the date hereof which would entitle it to receive subscription rights to purchase approximately 62% of SHO. In addition, ESL may increase its percentage beneficial ownership in SHO through its exercise of the over-subscription privilege, through open market purchases of subscription rights or SHO common stock or otherwise. ESL has advised us that it intends to exercise its subscription rights in full, subject to the successful completion of the separation transactions, though it has not entered into any agreement to do so. In addition, ESL has indicated to Sears Holdings that it intends to exercise its over-subscription privilege in full, such that it will purchase the maximum number of shares allocated to it under the over-subscription privilege, though it has not entered into any agreement to do so.
Sears Holdings is not requiring an overall minimum subscription to complete the rights offering. However, the rights offering is subject to the satisfaction or waiver of certain conditions. In addition, Sears Holdings has the right to withdraw and cancel the rights offering if, at any time prior to its expiration, the board of directors of Sears Holdings determines, in its sole discretion, that the rights offering is not in the best interest of Sears Holdings or its stockholders, or that market conditions are such that it is not advisable to consummate the rights offering.
Are there any conditions to closing the rights offering?
Yes. Sears Holdings obligation to close the rights offering and to distribute the shares of our common stock subscribed for in the rights offering is conditioned upon the satisfaction or waiver of certain conditions. See The Rights OfferingConditions, Withdrawal and Cancellation. In addition, Sears Holdings reserves the right to withdraw and cancel the rights offering if, at any time, the board of directors of Sears Holdings determines, in its sole discretion, that the offering is not in the best interest of Sears Holdings or its stockholders, or that market conditions are such that it is not advisable to consummate the rights offering.
Can Sears Holdings cancel or extend the rights offering?
The rights offering is subject to the satisfaction or waiver of certain conditions. In addition, Sears Holdings has the right to withdraw and cancel the rights offering if, at any time prior to its expiration, the board of
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directors of Sears Holdings determines, in its sole discretion, that the rights offering is not in the best interest of Sears Holdings or its stockholders, or that market conditions are such that it is not advisable to consummate the rights offering. If the rights offering is cancelled, any money received from subscribing stockholders will be returned, without interest or penalty, as soon as practicable. If Sears Holdings cancels the rights offering, the subscription rights will be void, of no value and will cease to be exercisable for SHO common shares. If you purchase rights during the subscription period and Sears Holdings cancels the rights offering, you will lose the entire purchase price paid to acquire such subscription rights in the market, however any subscription payments received by the subscription agent will be returned to you, without interest or penalty, as soon as practicable. Sears Holdings may also extend the rights offering for additional periods ending no later than , 2012, although it does not presently intend to do so.
You should discuss with your tax advisor the tax consequences of receiving subscription rights if Sears Holdings subsequently cancels the rights offering. See What are the material U.S. federal income tax consequences if I receive a subscription right from Sears Holdings and Sears Holdings subsequently cancels the rights offering.
Will Sears Holdings or our officers and directors be able to exercise their subscription rights?
Sears Holdings and our officers and directors that hold shares of Sears Holdings common stock, excluding shares of Sears Holdings restricted stock that is unvested as of the record date, may participate in the rights offering at the same subscription price per share as all other holders of subscription rights, but none of our or their officers or directors is obligated to participate.
Holders of Sears Holdings restricted stock that is unvested as of the record date will receive a cash award, to be paid on the applicable vesting date, in lieu of any right such holder may have to receive subscription rights with respect to such unvested restricted stock. Such cash awards will represent the right to receive, on the applicable vesting date, a cash payment from Sears Holdings equal to the value of the subscription rights that would have been distributed to such holder had such holders unvested restricted stock been unrestricted shares of Sears Holdings common stock, calculated on the basis of the volume-weighted average trading price per subscription right for the 10 trading-day period beginning on the first day on which the subscription rights trade on the NASDAQ Capital Market. The subscription rights are expected to begin to trade on the NASDAQ Capital Market on the first business day following the distribution of the subscription rights.
Edward S. Lampert is the Chairman of the Board of Sears Holdings and Chairman and Chief Executive Officer of ESL. ESL has advised Sears Holdings that it intends to exercise its subscription rights in full, subject to the successful completion of the separation transactions, though it has not entered into any agreement to do so. In addition, ESL has indicated to Sears Holdings that it intends to exercise its over-subscription privilege in full, such that it will purchase the maximum number of shares allocated to it under the over-subscription privilege, though it has not entered into any agreement to do so. You should not view the intentions of ESL or Mr. Lampert as a recommendation or other indication, by them or any member of the Sears Holdings or SHO board of directors, regarding whether the exercise of the subscription rights or the over-subscription privilege is or is not in your best interests. See The Rights OfferingPrincipal Stockholder.
Has the Sears Holdings board of directors made a recommendation to Sears Holdings stockholders regarding the rights offering?
No. The Sears Holdings board of directors is making no recommendation regarding your exercise of the subscription rights. Stockholders who exercise subscription rights will incur investment risk on new money invested. Neither we nor Sears Holdings can predict the price at which our shares of common stock will trade after the offering. The market price for our common stock may be below the subscription price, and, if you purchase shares of common stock at the subscription price, you may not be able to sell the shares in the future at the same price or a higher price. You should make your decision based on your assessment of our business and financial
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condition, our prospects for the future, the terms of the rights offering and the information contained in this prospectus. See Risk Factors for a discussion of some of the risks involved in investing in our common stock.
ESL beneficially owns approximately 62% of Sears Holdings outstanding shares of common stock as of the date hereof. Edward S. Lampert is the Chairman of the Board of Sears Holdings and Chairman and Chief Executive Officer of ESL. Sears Holdings is controlled by ESL and, after completion of the rights offering, SHO is expected to be controlled by ESL. You should not view the intentions of ESL or Mr. Lampert as a recommendation or other indication, by them or any member of the Sears Holdings or SHO board of directors, regarding whether the exercise of the subscription rights is or is not in your best interests.
How do I exercise my subscription rights if I am a registered holder of Sears Holdings Common Stock?
If you are a registered holder of Sears Holdings common stock and you wish to participate in the rights offering, you must take the following steps:
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deliver payment (as set forth below) to the subscription agent before 5:00 p.m., New York City time, on , 2012; and |
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deliver a properly completed and duly executed rights certificate to the subscription agent before 5:00 p.m., New York City time, on , 2012. |
In certain cases, you may be required to provide additional documentation or signature guarantees.
Please follow the delivery instructions on the rights certificate. Do not deliver subscription documents, the rights certificate or payment to Sears Holdings or to SHO. The risk of delivery to the subscription agent of your subscription documents, rights certificate and payment is borne by you, and not by SHO, Sears Holdings or the subscription agent. You should allow sufficient time for delivery of your subscription materials to the subscription agent so that the subscription agent receives them prior to 5:00 p.m., New York City time, on , 2012.
You must timely pay the full subscription price in U.S. dollars for the full number of shares of SHO common stock you wish to acquire in the rights offering, including any shares you wish to acquire pursuant to the over-subscription privilege. You must deliver to the subscription agent payment in full, by cashiers or certified check drawn upon a United States bank payable to the subscription agent at the address set forth below, before the expiration of the rights offering period. Personal checks and wire transfers will not be accepted.
How do I participate in the rights offering if my shares are held in the name of a broker, dealer, custodian bank or other nominee?
If you hold your shares of Sears Holdings common stock in the name of a broker, dealer, custodian bank or other nominee, then your nominee is the record holder of the shares you own. The record holder must exercise the subscription rights on your behalf in accordance with your instructions. If you wish to purchase our common stock through the rights offering, you should contact your broker, dealer, custodian bank or nominee as soon as possible. Please follow the instructions of your nominee. Your nominee may establish a deadline that may be before the expiration date of the rights offering.
How do I exercise subscription rights that were purchased during the subscription period?
If you purchased subscription rights during the subscription period through a broker, dealer, custodian bank or other nominee, you will not receive a rights certificate. Instead, your broker, dealer, custodian bank or other nominee must exercise the subscription rights on your behalf. If you wish to exercise your subscription rights and purchase our common stock through the rights offering, you should contact your nominee as soon as possible. Please follow the instructions of your nominee. Your nominee may establish a deadline that may be before the expiration date of the rights offering.
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If you purchased subscription rights during the subscription period directly from a registered holder of Sears Holdings common stock, you should contact the subscription agent as soon as possible regarding the exercise of your subscription rights. Please follow the instructions of the subscription agent in order to properly exercise your subscription rights. See The Rights OfferingMethod of Exercising Subscription Rights.
When will I receive my subscription rights certificate?
Promptly after the date of this prospectus, the subscription agent will send a subscription rights certificate to each registered holder of Sears Holdings common stock as of the close of business on the record date, based on the stockholder registry maintained by the transfer agent for Sears Holdings common stock. If you hold your shares of common stock in the name of a broker, dealer, custodian bank or other nominee, you will not receive an actual subscription rights certificate. Instead, the Depository Trust Company, or DTC, will electronically issue one subscription right to your nominee record holder for every share of Sears Holdings common stock that you beneficially own as of the record date.
What form of payment must I use to pay the subscription price?
You must timely pay the full subscription price in U.S. dollars for the full number of shares of SHO common stock you wish to acquire in the rights offering, including any shares you wish to acquire pursuant to the over-subscription privilege. You must deliver to the subscription agent payment in full, by cashiers or certified check drawn upon a United States bank payable to the subscription agent at the address set forth below, before the expiration of the rights offering period. Personal checks and wire transfers will not be accepted.
If you send a subscription payment that is insufficient to purchase the number of shares of common stock you requested, or if the number of shares you requested is not specified in the rights certificate or subscription documents, the payment received will be applied to exercise your subscription rights to the fullest extent possible based on the amount of the payment received, subject to the availability of shares of common stock under the over-subscription privilege and the elimination of fractional shares.
If you send a subscription payment that exceeds the amount necessary to purchase the number of shares SHO common stock for which you have indicated an intention to purchase, then the remaining amount will be returned to you by the subscription agent, without interest or penalty, as soon as practicable following the expiration of the rights offering.
What is the record date for the rights offering?
Record ownership will be determined as of the close of business on September 7, 2012, which we refer to as the record date.
When will I receive my SHO shares?
The distribution of the shares will be made by way of direct registration in book-entry form. No share certificates will be issued. If you purchase shares of SHO common stock in the rights offering, as soon as practicable after the closing of the rights offering and the valid exercise of subscription rights pursuant to the basic subscription right and over-subscription privilege, and after all allocations and adjustments contemplated by the terms of the rights offering have been effected, the subscription agent will (i) credit your account or the account of your record holder with the number of shares of our common stock that you purchased pursuant to the basic subscription right and the over-subscription privilege and (ii) mail to each holder of subscription rights who exercises the over-subscription privilege any excess amount, without interest or penalty, received in payment of the subscription price for excess shares of our common stock that are subscribed for by such holder of subscription rights but not allocated to such holder of subscription rights pursuant to the over-subscription privilege.
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After I exercise my subscription rights and send in my payment, may I withdraw or cancel my exercise of subscription rights?
No. All exercises of subscription rights are irrevocable unless the rights offering is cancelled, even if you later learn information that you consider to be unfavorable to the exercise of your subscription rights. You should not exercise your subscription rights unless you are certain that you wish to purchase shares of our common stock at a price of $15.00 per whole share.
What effect does the rights offering have on the outstanding common stock of Sears Holdings?
The issuance of SHO shares in the rights offering will not affect the number of shares of Sears Holdings common stock you own or your percentage ownership of Sears Holdings. If you do not exercise your subscription rights to purchase shares of SHO common stock, following the separation you will no longer retain an ownership interest in the SHO businesses as the common stock of Sears Holdings that you hold will not reflect the earnings, assets or liabilities of SHO. In addition, the trading price of Sears Holdings common stock immediately following the rights offering may be higher or lower than immediately prior to the rights offering because the assets and liabilities of SHO will no longer be held by Sears Holdings, the ongoing earnings of SHO will no longer be reflected in Sears Holdings earnings and Sears Holdings will receive cash proceeds of approximately $446.5 million as a result of the sale of SHOs common shares (assuming the subscription rights are exercised in full) and the expected $100 million dividend to be paid prior to the separation.
What will Sears Holdings and SHO receive from the rights offering?
If all of the subscription rights are exercised in full, we estimate that the proceeds to Sears Holdings from the rights offering, before deducting estimated offering expenses, will be approximately $346.5 million. SHO will not receive any proceeds from the rights offering.
Does SHO expect to pay cash dividends?
In connection with the separation transactions we expect to enter into an asset-based senior secured revolving credit facility, or the Senior ABL Facility, which we expect will provide for aggregate maximum borrowings (subject to availability under a borrowing base) of $250 million. Prior to the separation, we expect to draw $100 million under the Senior ABL Facility to pay a cash dividend to Sears Holdings. See Managements Discussion and Analysis of Financial Condition and Results of OperationsAnalysis of Financial ConditionFinancing Arrangements.
Other than as described above, we do not currently expect to declare or pay dividends on our common stock for the foreseeable future following the separation. Instead, we intend to retain earnings to finance the growth and development of our business and for working capital and general corporate purposes. See Managements Discussion and Analysis of Financial Condition and Results of OperationsUses and Sources of Liquidity.
Are there risks in exercising my subscription rights?
Yes. The exercise of your subscription rights involves risks. Exercising your subscription rights involves the purchase of shares of SHO common stock. You should consider this investment as carefully as you would consider any other equity investment. Among other things, you should carefully consider the risks described under the heading Risk Factors in this prospectus.
If the rights offering is not completed, will my subscription payment be refunded to me?
Yes. The subscription agent will hold all funds it receives in escrow in a segregated bank account until completion of the rights offering. If the rights offering is not completed, all subscription payments received by
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the subscription agent will be returned, without interest or penalty, as soon as practicable. If you own shares of Sears Holdings common stock in the name of a broker, dealer, custodian bank or other nominee, it may take longer for you to receive your subscription payment because the subscription agent will return payments through the nominee record holder of your shares. If you purchase rights during the subscription period and Sears Holdings cancels the rights offering, you will lose the entire purchase price paid to acquire such subscription rights in the market, however any subscription payments received by the subscription agent will be returned to you, without interest or penalty, as soon as practicable. See Risk FactorsRisks Relating to the Rights OfferingSears Holdings may cancel the rights offering at any time prior to the expiration of the rights offering and in such case neither Sears Holdings nor the subscription agent will have any obligation to you except to return your exercise payments.
Will the rights be listed on a securities exchange?
No public market currently exists for the subscription rights. The subscription rights are transferable during the course of the subscription period and we have applied to list the subscription rights for trading on the NASDAQ Capital Market under the symbol SHOSR. We currently expect that they will begin to trade on the first business day following the distribution of the subscription rights, and will continue to trade until 4:00 p.m., New York City time, on , 2012, the fourth business day prior to the scheduled expiration date of this rights offering (or if the offer is extended, on the fourth business day immediately prior to the extended expiration date). As a result, you may transfer or sell your subscription rights if you do not want to purchase any shares of SHO common stock through the rights offering. However, the subscription rights are a new issue of securities with no prior trading market, and we cannot provide you with any assurances as to the liquidity of any trading market for the subscription rights or the market value of the subscription rights.
Will the common stock of SHO be listed on a securities exchange?
Currently, there is no public market for our common stock. We have applied to list our common stock on the NASDAQ Capital Market under the symbol SHOS and expect that trading will begin the first trading day after the completion of this offering. We cannot predict the trading prices for our common stock or whether an active trading market for our common stock will develop. See Risk FactorsRisks Relating to our Common Stock.
What will happen to the listing of Sears Holdings shares?
Nothing. Sears Holdings shares will continue to be traded on the NASDAQ Global Select Market under the symbol SHLD.
What if I want to sell my Sears Holdings common stock or my shares of SHO common stock?
You should consult with your financial advisors, such as your stockbroker, bank or tax advisor. Neither Sears Holdings nor SHO makes any recommendations on the purchase, retention or sale of Sears Holdings common stock or SHO common stock. In addition, the trading price of Sears Holdings common stock immediately following the rights offering may be higher or lower than immediately prior to the rights offering because the assets and liabilities of SHO will no longer be held by Sears Holdings, the ongoing earnings of SHO will no longer be reflected in Sears Holdings earnings and Sears Holdings will receive cash proceeds of approximately $446.5 million as a result of the sale of SHOs common shares (assuming the subscription rights are exercised in full) and the expected $100 million dividend to be paid prior to the separation.
If you decide to sell any shares of Sears Holdings common stock before the record date, you will not receive any subscription rights described in this prospectus in respect of the shares sold. If you own Sears Holdings common stock at the close of business on the record date and sell those shares after the record date, you will still receive the subscription rights that you would be entitled to receive in respect of the Sears Holdings common stock you owned at the close of business on the record date.
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What fees or charges apply if I purchase shares of common stock in the rights offering?
Sears Holdings is not charging any fee or sales commission to issue subscription rights to you or to deliver shares to you if you exercise your subscription rights. If you exercise your subscription rights through your broker, dealer, custodian bank or other nominee, you are responsible for paying any fees your intermediary may charge you.
What are the material U.S. federal income tax consequences if I receive and exercise a subscription right?
You should discuss with your tax advisor the tax consequences of receiving and exercising a subscription right, however, if you receive a subscription right and exercise that right, you should generally expect to have (1) taxable dividend income equal to the fair market value (if any) of the subscription right on the date of its distribution by Sears Holdings and (2) no additional income upon the exercise of the subscription right. You will need to fund any tax resulting from the receipt of the subscription right with cash from other sources.
For a detailed discussion, see Material United States Federal Income Tax Considerations.
What are the material U.S. federal income tax consequences if I receive and sell a subscription right?
You should discuss the tax consequences of receiving and selling a subscription right with your tax advisor, however, if you receive a subscription right and sell that right, you should generally expect to have (1) taxable dividend income equal to the fair market value (if any) of the subscription right on the date of its distribution by Sears Holdings and (2) short-term capital gain or loss on the sale of the subscription right equal to the difference between the proceeds received upon the sale and the fair market value (if any) of the subscription right on the date of its distribution by Sears Holdings. It is possible that the sale proceeds received upon a sale of the subscription rights will be less than any tax resulting from your receipt of the subscription right. In this event, you will generally need to fund the remaining portion of any tax with cash from other sources.
For a detailed discussion, see Material United States Federal Income Tax Considerations.
What are the material U.S. federal income tax consequences if I receive and do not sell or exercise the right before it expires?
You should discuss with your tax advisor the tax consequences of receiving a subscription right and neither selling nor exercising that right, however, if you receive a subscription right from Sears Holdings and do not sell or exercise that right before it expires, you should generally expect to have (1) taxable dividend income equal to the fair market value (if any) of the subscription right on the date of its distribution by Sears Holdings and (2) a short-term capital loss upon the expiration of such right in an amount equal to your adjusted tax basis (if any) in such right. In general, capital losses are available to offset only capital gains and may not be used to offset dividend or other income (except, to the extent of up to $3,000 of capital loss per year, in the case of a non-corporate U.S. stockholder). Accordingly, if you receive a subscription right from Sears Holdings and take no action, you may owe tax and need to fund that tax with cash from other sources. See Risk FactorsRisks Relating to the Rights OfferingIf you receive but do not sell or exercise the subscription rights before they expire, you may be subject to adverse U.S. federal income tax consequences.
For a detailed discussion, see Material United States Federal Income Tax Considerations.
How will I be impacted if the distribution of rights to me is subject to withholding tax?
In certain circumstances, withholding tax or backup withholding tax may apply to the distribution by Sears Holdings of the subscription rights. If withholding tax or backup withholding tax applies to the distribution of the subscription rights to you, your broker (or other applicable withholding agent) will be required to remit any such withholding tax or backup withholding tax in cash to the Internal Revenue Service. Depending on the
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circumstances, the broker (or other applicable withholding agent) may obtain the funds necessary to remit any such withholding tax by asking you to provide the funds, by using funds in your account with the broker or by selling (on your behalf) all or a portion of the subscription rights or by another means (if any) available.
For a detailed discussion, see Material United States Federal Income Tax Considerations.
What are the material U.S. federal income tax consequences if I receive a subscription right from Sears Holdings and Sears Holdings subsequently cancels the rights offering?
You should discuss with your tax advisor the tax consequences of receiving a subscription right if Sears Holdings subsequently cancels the rights offering. There are limited authorities addressing the tax consequences that would apply to you in this circumstance. Certain of the authorities suggest that in this circumstance you may not have taxable dividend income upon the receipt of the subscription rights if you do not sell or otherwise dispose of the rights and if the receipt and cancellation occur in the same taxable year. However, the scope of those authorities is unclear and Sears Holdings (and any other applicable withholding agent) is likely to take the position, for information reporting and withholding purposes, that you have taxable dividend income upon the receipt of the subscription rights even if Sears Holdings subsequently cancels the rights offering. If withholding tax is withheld from you in this event, you may wish to seek a refund of such amount from the United States Internal Revenue Service.
If you do have taxable dividend income upon the receipt of a subscription right even though Sears Holdings subsequently cancels the rights offering, you should generally expect to have a short-term capital loss upon the cancellation of the subscription right in an amount equal to your adjusted tax basis (if any) in such right.
For a detailed discussion, see Material United States Federal Income Tax Considerations.
How do I exercise my subscription rights if I live outside of the United States and Canada or have an army post office or fleet post office address?
The subscription agent will hold rights certificates for holders of Sears Holdings common stock having an address outside the United States and Canada, or who have an Army Post Office (APO) address or Fleet Post Office (FPO) address. In order to exercise subscription rights, such stockholders must notify the subscription agent and timely follow the additional procedures described under the heading The Rights OfferingForeign Stockholders.
To whom should I send my forms and payment?
If your shares are held in the name of a broker, dealer or other nominee, you should send your subscription documents and subscription payment to that nominee. If you are the record holder, you should send your subscription documents, rights certificate and subscription payment by first class mail, hand delivery or courier service to:
By first class mail: | By hand or overnight courier: | |
Computershare Inc. c/o Voluntary Corporate Actions PO Box 43011 Providence, RI 02940-3011 |
Computershare Inc. c/o Voluntary Corporate Actions 250 Royall Street Suite V Canton, MA 02021 |
The risk of delivery to the subscription agent of subscription documents, rights certificates and subscription payments is borne by the holders of subscription rights, and not by SHO, Sears Holdings or the subscription agent. You should allow sufficient time for delivery of your subscription materials to the subscription agent.
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How will the rights offering affect participants of the savings plans sponsored within the Sears Holdings controlled group of corporations?
The Sears Holdings Savings Plan, the Sears Holdings Puerto Rico Savings Plan and the Lands End, Inc. Retirement Plan or, collectively, the Savings Plans, offer an employer stock fund through which participants (current and former Sears Holdings employees) may invest in Sears Holdings common stock. The applicable trust of each Savings Plan will, on behalf of each participant, receive one subscription right for each full share of Sears Holdings common stock held in the Sears Holdings stock fund under the applicable Savings Plan as of the record date. Sears Holdings has submitted a prohibited transaction exemption to the U.S. Department of Labor requesting that it grant a prohibited transaction exemption on a retroactive basis, effective as of the date of the distribution of the subscription rights, with respect to the acquisition, holding and sale or exercise of the subscription rights under the Savings Plans. The applicable fiduciary for each Savings Plan has engaged an independent fiduciary to determine whether and/or when to exercise or sell the subscription rights on behalf of the trusts of the Savings Plans, subject to the terms of the prohibited transaction exemption.
Whom should I contact if I have other questions?
If you have more questions about the rights offering or need additional copies of the rights offering documents, please contact Georgeson Inc., our information agent, by calling (866) 695-6074 (toll-free).
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You should carefully consider the risks described below, together with all of the other information included in this prospectus, in evaluating SHO and our common stock. The following risk factors could adversely affect our business, results of operations, financial condition and stock price.
Risks Relating to Our Separation from, and Continued Dependence on, Sears Holdings
Following the separation from Sears Holdings, we will continue to depend on Sears Holdings to provide us with most key products and services for our business. Consequently, if Sears Holdings is unwilling or unable or otherwise fails to perform these services adequately, or at all, or if Sears Holdings brand is impaired, we could be materially and adversely affected.
Prior to the separation from Sears Holdings, we will operate as businesses within Sears Holdings, and most key products and services required by us for the operation of our business were provided by Sears Holdings, including inventory procurement and management, home services and repair, computer systems, warehousing and logistics, merchandise acquisition and assortment, and transaction processing and financial reporting. We have or will have, prior to the completion of the separation, entered into agreements with Sears Holdings (or its subsidiaries) related to the separation including, among others, the Services Agreement. Following the separation, we will rely heavily on the products and services to be provided by Sears Holdings or its subsidiaries pursuant to these and other agreements, together the key products and services including:
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inventory procurement from third-party vendors, including Kenmore, Craftsman and DieHard branded products and other products which are collectively expected to account for a majority of our revenue; |
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logistical, supply chain and inventory support services; |
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accounting and financial reporting services; |
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environmental and safety program, risk management and insurance services; |
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computer and information technology infrastructure and support; |
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human resource and other employee-related services; |
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our websites will be hosted and maintained by a subsidiary of Sears Holdings and certain purchases made on our websites will be processed by a subsidiary of Sears Holdings; |
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certain of our store leases will be held in the name of subsidiaries of Sears Holdings until their expiration at which time we will be required to renegotiate with the landlord directly; |
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our stores will continue to use the Sears brand name, and other intellectual property owned by Sears Holdings, through our license agreements with Sears Holdings; |
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our stores will continue to participate in Sears Holdings Shop Your Way Rewards program, or SYWR program and rely on the customer data and other information provided by the SYWR program; and |
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our stores will continue to accept Sears-branded credit cards and rely on Sears Holdings to administer the allocation of revenues derived from customers use of such cards at our stores. |
As a result of our ongoing dependence on Sears Holdings, we are exposed to the risk that Sears Holdings will become unable or unwilling to fulfill its contractual obligations to us. In addition, if Sears Holdings brand is impaired, we could be materially and adversely affected. Sears Holdings is subject to various risks and uncertainties, which could in turn adversely affect our business, results of operations and financial condition. Such risks include (1) business risks related to the retail industry, (2) risks related to worldwide economic conditions and (3) risks related to Sears Holdings ability to access capital markets and other financing sources.
We believe it is necessary for Sears Holdings to provide these products and services to us to facilitate the continued operation of our business as we transition to becoming a publicly traded company independent from
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Sears Holdings. We will, as a result, be dependent on our relationship with Sears Holdings for certain products and services following the separation. However, Sears Holdings will have no obligation to provide assistance to us other than the products and services to be provided pursuant to these agreements. Although Sears Holdings is generally obligated to provide us with these products and services until at least 2018, subject to important exceptions, these products and services may not be provided at the same level as when we were part of Sears Holdings, and we may not be able to obtain the same benefits from these products and services. Generally, we expect to need to rely on Sears Holdings for these services for the entire term of the applicable agreement. In addition, to the extent that our growth is dependent on expanding the number of stores we operate, we will need to rely on Sears Holdings to supply the same products and services in new regions or markets. When Sears Holdings is no longer obligated to provide these products and services to us, we may not be able to replace these products and services on terms and conditions, including costs, as favorable as those we will receive from Sears Holdings. See Certain Relationships and Related Party TransactionsAgreements with Sears Holdings.
We are dependent on existing agreements with Sears Holdings and manufacturers to provide our inventory.
Following the separation, our Sears Hometown and Hardware and Sears Outlet businesses are expected to rely on our agreements with Sears Holdings (or its subsidiaries) for a significant portion of their inventory, including Kenmore, Craftsman and DieHard branded products. If we are unable to obtain adequate amounts and assortments of merchandise through our agreements with Sears Holdings, we may be unable to find alternative sources of supply on commercially reasonable terms, or at all. In addition, the third-party vendors from whom Sears Holdings currently obtains merchandise for us may not be willing to continue to honor those arrangements and may insist that we purchase from the third-party vendors on terms that are less favorable than the terms enjoyed by Sears Holdings. If we are unable to maintain a broad selection of merchandise for sale to our customers, it could have a material adverse effect on our business, results of operations and financial condition.
In addition, our Sears Outlet business currently relies on manufacturers with which we have existing agreements to supply a portion of its inventory. For the year ended January 28, 2012, sales of products obtained through agreements with third-party home appliance suppliers generated approximately 25% of our Sears Outlet revenue. We are dependent on our ability to continue to obtain inventory, including appliances, from these and other manufacturers in the future. Our agreements with these manufacturers do not guarantee the availability of a certain amount of merchandise at any given time, and we have no assurance that any of these agreements will be renewed on commercially reasonable terms, or at all. If these manufacturers decrease their output of merchandise or raise their prices, or both, and we are required to find one or more alternative suppliers, we may not be able to contract with them on a timely basis, on commercially reasonable terms, or at all. The lack of alternative suppliers could lead to higher prices, decreased inventory or an inability to maintain a broad selection of merchandise in our stores and could have a material adverse effect on our business, results of operations and financial condition. In addition, if we do not maintain our existing relationships or build new relationships with manufacturers, we may not be able to maintain a broad selection of merchandise, and customers may not shop at or purchase from our stores.
We expect to rely on Sears Holdings and other third parties to provide us with key products and services in connection with the administration of many critical aspects of our business and we may be required to develop our own systems quickly and cost-effectively in order to reduce such dependence.
We have entered, or will enter, into agreements with Sears Holdings, as well as with third-party service providers, to provide processing and administrative functions over a broad range of areas, and we expect to continue to do so in the future. Key products and services provided by Sears Holdings or other third parties as a part of outsourcing initiatives could be interrupted as a result of many factors, such as acts of God or contract disputes, and any failure by third parties to provide us with these key products and services on a timely basis or within our service level expectations and performance standards could result in a disruption to our business.
After the separation, we expect to continue to rely heavily on the infrastructure of Sears Holdings for a variety of key products and services. The terms of the various agreements governing the provision of these key
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products and services are expected to be for at least five and a half years, but we may seek to continue to rely on the infrastructure of Sears Holdings after the initial terms of these agreements expire. Our business plan depends to a significant extent on Sears Holdings willingness and ability to continue to provide us with these key products and services. Any failure to maintain Sears Holdings as a service provider, or any actions by Sears Holdings, when permitted under the applicable agreement, to raise the prices for which it charges us for these key products and services, could have a material adverse impact on our business and operating results.
In addition, disruptions in the computer and communications hardware and software systems provided by Sears Holdings could harm our ability to run our business, result in the compromise of confidential customer data, lead to costly litigation or damage our reputation with our customers. Any material interruption in our computer operations may have a material adverse effect on our business and results of operations. As a result of our reliance on the computer and information technology infrastructure of Sears Holdings, we will have limited control over the timing and implementation of certain upgrades to our computer and information technology systems that we may believe are integral to the successful operation of our business.
If our relationships with our vendors, including Sears Holdings, were to be impaired, it could have a negative impact on our competitive position and our business and financial performance.
We obtain our merchandise through agreements with Sears Holdings or through vendors. In 2011, merchandise acquired from subsidiaries of Sears Holdings, including Kenmore, Craftsman, DieHard and other products, accounted for approximately 90% of total purchases of all inventory from all vendors. The loss of or a reduction in the amount of merchandise made available to us by Sears Holdings could have a material adverse effect on our business and results of operations.
Pursuant to the Merchandising Agreement, subsidiaries of Sears Holdings have agreed to obtain for us Sears brand products, including Kenmore, Craftsman and DieHard products, until 2018 subject to two three-year renewal terms with respect to Kenmore, Craftsman and DieHard products, certain termination rights and other specified conditions. However, we may need to rely on Sears Holdings for our inventory beyond 2018 or, if the Merchandising Agreement is renewed for both renewal terms, 2024. If we are unable to extend, or renegotiate on comparable terms, the Merchandising Agreement beyond 2018 or, if the Merchandising Agreement is renewed for both renewal terms, 2024, we may not be able to replace the inventory provided under the Merchandising Agreement on commercially reasonable terms, or at all and any such inability could have a material adverse effect on our prospects and results of operations and our ability to operate our business could be significantly impaired, as we would have to find new sources for our inventory.
In addition, our vendor arrangements generally are not long-term agreements (other than the Merchandising Agreement) and none of them guarantee the availability of merchandise in the future. Our growth strategy depends to a significant extent on the willingness and ability of our vendors to supply us with sufficient inventory. As a result, our success depends on maintaining good relations with our existing vendors and developing relationships with new vendors. If we fail to strengthen our relations with our existing vendors or to enhance the quality of merchandise they supply us, or if we cannot maintain or acquire new vendors of favored brand name merchandise, our ability to obtain a sufficient amount and variety of merchandise at acceptable prices may be limited, which would have a negative impact on our competitive position. In addition, we may not be able to develop relationships with new vendors, and products from alternative sources, if any, may be of a lesser quality and more expensive than those we currently purchase.
Following our separation from Sears Holdings, we will continue to rely on Sears Holdings for services related to our online business and the processing of online orders.
Following the separation from Sears Holdings, our Sears Hometown and Hardware and Sears Outlet businesses websites will continue to be managed by a subsidiary of Sears Holdings and require us to pay certain
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hosting and maintenance fees for the management of such websites. In addition, online orders placed on our Sears Hometown and Hardware business websites will be processed by, and subject to a processing fee to be paid to, a subsidiary of Sears Holdings.
In addition, many of the products we sell are available through websites owned and operated by Sears Holdings. As a result, online orders placed through websites owned and operated by Sears Holdings may take market share from our businesses without any commission or other benefit to us as a business entity separate from Sears Holdings. Increasing purchases of home appliances and other products that our stores sell through online channels could adversely affect our results of operations.
Following our separation from Sears Holdings, we will license from Sears Holdings the use of our store names, domain names and certain trademarks used to brand our products.
Following the separation from Sears Holdings, we will license from Sears Holdings the use of the Sears, Kenmore, Craftsman and DieHard trademarks, the Sears Hometown Store, Sears Hardware Store, Sears Home Appliance Showroom and Sears Outlet store names, or, collectively, the store names, and certain of our website domain names, or the domain names. Pursuant to the Merchandising Agreement, our license to use the Kenmore, Craftsman and Diehard trademarks will expire in 2018 or, if renewed for both renewal terms, 2024 and pursuant to the Store License Agreements and Trademark License Agreement, our licenses to use the Sears trademark, the store names and the domain names will expire in 2029.
If the value of the Sears, Kenmore, Craftsman or Diehard trademarks, the store names or the domain names diminishes, or if we are unable to extend, renew or renegotiate the Merchandising Agreement, the Store License Agreements or the Trademark License Agreement on comparable terms, or at all, it could have a material adverse effect on our prospects and results of operations and our ability to operate our business could be significantly impaired, as it would require us to stop using one or more of the aforementioned names in both our stores and our product advertising.
Certain of our agreements with subsidiaries of Sears Holdings contain early termination provisions that are outside of our control and, if triggered, could have a material adverse effect on our ability to operate our business and our financial performance.
Our agreements with subsidiaries of Sears Holdings contain various default and termination provisions, some of which are not within our control. For example, under the Merchandising Agreement, if (i) an unaffiliated third party acquires all rights, title and interest in and to one or more (but not all) of the Kenmore, Craftsman or Diehard marks, or the KCD marks, then subsidiaries of Sears Holdings may terminate their obligation to sell to us the products that are branded with the KCD marks that were subject to such acquisition and (ii) if an unaffiliated third party acquires all rights, title and interest in and to all of the KCD marks, then subsidiaries of Sears Holdings may terminate the Merchandising Agreement in its entirety. Furthermore, the agreements with subsidiaries of Sears Holdings may also be terminated by either party upon a material breach if the breaching party fails to cure such breach within 30 days following written notice of such breach or, if such breach is not curable, immediately upon delivery of notice of the non-breaching partys intention to terminate.
In addition, a number of our agreements with subsidiaries of Sears Holdings contain cross termination provisions such that if a breach of or default under one of the agreements by one party results in the termination of such agreement, the other party may terminate a number of the additional agreements between the parties. If one or more of our agreements with subsidiaries of Sears Holdings were to be terminated earlier than currently anticipated, it would have a material adverse effect on our prospects and results of operations and our ability to operate our business would be significantly impaired. For additional discussion see Certain Relationships and Related Party TransactionsAgreements with Sears Holdings.
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The sale of Kenmore, Craftsman and DieHard products to other retailers, including certain of our competitors, may adversely affect our results of operations.
Kenmore, Craftsman and DieHard branded products accounted for approximately 60% of our combined revenue during 2011. Recently, Sears Holdings has agreed to supply certain other retailers, including certain of our competitors, with a number of Craftsman and DieHard branded products that previously were only sold through affiliates of Sears Holdings. If Sears Holdings continues to supply other retailers, including our competitors, with Craftsman and DieHard branded products, or begins to supply other retailers with Kenmore products, our revenue may be adversely affected.
Our non-competition obligation with Sears Holdings will restrict our ability to expand into certain geographic areas.
Currently, Sears Full-line Stores, Kmart stores, and certain specialty retail stores owned by Sears Holdings have product lines that are similar to ours. In connection with the separation from Sears Holdings, we have entered into a Merchandising Agreement pursuant to which we will have a contractual obligation, subject to certain conditions, not to open new Sears Hometown and Hardware stores in specified areas. This non-competition obligation will restrict our ability to open new stores in the specified areas that we would otherwise consider as possible targets for expansion and may limit our growth potential. See Certain Relationships and Related Party TransactionsAgreements with Sears HoldingsNon-Competition and Exclusivity Arrangements Between Sears Holdings and SHO.
We will not operate as an independent business prior to the separation, and the integration of the operations of Sears Hometown and Hardware and Sears Outlet may be difficult and costly, which may result in our operating less effectively than expected.
Until 2012 the businesses of Sears Hometown and Hardware and Sears Outlet were operated by Sears Holdings as separate businesses independent of one another. On April 23, 2012, Sears Holdings created SHO and thereafter began to combine the Sears Hometown and Hardware and Sears Outlet businesses into one operating unit. See Certain Relationships and Related Party TransactionsReorganization of SHO Prior to the Separation.
The success of our business will depend, in part, on our ability to successfully integrate the businesses of Sears Hometown and Hardware and Sears Outlet. We may face difficulties, added costs and delays in integrating these businesses including:
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diversion of management resources from the business of the combined company; and |
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retaining and integrating management and other key employees of the combined company. |
Any one or all of these factors, or currently unanticipated factors, may cause increased operating costs, worse than anticipated financial performance or the loss of customers and employees. The failure to timely and efficiently integrate the Sears Hometown and Hardware and Sears Outlet businesses could have a material adverse effect on the business, financial condition and operating results of our Company.
Our historical combined financial information is not necessarily representative of the results we would have achieved either as a single combined business entity or as a publicly traded company independent from Sears Holdings and may not be a reliable indicator of our future results.
The historical financial information we have included in this prospectus may not reflect what our results of operations, financial position and cash flows would have been had we been (1) operated as a single combined business entity by Sears Holdings during the periods presented or (2) a publicly traded company independent from Sears Holdings during the periods presented, or what our results of operations, financial position and cash
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flows will be in the future when we operate as a single combined business entity independent from Sears Holdings. This is primarily because:
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our historical financial information reflects the results of operations, financial positions and cash flows of Sears Hometown and Hardware and Sears Outlet prior to their consolidation into SHO, which may not reflect the results of operations, financial positions and cash flows of SHO as a single combined business entity; |
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our historical financial information does not reflect changes that we expect to experience in the future as a result of the integration of Sears Hometown and Hardware and Sears Outlet into a single combined entity, including changes in the cost structure, personnel needs, financing and operation of our business; |
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our historical financial information reflects assumptions made by Sears Holdings and allocations for certain services and expenses historically provided to us by Sears Holdings. Those assumptions and allocations may not reflect the costs and expenses we would have incurred or will incur as an independent company. In addition, we may incur one-time charges as a result of changes in allocation resulting from the separation; and |
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our historical financial information does not reflect changes that we expect to experience in the future as a result of our separation from Sears Holdings, including changes in the cost structure, personnel needs, financing and operations of our business. |
Following the separation, we also will be responsible for the additional costs associated with being a publicly traded company independent from Sears Holdings, including costs related to corporate governance and SEC reporting requirements. Accordingly, there can be no assurance that our historical financial information presented herein will be indicative of our future results.
For additional information about our past financial performance and the basis of presentation of our financial statements, see Selected Historical Financial and Other Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and the notes thereto included elsewhere in this prospectus.
As a publicly traded company independent from Sears Holdings, we may experience increased costs resulting from a decrease in the purchasing power we currently have as a result of being 100% owned by Sears Holdings.
Prior to our separation from Sears Holdings, we were able to take advantage of Sears Holdings size and purchasing power in procuring services, including advertising, shipping and receiving, logistics, store maintenance contracts, employee benefit support, insurance, credit and debit card interchange fees and other services. Following our separation from Sears Holdings, we expect to be a smaller company than Sears Holdings and we may not have access to financial and other resources comparable to those available to us prior to the separation. Although we plan to leverage our ongoing relationship with Sears Holdings in order to obtain similar benefits in purchasing power, we may be unable to obtain goods, technology and services at prices and on terms as favorable as those available to us prior to the separation, which could increase our costs and reduce our profitability.
We may have been able to receive better terms from unaffiliated third parties than the terms we receive in our agreements with Sears Holdings.
The agreements related to our separation from Sears Holdings, including the Services Agreement, Store License Agreements and the Merchandising Agreement, were agreed to in the context of a parent-subsidiary relationship and in the overall context of our separation from Sears Holdings. Accordingly, they may not represent the best terms that could have been available to us from third parties. The terms of the agreements
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being negotiated in the context of the separation are related to, among other things, the principal actions needed to be taken in connection with the separation, indemnification and other obligations among Sears Holdings and us and the nature of the commercial arrangements between us and Sears Holdings following the separation. In addition, in connection with the separation, we have entered into a Retail Establishment Agreement with a subsidiary of Sears Holdings to authorize us to participate in the SYWR program. See Certain Relationships and Related Party TransactionsAgreements with Sears Holdings.
Conflicts may arise between Sears Holdings and us in a number of areas relating to our past and ongoing relationships, including:
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availability and allocation of merchandise from third-party suppliers; |
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business opportunities that may be attractive to both Sears Holdings and us; |
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the nature, quality and pricing of transitional services Sears Holdings has agreed or will agree to provide to us; |
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labor, tax, employee benefit, indemnification and other matters arising from our separation from Sears Holdings; |
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major business combinations involving us; |
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employee retention and recruiting; |
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intellectual property matters; |
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competition between our stores and websites and Sears Holdings stores and websites; and |
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the enforcement of our agreements with Sears Holdings as described in Certain Relationships and Related Party TransactionsAgreements with Sears Holdings. |
The occurrence of one or more of these conflicts could materially and adversely affect our prospects and results of operations.
There may be a significant degree of difficulty in operating as a separate entity and managing that process effectively could require a significant amount of senior managements time.
The separation from Sears Holdings could cause an interruption of, or loss of momentum in, the operation of our business. Members of our senior management may be required to devote considerable amounts of time to the separation, which will decrease the time they will have to manage their ordinary responsibilities. If our senior management is not able to manage the separation effectively, or if any significant business activities are interrupted as a result of the separation, our business and operating results could suffer.
We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from Sears Holdings.
As a publicly traded company independent from Sears Holdings, we believe that our business will benefit from, among other things, allowing us to better focus our financial and operational resources on our specific business and be better positioned to dedicate resources to pursue appropriate growth opportunities and execute strategic plans best suited to our business in an efficient manner. We believe the separation will allow our management to design and implement corporate strategies and policies that are based primarily on the business characteristics and strategic decisions of our business, allowing us to more effectively respond to industry dynamics and allowing the creation of effective incentives for our management and employees that are more closely tied to our business performance. However, we may not be able to achieve some or all of the benefits that we expect to achieve as a company independent from Sears Holdings in the time we expect, if at all.
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Becoming a public company will increase our expenses and administrative burden, in particular to bring our Company into compliance with certain provisions of the Sarbanes Oxley Act of 2002 to which we are not currently subject.
As a public company, we will incur certain legal, accounting and other expenses that we did not incur as a subsidiary of Sears Holdings. These increased costs and expenses may arise from various factors, including financial reporting, costs associated with complying with federal securities laws (including compliance with the Sarbanes-Oxley Act of 2002), tax administration, and legal and human-resources related functions. Although we expect that a number of these functions will continue to be performed for us by subsidiaries of Sears Holdings following the separation, we will be required to, among other things, create or revise the roles and duties of our board committees, adopt additional internal controls and disclosure controls and procedures, retain a transfer agent and adopt an insider trading policy in compliance with our obligations under the securities laws.
We also expect that being a public company subject to additional laws, rules and regulations will require the investment of additional resources to ensure ongoing compliance with such laws, rules and regulations. In addition, these laws, rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified executive officers and qualified persons to serve on our board of directors, particularly to serve on our audit committee.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley could have a material adverse effect on our business and the market price of our common stock.
As a public company, we will be required to document and test our internal control over financial reporting in order to satisfy the requirements of Section 404 of Sarbanes-Oxley, which will require annual management assessments of the effectiveness of our internal control over financial reporting and, beginning with our annual report on Form 10-K for the year ending February 1, 2014, a report by our independent registered public accounting firm that addresses the effectiveness of internal control over financial reporting. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404. Testing and maintaining internal control can divert our managements attention from other matters that are also important to the operation of our business. We also expect that the imposition of these regulations will increase our legal and financial compliance costs and make some activities more difficult, time consuming and costly. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we are unable to conclude that we have effective internal control over financial reporting, investors could lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our common stock. In addition, if we do not maintain effective internal controls, we may not be able to accurately report our financial information on a timely basis, which could harm the trading price of our common stock, impair our ability to raise additional capital, or jeopardize our continued listing on the NASDAQ Capital Market or any other stock exchange on which our common stock may be listed.
Risks Relating to Our Business
If we fail to offer merchandise and services that our customers want, our sales may be limited, which would reduce our revenues.
In order for our business to be successful, we must identify, obtain supplies of, and offer to our customers, attractive, innovative and high-quality merchandise on a continuous basis. Our products and services must satisfy the desires of our customers, whose preferences in appliances, hardware and lawn and garden products may change in the future. If we misjudge either the demand for the products we sell or our customers purchasing habits and tastes, we may be faced with excess inventories of some products and missed opportunities for products we chose not to offer. In addition, our sales may decline or we may be required to sell the merchandise
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we have obtained at lower prices, increasing our inventory markdowns and promotional expenses. This would have a negative effect on our business and results of operations.
Our business has been and will continue to be affected by worldwide economic conditions; a failure of the economy to sustain its recovery, a renewed decline in consumer-spending levels and other conditions, including inflation, could lead to reduced revenues and gross margins, and negatively impact our results of operations.
Many economic and other factors are outside of our control, including, consumer confidence and spending levels, consumer and commercial credit availability, inflation, employment levels, housing sales and remodels, lower housing turnover, increased mortgage delinquency and foreclosure rates, consumer debt levels, fuel costs and other challenges currently affecting the global economy, the full impact of which on our business, results of operations and financial condition cannot be predicted with certainty. These economic conditions adversely affect the disposable income levels of, and the credit available to, our customers, which could lead to reduced demand for our merchandise. Also affected are our vendors, upon which we depend to provide us with inventory and services. Our vendors could seek to change the terms under which they sell inventory or other services to us which could negatively impact our financial condition. In addition, the inability of vendors to access liquidity, or the insolvency of vendors, could lead to their failure to deliver inventory or other services.
The domestic and international political situation also affects consumer confidence. The threat, outbreak or escalation of terrorism, military conflicts or other hostilities could lead to a decrease in consumer spending. Any of these events and factors could cause us to increase inventory markdowns and promotional expenses, thereby reducing our gross margins and operating results.
If we do not successfully manage our inventory levels, our operating results will be adversely affected.
We must maintain sufficient inventory levels to operate our business successfully. However, we also must avoid accumulating excess inventory as we seek to minimize out-of-stock levels across all product categories and to maintain in-stock levels. After the separation, we expect to continue to rely on and obtain significant portions of our inventory through Sears Holdings buying organizations, which obtain a significant portion of inventory from vendors located outside the United States. Some of these vendors often require us to provide, through Sears Holdings, lengthy advance notice of our requirements in order to be able to supply products in the quantities we request. This usually requires us, through Sears Holdings, to order merchandise, and enter into purchase order contracts for the purchase and manufacture of such merchandise, well in advance of the time these products will be offered for sale. As a result, we may experience difficulty in responding to a changing retail environment, which makes us vulnerable to changes in price. If we do not accurately anticipate the future demand for a particular product or the time it will take to obtain new inventory, our inventory levels will not be appropriate and our results of operations may be negatively impacted.
If we are unable to compete effectively in the highly competitive retail industry, our business and results of operations could be materially adversely affected.
The retail industry is intensely competitive and highly fragmented. In addition, there are few barriers to entry into our current markets and new competitors may enter our markets at any time. We compete with a wide variety of retailers, including department stores, discounters, mass merchandisers, hardware stores, independent dealers, home improvement stores, home appliance and consumer electronics retailers, auto service providers, specialty retailers, wholesale clubs and many other competitors operating on a national, regional or local level. Some of our competitors are actively engaged in new store expansion. Online and catalog businesses, which handle similar lines of merchandise, also compete with us.
We may not be able to compete successfully against existing and future competitors. Some of our competitors have financial resources that are substantially greater than ours and may be able to purchase
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inventory at lower costs and better endure the current or future economic downturns. As a result, our sales may decline if we cannot offer competitive prices to our customers or we may be required to accept lower profit margins. Our competitors may respond more quickly to new or emerging technologies and consumer preferences and may have greater resources to devote to promotion and sale of products and services.
Our existing competitors or new entrants into our industry may use a number of different strategies to compete against us, including:
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expansion into the suburban and rural markets in which many of our stores operate; |
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lower pricing; |
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extension of credit to customers on terms more favorable than we offer; and |
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larger store size, which may result in greater operational efficiencies, or innovative store formats. |
Competition from any of these sources could cause us to lose market share, sales and customers, increase expenditures or reduce prices, any of which could have a material adverse effect on our business and results of operations.
Because our operating results are tied in part to the success of our dealers and franchisees, the inability of our dealers and franchisees to continue operating their stores profitably could adversely affect our operating results.
As of April 28, 2012, the significant majority of stores in our Sears Hometown and Hardware business were operated by independent authorized dealers or franchisees who sell our inventory on a consignment basis. Our dealers and franchisees ability to continue operating their stores profitably depends on various factors, including their business abilities, financial capabilities (including their access to credit for operating capital), the negotiation of acceptable leases and general economic conditions. Many of the foregoing factors are beyond the control of both SHO and our dealers and franchisees. If our dealers and franchisees are unable to operate their stores profitably, our business and results of operations would be negatively impacted. Further, there can be no assurance our dealers and franchisees will successfully develop or operate their stores in a manner consistent with our concepts and standards. If our dealers and franchisees are unable to operate their stores in a manner consistent with our concepts and standards our reputation may be damaged which could have a material adverse effect on our business and results of operations.
In addition, if our dealers are unable to operate their stores profitably or in a manner consistent with our concepts and standards, we may be required to take over one or more stores from our dealers from time to time. Generally, at any given time, we operate approximately 5% of our Sears Hometown Stores as a result of our taking such stores over from our authorized dealers.
Our dealers and franchisees may damage our business or increase our costs by failing to comply with our operating standards or our dealer and franchise agreements.
Our authorized dealers operate their stores pursuant to a dealer agreement with us. Our franchise business is governed by franchise agreements and applicable franchise law. If our dealers and franchisees do not comply with our established operating standards or the terms in the franchise or dealer agreements, our business may be damaged. We may incur significant additional costs, including time-consuming and expensive litigation, to enforce our rights under the franchise agreements. Furthermore, as a franchisor we have obligations to our franchisees. Franchisees may challenge the performance of our obligations under the franchise agreements and subject us to costs in defending these claims and, if the claims are successful, costs in connection with their compliance.
In addition, we are subject to regulation by the Federal Trade Commission and are subject to state laws that govern the offer, sale and termination of franchises and the refusal to renew franchises. The failure to comply
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with these regulations in any jurisdiction or to obtain required approvals could result in a ban or temporary suspension on future franchise sales, fines or require us to make a rescission offer to franchisees, any of which could adversely affect our business and operating results.
Our sales may fluctuate for a variety of reasons, which could adversely affect our results of operations.
Our business is sensitive to customers spending patterns, which in turn are subject to prevailing economic conditions. Our sales and results of operations have fluctuated in the past, and we expect them to continue to fluctuate in the future. A variety of other factors affect our sales and financial performance, including:
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actions by our competitors, including opening of new stores in our existing markets or changes to the way these competitors go to market online; |
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the availability of inventory for our stores; |
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changes in our merchandise strategy and mix; |
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real estate and maintenance costs for our existing stores; |
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changes in population and other demographics; and |
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timing and effectiveness of our promotional events. |
Accordingly, our results for any one quarter are not necessarily indicative of the results to be expected for any other quarter, and comparable store sales for any particular future period may increase or decrease. For more information on our results of operations, see Managements Discussion and Analysis of Financial Condition and Results of Operations.
Mr. Lampert and ESL, whose interests may be different from your interests, are expected to be able to exert substantial influence over our company.
Assuming that the offering is subscribed in full, we anticipate that immediately following the separation, ESL, which beneficially owns approximately 62% of Sears Holdings common stock as of the date hereof, will beneficially own at least approximately 62% of our outstanding common stock. However, as further described in The Rights OfferingPrincipal Stockholder, under certain circumstances, ESL may only beneficially own approximately 58% of our common shares assuming the subscription rights are exercised in full by all other holders of rights. ESL may increase its percentage beneficial ownership of SHO through its exercise of the over-subscription privilege, through open market purchases of subscription rights or SHO common stock or otherwise. Consequently, depending on whether other holders of subscription rights exercise their subscription rights, ESL may beneficially own up to 100% of our outstanding shares following the separation. ESL and its affiliates are controlled, directly or indirectly, by Mr. Lampert. Accordingly, ESL, and thus Mr. Lampert, will have substantial influence over many, if not all, actions to be taken or approved by our stockholders, and will have a significant voice in the election of directors and any transactions involving a change of control.
The interests of ESL, which has investments in other companies (including Sears Holdings), may from time to time diverge from the interests of our other stockholders. This substantial influence may have the effect of discouraging offers to acquire our Company because the consummation of any such acquisition would likely require the consent of these affiliates.
We may be subject to product liability claims if people or properties are harmed by the products we sell or the services we offer.
Some of the products we sell may expose us to product liability claims relating to personal injury, death, or property damage caused by such products, and may require us to take actions such as product recalls. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on commercially reasonable terms, or at all.
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We may be subject to periodic litigation and other regulatory proceedings. These proceedings may be affected by changes in laws and government regulations or changes in the enforcement thereof.
From time to time, we may be involved in lawsuits and regulatory actions relating to our business, certain of which may be in jurisdictions with reputations for aggressive application of laws and procedures against corporate defendants. We are impacted by trends in litigation, including class-action allegations brought under various consumer protection and employment laws, including wage and hour laws. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have a material adverse impact on our business, financial condition and results of operations. In addition, regardless of the outcome of any litigation or regulatory proceedings, these proceedings could result in substantial costs and may require that we devote substantial time and resources to defend our Company. Further, changes in governmental regulations in the United States could have adverse effects on our business and subject us to additional regulatory actions.
If we do not maintain the security of our customer, associate or company information, we could damage our reputation, incur substantial additional costs and become subject to litigation.
Any significant compromise or breach of customer, associate or company data security either held and maintained by SHO or our third-party providers, including Sears Holdings who will hold a significant amount of member data through the Shop Your Way Rewards program as well as from purchases made by customers using Sears-branded credit cards, could significantly damage our reputation and result in additional costs, lost sales, fines and lawsuits. The regulatory environment related to information security and privacy is increasingly rigorous, with new and constantly changing requirements applicable to our business, and compliance with those requirements could result in additional costs. There is no guarantee that the procedures that we have implemented to protect against unauthorized access to secured data are adequate to safeguard against all data security breaches. A data security breach could negatively impact our reputation, business and our results of operations.
If we are unable to obtain consents to the assignment or subletting of our store locations from our third-party landlords, or are unable to renew or enter into new store leases on competitive terms, our revenues or results of operations could be negatively impacted.
In connection with the separation, Sears Holdings (or one of its subsidiaries) will assign or sublease to us their interests in the leases for all of our stores where Sears Holdings (or one of its subsidiaries), and not us or an independent authorized dealer or a franchisee, is the tenant and either (i) the lease for such store permits assignment or subletting of the lease or (ii) Sears Holdings is able to obtain landlord consent to such assignment or sublease. However, a number of the leases for our stores, or the No-Consent Locations, do not permit assignment or subletting by Sears Holdings (or one of its subsidiaries) or may require landlord consent, which may be withheld. As of August 30, 2012, less than 5% of all of our Sears Outlet locations, approximately 30% of all of our Hardware Store locations and none of our Hometown Store or Home Appliance Showroom locations are No-Consent Locations. Sears Holdings (or one of its subsidiaries) will enter into a sublease with us for each of the No-Consent Locations but if the landlord of a No-Consent Location were to claim that such sublease was a default under the applicable lease then we may be forced to close such store location, which could negatively impact our results of operations.
In addition, a small number of our stores are in locations where Sears Holdings currently operates one of its stores. In such cases we will enter into a lease or sublease with Sears Holdings (or one of its subsidiaries) for the portion of the space in which our store will operate and pay rent directly to Sears Holdings (or one of its subsidiaries) on the terms negotiated in connection with the separation. If we are unable to negotiate leases or subleases with Sears Holdings (or one of its subsidiaries) on commercially reasonable terms, or at all, we may be forced to close certain of our stores which could negatively impact our results of operations.
As of January 28, 2012, we leased 62 Sears Outlet store locations under long-term agreements with landlords that are unaffiliated with Sears Holdings. If our cost of leasing existing stores increases, we may be
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unable to maintain our existing store locations as leases expire. Our profitability may decline if we fail to enter into new leases on competitive terms or at all, or we may not be able to locate suitable alternative stores or additional sites for new store expansion in a timely manner. Furthermore, 33 of our Sears Outlet leases will expire within the next three years and some do not grant us any rights to renew the lease. A failure to renew or enter into new leases could reduce our revenues and negatively impact our results of operations.
In addition, our Sears Hometown and Hardware business operates 145 stores with long-term leases and is the obligor on an additional 46 leases which we sublet to our franchisees. Additionally, there are 12 leases that we have assigned to franchisees. If our franchisees are unable to maintain the payments under either our sublease or assigned lease arrangements, we will be required to make payments under the lease. In addition, upon the expiration of the initial lease term, our franchisees are responsible for entering into new leases with existing landlords. If our franchisees are unable to negotiate new leases with existing landlords on commercially reasonable terms, or at all, our franchisees may be required to move or close certain of our stores. A failure to maintain payments or to enter into new leases by our franchisees could negatively impact our results of operations.
In addition, a number of the leases for both our Sears Outlet and Sears Hometown and Hardware stores were negotiated by and entered into by a subsidiary of Sears Holdings. Upon the expiration of these leases, we will be required to enter into new leases with the landlords for such properties and we may be unable to enter into new leases as a company independent from Sears Holdings on commercially reasonable terms, or at all. Further, a number of our leases were entered into at a time when the commercial real estate market was depressed. We may be required to enter into negotiations with landlords for new leases in the future at times when the commercial real estate market has rebounded and rental payments are generally higher for commercial real estate. Higher leasing costs could negatively impact our results of operations.
If we fail to timely and effectively obtain shipments of product from our vendors and deliver merchandise to our customers, our operating results will be adversely affected.
We cannot control all of the various factors that might affect our timely and effective procurement of supplies of product from our vendors, including Sears Holdings, and delivery of merchandise to our customers. Our utilization of foreign imports also makes us vulnerable to risks associated with products manufactured abroad, including, among other things, risks of damage, destruction or confiscation of products while in transit to our stores, work stoppages including as a result of events such as strikes, transportation and other delays in shipments including as a result of heightened security screening and inspection processes or other port-of-entry limitations or restrictions in the United States, lack of freight availability and freight cost increases. In addition, if we experience a shortage of a popular item, we may be required to arrange for additional quantities of the item, if available, to be delivered to us through airfreight, which is significantly more expensive than standard shipping by sea. As a result, we may not be able to obtain sufficient freight capacity on a timely basis or at favorable shipping rates and, therefore, we may not be able to timely receive merchandise from our vendors or deliver our products to our customers.
We rely upon Sears Holdings and other third-party land-based carriers for merchandise shipments to our stores and customers. Accordingly, we are subject to the risks, including labor disputes, union organizing activity, inclement weather and increased transportation costs, associated with such carriers ability to provide delivery services to meet our inbound and outbound shipping needs. In addition, if the cost of fuel continues to rise or remains at current levels, the cost to deliver merchandise to our stores may rise which could have an adverse impact on our profitability. Failure to procure and deliver merchandise either to us or to our customers in a timely, effective and economically viable manner could damage our reputation and adversely affect our business. In addition, any increase in distribution costs and expenses could adversely affect our future financial performance.
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We could incur charges due to impairment of goodwill and long-lived assets.
As of January 28, 2012 we had goodwill balances of $167 million, which are subject to periodic testing for impairment. Our long-lived assets, primarily stores, also are subject to periodic testing for impairment. A significant amount of judgment is involved in the periodic testing. Failure to achieve sufficient levels of cash flow within each of our reporting units, for sales of our branded products or at individual store locations could result in impairment charges for goodwill or fixed asset impairment for long-lived assets, which could have a material adverse effect on our reported results of operations. Following the separation from Sears Holdings, our goodwill impairment analysis will also include a comparison of the aggregate estimated fair value of all reporting units to our total market capitalization. Therefore, following the separation, our stock may trade below our book value and a significant and sustained decline in our stock price and market capitalization could result in goodwill impairment charges. During times of financial market volatility, significant judgment will be used to determine the underlying cause of the decline and whether stock price declines are short-term in nature or indicative of an event or change in circumstances. Impairment charges, if any, resulting from the periodic testing are non-cash. See Note 2 to our Combined Financial Statements for further information.
Risks Relating to our Indebtedness
We and our subsidiaries may incur debt in the future, which could substantially reduce our profitability, limit our ability to pursue certain business opportunities, and reduce the value of your investment.
Following the separation, we expect to have approximately $100 million of debt outstanding. The instruments governing our indebtedness are not expected to prevent us or our subsidiaries from incurring additional debt in the future or other obligations that do not constitute indebtedness, which could increase the risks described below and lead to other risks. In addition, we may, subject to certain conditions, increase the borrowing capacity under our Senior ABL Facility without the consent of any person other than the institutions agreeing to provide all or any portion of such increase, by an amount not to exceed $100 million. The amount of our debt or such other obligations could have important consequences for holders of our common stock, including, but not limited to:
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our ability to satisfy obligations to lenders may be impaired, resulting in possible defaults on and acceleration of our indebtedness; |
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our ability to obtain additional financing for refinancing of existing indebtedness, working capital, capital expenditures, product and service development, acquisitions, general corporate purposes and other purposes may be impaired; |
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a substantial portion of our cash flow from operations could be dedicated to the payment of the principal and interest on our debt; |
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we may be increasingly vulnerable to economic downturns and increases in interest rates; |
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our flexibility in planning for and reacting to changes in our business and the retail industry may be limited; and |
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we may be placed at a competitive disadvantage relative to other companies in our industry. |
Our Senior ABL Facility contains financial and operating covenants and restrictions that limit our operations and could lead to adverse consequences if we fail to comply with them.
The Senior ABL Facility which we expect to enter into prior to the separation, is expected to contain certain financial and operating covenants and other restrictions relating to, among other things, excess availability and fixed charge coverage ratios, as well as limitations on indebtedness (including guarantees of additional indebtedness) and liens, mergers, consolidations and dissolutions, sales of assets, investments and acquisitions, dividends and other restricted payments and certain transactions with affiliates. See Managements Discussion and Analysis of Financial Condition and Results of OperationsAnalysis of Financial ConditionFinancing Arrangements.
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Failure to comply with these financial and operating covenants could result from, among other things, changes in our results of operations, the incurrence of additional indebtedness, or changes in general economic conditions, which may be beyond our control. The breach of any of these covenants or restrictions could result in a default under the Senior ABL Facility that would permit the lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. If we are unable to repay such amounts, lenders having secured obligations, such as the lenders under the Senior ABL Facility, could proceed against the collateral securing the secured obligations. In any such case, we may be unable to borrow under the Senior ABL Facility and may not be able to repay amounts due under such facility. This could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or insolvent. In addition, these covenants may restrict our ability to engage in transactions (i) that we believe would otherwise be in the best interests of our stockholders or (ii) without which our business and operations could be harmed.
Increases in interest rates would increase the cost of servicing our debt and could reduce our profitability.
A significant portion of our outstanding debt, including amounts under the Senior ABL Facility, bears interest at variable rates. As a result, increases in interest rates would increase the cost of servicing our debt and could materially reduce our profitability and cash flows. Assuming our Senior ABL Facility was fully drawn in a principal amount equal to $250 million, each one percentage point change in interest rates would result in a $2.5 million change in annual cash interest expense on our Senior ABL Facility.
We may have future capital needs and may not be able to obtain additional financing on acceptable terms.
Any reductions in our available borrowing capacity under the anticipated Senior ABL Facility, or our inability to renew or replace our Senior ABL Facility, when required or when business conditions warrant, could have a material adverse effect on our business, financial condition and results of operations. The economic conditions, credit market conditions and economic climate affecting the retail industry, as well as other factors, may constrain our financing abilities. Our ability to secure additional financing, if available, and to satisfy our financial obligations under indebtedness outstanding from time to time will depend upon our future operating performance, the availability of credit generally, economic conditions and financial, business and other factors, many of which are beyond our control. The market conditions and the macroeconomic conditions that affect the retail industry could have a material adverse effect on our ability to secure financing on favorable terms, if at all.
We may be unable to secure additional financing or financing on favorable terms or our operating cash flow may be insufficient to satisfy our financial obligations under the indebtedness outstanding from time to time. Furthermore, if financing is not available when needed, or is available on unfavorable terms, we may be unable to take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations. If additional funds are raised through the issuance of additional equity securities, our stockholders may experience significant dilution.
Risks Relating to the Rights Offering
The subscription price determined for the rights offering is not an indication of the price at which our common stock will trade.
The board of directors of Sears Holdings based the per share subscription price being used in the rights offering on various factors including, among other things, (1) the opinion of Duff & Phelps LLC, which it engaged to act as a financial advisor in connection with the separation of the SHO businesses, (2) the desirability of broad participation in the rights offering by Sears Holdings stockholders and of the development of a trading market for both the subscription rights and the SHO common stock and (3) Sears Holdings liquidity needs and the aggregate amount of proceeds to be paid to Sears Holdings pursuant to the dividend and the rights offering if the rights offering were fully subscribed. The per share subscription price may not be indicative of the price at
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which our common stock will trade after the rights offering. After the date of this prospectus, you may not be able to sell shares of our common stock that you hold at prices equal to or above the subscription price. See Determination of Subscription PriceDetermination by Sears Holdings Board of Directors of the Exercise Price.
The combined post-separation value of our common stock and Sears Holdings common stock may not equal or exceed the pre-separation value of Sears Holdings common stock.
After the separation, Sears Holdings common stock will continue to be listed and traded on the NASDAQ Global Select Market. We have applied to list the SHO common stock on the NASDAQ Capital Market under the symbol SHOS. The trading price of Sears Holdings common stock immediately following the rights offering may be higher or lower than immediately prior to the rights offering because the assets and liabilities of SHO will no longer be held by Sears Holdings, the ongoing earnings of SHO will no longer be reflected in Sears Holdings earnings and Sears Holdings will receive cash proceeds of approximately $446.5 million as a result of the sale of SHOs common shares (assuming the subscription rights are exercised in full) and the expected $100 million dividend to be paid prior to the separation. In addition, we cannot assure you that the combined trading prices of Sears Holdings common stock and the SHO common stock after the separation, as adjusted for any changes in the combined capitalization of these companies, will be equal to or greater than the trading price of Sears Holdings common stock prior to the separation.
Our future revenues and earnings may differ, possibly materially, from the Management Projections presented herein and should not be relied upon as an accurate prediction of our future results of operations or the future value of our common stock.
In connection with the preparation of the opinion of Duff & Phelps regarding the valuation of the common stock of SHO, management of Sears Holdings provided Duff & Phelps with financial projections for SHO for the fiscal years ending on or around January 31, 2013 through January 31, 2015, or the Management Projections. The Management Projections, which are included in this prospectus under the heading Determination of Subscription PriceManagement Projections, may not be indicative of our future results and should not be relied upon as such. Although the Management Projections are presented with numerical specificity, these projections reflect numerous assumptions and estimates as to future events made by Sears Holdings management, including certain persons expected to become members of management of SHO following the separation, that they believed were reasonable at the time the Management Projections were prepared. In addition, factors such as industry performance and general business, economic, regulatory, market and financial conditions, all of which are difficult to predict and beyond the control of SHOs management, may cause the Management Projections or the underlying assumptions not to be reflective of actual future revenues or earnings, the future value of our common stock or the price at which our common stock will trade.
Accordingly, our future results of operations may differ, possibly materially, from the Management Projections, and the value of our common stock and the price at which at our common stock may trade may be adversely affected if our results of operations are materially different from the Management Projections. The inclusion of the Management Projections in this prospectus should not be regarded as an indication that Sears Holdings board of directors considered, or now considers, or that SHOs board of directors considered, or now considers, the Management Projections to be a reliable prediction of the future value of our common stock or the price at which our common stock will trade following the separation and are not being included in this prospectus to influence your decision whether to exercise or sell your subscription rights.
Sears Holdings may cancel the rights offering at any time prior to the expiration of the rights offering and in such case neither Sears Holdings nor the subscription agent will have any obligation to you except to return your exercise payments.
The rights offering is subject to the satisfaction or waiver of certain conditions. In addition, Sears Holdings has the right to withdraw and cancel the rights offering if, at any time prior to its expiration, the board of
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directors of Sears Holdings determines, in its sole discretion, that the rights offering is not in the best interest of Sears Holdings or its stockholders, or that market conditions are such that it is not advisable to consummate the rights offering. See The Rights OfferingConditions, Withdrawal and Cancellation.
If the rights offering is cancelled, any money received from subscribing stockholders will be returned, without interest or penalty, as soon as practicable. Sears Holdings may also extend the rights offering for additional periods ending no later than , 2012, although it does not presently intend to do so. If Sears Holdings cancels the rights offering and you have not exercised any rights, the subscription rights will expire, have no value, and cease to be exercisable for SHO common shares. If you purchase subscription rights during the subscription period and Sears Holdings cancels the rights offering, you will lose the entire purchase price paid to acquire such subscription rights in the market, however any subscription payments received by the subscription agent will be returned to you, without interest or penalty, as soon as practicable.
No prior market exists for the subscription rights and a liquid market for the subscription rights may not develop.
We have applied to list the subscription rights for trading on the NASDAQ Capital Market under the symbol SHOSR. However, the subscription rights are a new issue of securities with no prior trading market. Neither SHO nor Sears Holdings can provide you with any assurances as to the liquidity of the trading market for the subscription rights or the price at which the subscription rights may trade following the rights offering. In addition, the listing of the subscription rights on the NASDAQ Capital Market is subject to SHO meeting the listing requirements of the NASDAQ Capital Market. In the event that these listing approvals cannot be obtained, holders of subscription rights will own unlisted securities, which may affect the pricing of the rights in the secondary market, the transparency and availability of trading prices, and the liquidity of the rights.
If you do not act promptly and follow the subscription instructions, your exercise of subscription rights will be rejected.
If you desire to purchase shares of common stock in the rights offering, you must act promptly to ensure that the subscription agent actually receives all required forms and payments before the expiration of the rights offering at 5:00 p.m., New York City time, on , 2012, unless Sears Holdings extends the rights offering for additional periods ending no later than , 2012. If you are a beneficial owner of Sears Holdings common shares, you must act promptly to ensure that your broker, dealer, custodian bank or other nominee acts for you and that the subscription agent receives all required forms and payments before the rights offering expires. Neither SHO nor Sears Holdings is or will be responsible if your nominee fails to ensure that the subscription agent receives all required forms and payments before the rights offering expires. If you fail to complete and sign the required subscription forms, send an incorrect payment amount, or otherwise fail to follow the subscription procedures that apply to the exercise of your subscription rights before the rights offering expires, the subscription agent will reject your subscription or accept it only to the extent of the payment received. None of SHO, Sears Holdings or the subscription agent undertakes any responsibility or action to contact you concerning an incomplete or incorrect subscription form or payment, nor are SHO or Sears Holdings under any obligation to correct such forms or payment. Sears Holdings has the sole discretion to determine whether a subscription exercise properly complies with the subscription procedures.
You will not be able to sell the shares of SHO common stock you buy in the rights offering until your account is credited with the common stock.
If you are a registered stockholder of Sears Holdings and you purchase shares in the rights offering, your account will be credited with our common stock as soon as practicable after the expiration of the rights offering. If your shares of Sears Holdings common stock are held by a broker, dealer, custodian bank or other nominee and you purchase shares of SHO pursuant to your subscription rights, your account with your nominee will be credited with the shares of our common stock you purchased in the rights offering as soon as practicable after the
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expiration of the rights offering, or such later date as to which the rights offering may be extended. Until your account is credited, you may not be able to sell your shares even though the SHO common stock issued in the rights offering will be listed for trading on the NASDAQ Capital Market. The stock price may decline between the time you decide to sell your SHO shares and the time you are actually able to sell such shares.
You may not revoke your exercise of the subscription rights and you could be committed to buying shares at a price above the prevailing market price after completion of the rights offering.
Once you exercise your rights, you may not revoke the exercise even if you later learn information that you consider to be unfavorable to the exercise of your rights. If you exercise your rights, you may not be able to sell the SHO common shares purchased under the rights at a price equal to or greater than the subscription price, and you may lose all or part of your investment in our common stock.
You will not receive interest on your subscription funds during the period pending the closing of the offering.
The subscription agent will hold the gross proceeds from the sale of shares under the rights in escrow in a segregated bank account, and it will release the proceeds together with any interest earned on the proceeds, less any applicable withholding taxes, to Sears Holdings as soon as is practicable after the expiration of the rights offering.
If the rights offering is cancelled, any money received from subscribing holders of rights will be returned, without interest or penalty, as soon as practicable.
The tax consequences of the receipt, sale, exercise, expiration and cancellation of the subscription rights are not certain.
The treatment of the receipt, sale, exercise, expiration and cancellation of the subscription rights for U.S. federal income tax purposes is not entirely clear. The U.S. Internal Revenue Service may disagree with the tax treatment discussed herein. You should discuss with your tax advisor the treatment of the receipt, sale, exercise, expiration and cancellation of the subscription rights for U.S. federal income tax purposes.
If you receive and exercise the subscription rights, you may be subject to adverse U.S. federal income tax consequences.
If you receive a subscription right and exercise that right, you should generally expect to have (1) taxable dividend income equal to the fair market value (if any) of the subscription right on the date of its distribution by Sears Holdings and (2) no additional income upon the exercise of the subscription right. You may need to fund any tax resulting from the receipt of the subscription right with cash from other sources. You should discuss with your tax advisor the U.S. federal income tax consequences of receiving and exercising the subscription rights.
For a detailed discussion, see Material United States Federal Income Tax Considerations.
If you receive and sell the subscription rights, you may be subject to adverse U.S. federal income tax consequences.
If you receive a subscription right and sell that right, you should generally expect to have (1) taxable dividend income equal to the fair market value (if any) of the subscription right on the date of its distribution by Sears Holdings and (2) short-term capital gain or loss upon the sale equal to the difference between the proceeds received upon the sale and the fair market value (if any) of the subscription right on the date of its distribution by Sears Holdings. It is possible that the sale proceeds received by you upon a sale of the subscription rights will be less than any tax resulting from your receipt of the subscription right. In this event, you will generally need to fund the remaining portion of any tax with cash from other sources. You should discuss with your tax advisor the U.S. federal income tax consequences of receiving and selling the subscription rights.
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For a detailed discussion, see Material United States Federal Income Tax Considerations.
If you receive but do not sell or exercise the subscription rights before they expire, you may be subject to adverse U.S. federal income tax consequences.
If you receive a subscription right from Sears Holdings and do not sell or exercise that right before it expires, you should generally expect to have (1) taxable dividend income equal to the fair market value (if any) of the subscription right on the date of its distribution by Sears Holdings and (2) a short-term capital loss upon the expiration of such right in an amount equal to your adjusted tax basis (if any) in such right. In general, capital losses are available to offset only capital gains and may not be used to offset dividend or other income (except, to the extent of up to $3,000 of capital loss per year, in the case of a non-corporate U.S. stockholder). Accordingly, if you receive a subscription right from Sears Holdings and take no action, you may owe tax and need to fund that tax with cash from other sources.
By illustration, if you receive subscription rights that have a value of $5,000 on the date they are distributed by Sears Holdings, you do not sell or exercise those rights before they expire and Sears Holdings does not cancel the rights offering, you should generally expect to have $5,000 of dividend income upon the receipt of the subscription rights and a $5,000 short-term capital loss upon the expiration of those rights.
You should discuss with your tax advisor the U.S. federal income tax consequences of receiving and neither selling nor exercising the subscription rights.
For a detailed discussion, see Material United States Federal Income Tax Considerations.
If you receive subscription rights and Sears Holdings subsequently cancels the right offering, you may be subject to adverse U.S. federal income tax consequences.
You should discuss with your tax advisor the tax consequences of receiving subscription rights if Sears Holdings subsequently cancels the rights offering. There are limited authorities addressing the tax consequences that would apply to you in this circumstance. Certain of the authorities suggest that in this circumstance you may not have taxable dividend income upon the receipt of the subscription rights if you do not sell or otherwise dispose of the rights and if the receipt and cancellation occur in the same taxable year. However, the scope of those authorities is unclear and Sears Holdings (and any other applicable withholding agent) is likely to take the position, for information reporting and withholding purposes, that you have taxable dividend income upon the receipt of the subscription rights even if Sears Holdings subsequently cancels the rights offering. If withholding tax is withheld from you in this event, you should consult your tax advisor as to whether to seek a refund of such amount from the U.S. Internal Revenue Service.
If you have taxable dividend income upon the receipt of a subscription right even though Sears Holdings subsequently cancels the rights offering, you should generally expect to have a short-term capital loss upon the cancellation of the subscription right in an amount equal to your adjusted tax basis (if any) in such right.
For a detailed discussion, see Material United States Federal Income Tax Considerations.
If the rights offering is not fully subscribed, ESL and other existing stockholders of Sears Holdings may increase their ownership in SHO.
ESL, which beneficially owns approximately 62% of the common stock of Sears Holdings as of the date hereof, has advised Sears Holdings that it intends to exercise its subscription rights in full, subject to the successful completion of the separation transactions, though it has not entered into any agreement to do so. As a result, following the completion of the rights offering, we expect ESL will beneficially own at least approximately 62% of our common shares. However, as further described in The Rights OfferingPrincipal
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Stockholder, under certain circumstances, ESL may only beneficially own approximately 58% of our common shares assuming the subscription rights are exercised in full by all other holders of rights. In addition, to the extent that the subscription rights are not exercised in full by all holders of rights, ESL may increase its percentage beneficial ownership of SHO through its exercise of the over-subscription privilege, through open market purchases of subscription rights or SHO common stock or otherwise. Consequently, depending on whether other holders of subscription rights exercise their subscription rights, ESL may beneficially own up to 100% of our outstanding shares following the separation. If the subscription rights are not exercised in full, other existing stockholders of Sears Holdings may also increase their percentage ownership in SHO through participation in any over-subscription or otherwise. Your interests as a holder of SHO common stock may differ from the interests of ESL or other existing stockholders of Sears Holdings.
Risks Relating to Our Common Stock
There currently exists no market for our common stock. An active trading market may not develop for our common stock. If our share price fluctuates after the separation, you could lose all or a significant part of your investment.
There is currently no public market for our common stock. We have applied to list our common stock on the NASDAQ Capital Market under the symbol SHOS, and expect that trading will begin the first trading day after the completion of the separation. There can be no assurance that an active and liquid trading market for our common stock will develop as a result of the separation or be sustained in the future. The lack of an active market may make it more difficult for you to sell our shares and could lead to our share price being depressed or more volatile.
We cannot predict the prices at which our common stock may trade after the rights offering. The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including:
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our business profile and market capitalization may not fit the investment objectives of some stockholders and, as a result, these stockholders may sell our shares after the separation; |
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actual or anticipated fluctuations in our operating results due to factors related to our business; |
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our ability to operate independently from Sears Holdings and control costs relating to being an independent company; |
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success or failure of our business strategy; |
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actual or anticipated changes in the U.S. economy or the retailing environment; |
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our quarterly or annual earnings, or those of other companies in our industry; |
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our ability to obtain third-party financing as needed; |
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announcements by us or our competitors of significant acquisitions or dispositions; |
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the failure of securities analysts to cover our common stock after the rights offering; |
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changes in earnings estimates by securities analysts or our ability to meet those estimates; |
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the operating and stock price performance of other comparable companies; |
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overall market fluctuations; |
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changes in laws and regulations affecting our business; |
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actual or anticipated sales or distributions of our capital stock by our officers, directors or certain significant stockholders; |
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terrorist acts or wars; and |
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general economic conditions and other external factors. |
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In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like us. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance.
Our common stock may have a low trading volume and limited liquidity, resulting from a lack of analyst coverage and institutional interest.
Our common stock may receive limited attention from market analysts. Lack of up-to-date analyst coverage may make it difficult for potential investors to fully understand our operations and business fundamentals, which may limit our trading volume. Low trading volumes and lack of analyst coverage may limit your ability to resell your common stock.
Our common stock price may decline if ESL decides to sell a portion of its holdings of our common stock.
We anticipate that immediately following the separation, ESL, which beneficially owns approximately 62% of Sears Holdings common stock as of the date hereof, will beneficially own at least approximately 62% of our outstanding common stock. ESL will, in its sole discretion, determine the timing and terms of any transactions with respect to its shares in us, taking into account business and market conditions and other factors that it deems relevant. ESL is not subject to any contractual obligation to maintain its ownership position in us, although it may be subject to certain transfer restrictions imposed by securities law. Consequently, we cannot assure you that ESL will maintain its ownership interest in us. Any sale by ESL of our common stock or any announcement by ESL that it has decided to sell shares of our common stock, or the perception by the investment community that ESL has sold or decided to sell shares of our common stock, could have an adverse impact on the price of our common stock. For further description of transfer restrictions that may apply to our capital stock, see Shares Eligible for Future Sale in this prospectus.
Substantial sales of our common stock may occur following the rights offering, which could cause the price of our common stock to decline.
It is possible that some stockholders, including our significant stockholders, will sell shares of our common stock if, for reasons such as our business profile or market capitalization as a company independent from Sears Holdings, we do not fit their investment objectives. Accordingly, certain Sears Holdings stockholders may elect or be required to sell our shares following the rights offering due to such stockholders own investment guidelines or other reasons. Sales of a substantial number of shares of common stock could adversely affect the market price of our common stock and could impair our future ability to raise capital through an offering of our equity securities.
ESL will have substantial control over us following the separation and, among other things, could delay or prevent a change in control and may have interests different than yours.
Following the separation, we anticipate that ESL will beneficially own at least approximately 62% of our outstanding common stock, representing at least approximately 62% of the general voting power of our outstanding capital stock.
As a result of its stock ownership, as of the separation date, ESL is expected to have the ability to control the outcome of certain matters on which holders of our common stock vote together, including, among other things, approving mergers or other business combinations and effecting certain amendments to our Certificate of Incorporation. In addition, as of the separation date, ESL is expected to hold a majority of the stock that votes in the election of our directors. This concentration of ownership might harm the market price of our common stock by discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. In addition, the interests of ESL may differ from or be opposed to the interests of our other stockholders. See
50
Security Ownership of Certain Beneficial Owners and Management in this prospectus for a more detailed description of the beneficial ownership of our capital stock by ESL following the separation.
We expect to be a controlled company within the meaning of the Nasdaq Marketplace rules and, as a result, we will qualify for, and currently intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
After completion of this offering we expect that ESL will hold more than 50% of our common stock. If that occurs, we expect to qualify as a controlled company within the meaning of the corporate governance rules of the Nasdaq Marketplace rules. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance requirements, including:
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the requirement that a majority of the board of directors consist of independent directors; |
|
the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities, or otherwise have director nominees selected by vote of a majority of the independent directors; |
|
the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committees purpose and responsibilities; and |
|
the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees. |
If following this offering ESL holds more than 50% of our common stock, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors, our compensation committee and nominating and corporate governance committee will not consist entirely of independent directors and the board committees will not be subject to annual performance evaluations. Additionally, we only are required to have one independent audit committee member upon the listing of our common stock on the Nasdaq Capital Market, a majority of independent audit committee members within 90 days from the date of listing and all independent audit committee members within one year from the date of listing. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.
Your percentage ownership in us may be diluted in the future.
Your percentage ownership in SHO may be diluted in the future because of equity awards that may be granted to our directors, officers and employees in the future. We may decide to establish equity incentive plans that will provide for the grant of common stock-based equity awards to our directors, officers and other employees. In addition, we may issue equity in order to raise capital or in connection with future acquisitions and strategic investments, which would dilute your percentage ownership.
We do not expect to pay dividends for the foreseeable future.
Other than an expected $100 million dividend to Sears Holdings to be paid prior to the separation, we do not expect to pay cash dividends on our common stock for the foreseeable future following the separation. We currently intend to retain any future earnings for use in our operations. As a result, you may not receive any return on an investment in our common stock in the form of cash dividends.
51
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Certain statements made in this prospectus contain forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include information concerning our future financial performance, business strategy, plans, goals and objectives.
Statements preceded or followed by, or that otherwise include, the words believes, expects, anticipates, intends, project, estimates, plans, forecast, is likely to and similar expressions or future or conditional verbs such as will, may, would, should and could are generally forward-looking in nature and not historical facts. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements.
The following factors, among others, could cause our actual results, performance or achievements to differ from those set forth in the forward-looking statements:
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our continued reliance on Sears Holdings for most products and services that are important to the successful operation of our business; |
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our continuing dependence on Sears Holdings subsequent to the separation, and our potential need to depend on Sears Holdings beyond the expiration of certain of our agreements with Sears Holdings; |
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our ability to offer merchandise and services that our customers want, including those under the Kenmore, Craftsman and DieHard brands; |
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our ability to successfully manage our inventory levels and implement initiatives to improve inventory management and other capabilities; |
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competitive conditions in the retail industry; |
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worldwide economic conditions and business uncertainty, the availability of consumer and commercial credit, changes in consumer confidence, tastes, preferences and spending, and changes in vendor relationships; |
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the inability of our historical financial statements to be indicative of our future performance, as a result of the separation from Sears Holdings and operating as a standalone public company; |
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the inability of our historical financial statements to be indicative of our future performance, as a result of the consolidation of the Sears Hometown and Hardware and Sears Outlet businesses into a single business entity; |
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the inability of our past performance generally, as reflected on our historical financial statements, to be indicative of our future performance; |
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the impact of increased costs due to a decrease in our purchasing power following the separation and other losses of benefits associated with being a subsidiary of Sears Holdings; |
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our agreements related to the rights offering and separation transactions and our continuing relationship with Sears Holdings were negotiated while we were a subsidiary of Sears Holdings and we may have received better terms from an unaffiliated third party; |
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limitations and restrictions in the agreements governing our indebtedness and our ability to service our indebtedness; |
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our ability to obtain additional financing on acceptable terms; |
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our dependence on existing dealers and franchisees to operate our stores profitably and in a manner consistent with our concepts and standards; |
52
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our dependence on sources outside the United States for significant amounts of our merchandise; |
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impairment charges for goodwill or fixed-asset impairment for long-lived assets; |
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our ability to attract, motivate and retain key executives and other employees; |
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the impact of increased costs associated with being a public company; |
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our ability to maintain effective internal controls as a public company; |
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low trading volume of our common stock due to limited liquidity or a lack of analyst coverage; and |
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the impact on our common stock and our overall performance as a result of our principal stockholders ability to exert substantial control over us. |
Certain of these and other factors are discussed in more detail in Risk Factors in this prospectus. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. While we believe that our forecasts and assumptions are reasonable, we caution that actual results may differ materially. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Consequently, actual events and results may vary significantly from those included in or contemplated or implied by our forward-looking statements. The forward-looking statements included in this prospectus are made only as of the date of this prospectus, and we undertake no obligation to publicly update or review any forward-looking statement made by us or on our behalf, whether as a result of new information, future developments, subsequent events or circumstances or otherwise.
53
All of the gross proceeds of the sale of SHO common stock upon exercise of the subscription rights, net of any selling expenses incurred by it, will be payable to and received by Sears Holdings. Consequently, SHO will not receive any proceeds from the exercise of the subscription rights, any sale of the subscription rights by any stockholder or the sale of SHO common stock by Sears Holdings.
Assuming the subscription rights are exercised in full, Sears Holdings expects to receive gross cash proceeds of approximately $346.5 million as a result of the sale of SHOs common stock.
54
In connection with the separation transactions we expect to enter into an asset-based senior secured revolving credit facility, or the Senior ABL Facility, which we expect will provide for aggregate maximum borrowings (subject to availability under a borrowing base) of $250 million. Prior to the separation, we expect to draw $100 million under the Senior ABL Facility to pay a cash dividend to Sears Holdings. See Managements Discussion and Analysis of Financial Condition and Results of OperationsAnalysis of Financial ConditionFinancing Arrangements.
Other than as described above, we do not currently expect to declare or pay dividends on our common stock for the foreseeable future following the separation. Instead, we intend to retain earnings to finance the growth and development of our business and for working capital and general corporate purposes. We expect the loan documents relating to our Senior ABL Facility to restrict our ability to make distributions with respect to and to repurchase our capital stock and the capital stock of certain of our subsidiaries. We expect the loan documents to contain customary exceptions, including the ability to make distributions with additional shares of common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon various factors then existing, including earnings, financial condition, results of operations, capital requirements, level of indebtedness, contractual restrictions with respect to payment of dividends, restrictions imposed by applicable law, general business conditions and other factors that our board of directors may deem relevant. See Managements Discussion and Analysis of Financial Condition and Results of OperationsUses and Sources of Liquidity.
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The following table presents our capitalization as of April 28, 2012 on (1) an actual basis and (2) an unaudited pro forma basis as adjusted to give effect to the separation and the transactions related to the separation.
This table should also be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the Condensed Combined Financial Statements and accompanying Notes included elsewhere in this prospectus.
As of April 28, 2012 | ||||||||
(unaudited) | ||||||||
thousands, except share data | Actual | Pro Forma (2) | ||||||
Cash and cash equivalents |
$ | 679 | $ | 679 | ||||
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Long Term Debt |
||||||||
Capital Lease ObligationsCurrent portion |
$ | 1,980 | $ | 1,980 | ||||
Capital Lease ObligationsLong-term |
1,460 | 1,460 | ||||||
Senior ABL Facility (1) |
| 100,000 | ||||||
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Total |
3,440 | 103,440 | ||||||
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Divisional Equity |
540,539 | | ||||||
Stockholders Equity |
||||||||
Common Stock, par value $0.01 per share, no shares authorized, issued and outstanding, actual. 400,000,000 shares authorized, 23,100,000 issued and outstanding, pro forma |
| 231 | ||||||
Additional Paid in Capital |
| 440,308 | ||||||
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|
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Total Stockholders Equity |
540,539 | 440,539 | ||||||
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Total Capitalization |
$ | 543,979 | $ | 543,979 | ||||
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(1) | In connection with the separation transactions we expect to enter into an asset-based senior secured revolving credit facility, or the Senior ABL Facility, which we expect will provide for aggregate maximum borrowings (subject to availability under a borrowing base) of $250 million. Prior to the separation, we expect to draw $100 million under the Senior ABL Facility to pay a cash dividend to Sears Holdings. See Managements Discussion and Analysis of Financial Condition and Results of OperationsAnalysis of Financial ConditionFinancing Arrangements. |
(2) | The pro forma adjustments give effect to (i) the expected payment of a $100 million cash dividend to Sears Holdings and (ii) the reclassification of the remaining divisional equity to common stock and additional paid in capital. |
56
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The combined statements of income data set forth below for the fiscal years ended January 30, 2010, January 29, 2011 and January 28, 2012 and the combined balance sheet data as of January 29, 2011 and January 28, 2012 are derived from the audited Combined Financial Statements included elsewhere in this prospectus. The combined statements of income data for the fiscal years ended February 2, 2008 and January 31, 2009 and the combined balance sheet data as of February 2, 2008, January 31, 2009 and January 30, 2010 are derived from the unaudited Combined Financial Statements that are not included in this prospectus. The combined statements of income data set forth below for the 13 weeks ended April 30, 2011 and April 28, 2012 and the combined balance sheet data as of April 30, 2011 and April 28, 2012 are derived from unaudited Condensed Combined Financial Statements included elsewhere in this prospectus. All such historical financial and other data reflects the combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings and is referred to herein as our historical financial and other data.
The selected historical combined financial and other financial data presented below should be read in conjunction with our Combined Financial Statements and accompanying notes and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus. Our combined financial information may not be indicative of our future performance and does not necessarily reflect what our financial position and results of operations would have been had we operated as a publicly traded company independent from Sears Holdings during the periods presented, including changes that will occur in our operations and capitalization as a result of the separation from Sears Holdings.
Fiscal Year | 13 Weeks Ended | |||||||||||||||||||||||||||
thousands, except store data | 2007 | 2008 | 2009 | 2010 | 2011 |
April 30,
2011 |
April 28,
2012 |
|||||||||||||||||||||
Combined Statement of Income Data (1) |
||||||||||||||||||||||||||||
Net sales |
$ | 2,297,340 | $ | 2,293,926 | $ | 2,329,925 | $ | 2,347,387 | $ | 2,344,199 | $ | 584,632 | $ | 621,078 | ||||||||||||||
Net income |
$ | 57,909 | $ | 30,272 | $ | 60,115 | $ | 49,756 | $ | 33,056 | $ | 7,415 | $ | 20,593 | ||||||||||||||
Pro Forma data (unaudited) |
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Pro Forma earnings per share, basic and diluted (2) |
$ | 1.43 | $ | 0.89 | ||||||||||||||||||||||||
Combined Balance Sheet Data |
||||||||||||||||||||||||||||
Total assets |
$ | 594,004 | $ | 605,461 | $ | 629,415 | $ | 641,441 | $ | 651,838 | $ | 668,603 | $ | 670,211 | ||||||||||||||
Long-term debt (3) |
| | | | | | | |||||||||||||||||||||
Long-term capital lease obligations |
$ | 9,987 | $ | 8,218 | $ | 6,209 | $ | 3,998 | $ | 1,937 | $ | 3,440 | $ | 1,460 | ||||||||||||||
Other Financial and Operating Data |
||||||||||||||||||||||||||||
Adjusted EBITDA (4) |
$ | 101,585 | $ | 57,735 | $ | 108,723 | $ | 93,864 | $ | 80,919 | $ | 15,072 | $ | 36,795 | ||||||||||||||
Number of stores |
1,030 | 1,113 | 1,166 | 1,205 | 1,274 | 1,210 | 1,238 | |||||||||||||||||||||
Sears OutletComparable Store Sales % |
(10.7 | )% | (6.0 | )% | 1.3 | % | (0.4 | )% | 8.7 | % | 2.7 | % | 5.4 | % | ||||||||||||||
Sears Hometown and HardwareComparable Store Sales % |
(0.3 | )% | (6.3 | )% | (5.9 | )% | (3.7 | )% | (6.1 | )% | (6.6 | )% | 0.1 | % |
(1) | Our fiscal year end is the Saturday closest to January 31 each year. Our fiscal first quarter end is the Saturday closest to April 30 each year. |
(2) | Pro forma earnings per share for the year ended January 28, 2012 and the 13 weeks ended April 28, 2012 are provided to show the pro forma effect of 23,100,000 shares of our common stock that will be outstanding following the separation. |
(3) | The unaudited pro forma condensed combined balance sheet data as of April 28, 2012 included elsewhere in this prospectus reflects the expected borrowing of $100 million pursuant to our expected $250 million revolving credit facility to fund a dividend to Sears Holdings. |
(4) | Adjusted EBITDA In addition to our net income determined in accordance with GAAP, for purposes of evaluating operating performance, we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization, or Adjusted EBITDA, which is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our business, as well as executive compensation metrics, for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. Adjusted EBITDA should not be considered as a substitute for GAAP measurements. |
57
While Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:
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EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs; and |
|
Other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of results. |
The following table presents a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP measure for each of the periods indicated:
Fiscal Year | 13 Weeks Ended | |||||||||||||||||||
thousands | 2009 | 2010 | 2011 |
April 30,
2011 |
April 28,
2012 |
|||||||||||||||
Net income |
$ | 60,115 | $ | 49,756 | $ | 33,056 | $ | 7,415 | $ | 20,593 | ||||||||||
Income tax expense |
39,037 | 32,492 | 21,727 | 4,927 | 13,454 | |||||||||||||||
Other income |
(9 | ) | (207 | ) | (422 | ) | (63 | ) | (226 | ) | ||||||||||
Interest expense |
588 | 421 | 913 | 439 | 669 | |||||||||||||||
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|
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Operating income |
99,731 | 82,462 | 55,274 | 12,718 | 34,490 | |||||||||||||||
Depreciation |
8,992 | 11,402 | 9,774 | 2,354 | 2,305 | |||||||||||||||
Store closing charges and severance costs (1) |
| | 15,871 | | | |||||||||||||||
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Adjusted EBITDA |
$ | 108,723 | $ | 93,864 | $ | 80,919 | $ | 15,072 | $ | 36,795 | ||||||||||
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(1) | See Note 7 to our Combined Financial Statements included herein. |
58
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Combined Financial Statements and notes, reflecting the combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings and is referred to herein as our financial condition and results of operations, contained elsewhere in this prospectus. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those factors discussed below and elsewhere in this prospectus, particularly in Risk Factors and Cautionary Statement Concerning Forward-Looking Statements.
Executive Overview
We are a national retailer primarily focused on selling home appliances, hardware, tools and lawn and garden equipment. As of April 28, 2012, we and our dealers and franchisees operated 1,238 stores across all 50 states and Puerto Rico, Guam and Bermuda.
In addition to merchandise we provide to our customers, we provide our customers with access to a full suite of services, including home delivery and handling and extended service contracts.
We operate through two segmentsthe Sears Hometown and Hardware segment and the Sears Outlet segment. Our Sears Hometown and Hardware stores are designed to provide our customers with in-store and online access to a wide selection of national brands of home appliances, tools, lawn and garden equipment, sporting goods, consumer electronics and household goods, depending on the particular store. Our Sears Outlet stores are designed to provide our customers with in-store and online access to purchase new, one-of-a-kind, out-of-carton, discontinued, obsolete, used, reconditioned, overstocked and scratched and dented products across a broad assortment of merchandise categories, including home appliances, lawn and garden equipment, apparel, mattresses, televisions, sporting goods and tools, and at prices that are significantly lower than manufacturers suggested retail prices.
As of April 28, 2012, the Sears Hometown and Hardware segment consists of 1,116 stores as follows:
|
944 Sears Hometown StoresPrimarily independently owned stores, predominantly located in smaller communities and offering appliances, consumer electronics, lawn and garden equipment, and hardware. Most of our Sears Hometown Stores carry proprietary Sears brand products, such as Kenmore, Craftsman, and DieHard, as well as a wide assortment of other national brands. |
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96 Sears Hardware StoresNeighborhood hardware stores that carry Craftsman brand tools and lawn and garden equipment, DieHard brand batteries and a wide assortment of other national brands and other home improvement products. 93 of these locations also offer a selection of Kenmore and other national brands of home appliances. |
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76 Sears Home Appliance ShowroomsInnovative stores that have a simple, primarily appliance showroom design that are strategically positioned in metropolitan areas. |
As of April 28, 2012, our Hometown and Hardware stores and Home Appliance Showroom operate through 945 independently owned and dealer-operated stores, 86 independently owned and franchisee-operated stores and 85 Company-operated stores. The business model and economic structure of the independently owned and dealer-operated stores, independently owned and franchisee-operated stores and Company-owned stores are substantially similar. The Company requires all of the stores to operate according to the Companys standards. Stores must display the required merchandise, offer all required products and services and use the Companys point of sale system. Also, the Company has the right to approve advertising, promotional and marketing materials and imposes certain advertising requirements on the owners. The Company establishes selling prices of
59
the merchandise and establishes a common commission structure for independently owned stores. Because the merchandise is procured and owned by the Company, we maintain general inventory risk before the completion of the customer purchase, and upon return by the customer, if any. In addition, because each transaction is rung on the Companys point of sale system, we maintain the credit risk. Store owners are paid a commission for the merchandise they sell and the services they provide.
Independent owners predominately exercise control over the day-to-day operations of the store, including supervising management and employees and making capital decisions.
The primary difference between independently owned stores and Company-owned stores is that the Company is responsible for occupancy and payroll costs associated with Company-owned stores. Independently owned store owners are responsible for the occupancy costs in their stores and the payroll of their employees.
As of April 28, 2012, the Sears Outlet segment consists of 122 Sears Outlet stores. These locations offer new, one-of-a-kind, out-of-carton, discontinued, obsolete, used, reconditioned, overstocked and scratched and dented products, including home appliances, lawn and garden equipment, apparel, mattresses, televisions, sporting goods and tools at prices that are significantly lower than manufacturers suggested retail prices.
Of the 1,238 stores (as of April 28, 2012), we closed five Sears Hometown Stores (net of new store openings), eight Sears Hardware Stores and one Sears Outlet Store since the first quarter of 2012 and intend to close one Sears Hardware Store in the second half of 2012.
Recent Developments
Set forth below is our preliminary estimated financial data for the 13 week period ended July 28, 2012 compared to the 13 week period ended July 30, 2011. Our final financial results for these periods may be materially different from the preliminary estimated financial data provided below as the quarterly financial close process is not complete, our independent registered public accounting firm has not completed its interim review procedures, and additional developments and adjustments may arise between now and the time the financial results for these periods are finalized. Accordingly, you should not place undue reliance on the following preliminary estimated financial data.
We currently expect that, for the 13 week period ended July 28, 2012 compared to the 13 week period ended July 30, 2011, our results will be:
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Net sales of approximately $645 million for the second quarter of fiscal 2012 as compared to approximately $630 million for the second quarter of fiscal 2011. We believe the increase of approximately $15 million, or 2.4%, was driven primarily by new stores (net of closures), increased initial franchise fees and delivery income partially offset by a reduction in comparable store sales. |
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Comparable store sales decrease of 1.2%, decrease of 0.7% at Sears Hometown and Hardware stores and 3.3% at Sears Outlet, in the second quarter of fiscal 2012 driven primarily by declines in lawn and garden due to drought conditions experienced throughout the country partially offset by an increase in appliances due to increased inventory in large capacity refrigeration. |
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Gross margin rate of approximately 25% for the second quarter of fiscal 2012 as compared to approximately 22% for the second quarter of fiscal 2011. We believe gross margin rate improved primarily due to improved delivery margin generated from less free-delivery offers, increased franchise revenue, lower occupancy costs and a higher balance of sales in higher margin categories such as apparel. |
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Net income of between $16 million and $21 million for the second quarter of fiscal 2012 as compared to $10 million to $12 million for the second quarter of fiscal 2011. |
60
Impacts from Our Separation from Sears Holdings
Our business currently consists of the Sears Hometown and Hardware and Sears Outlet businesses. Sears Holdings has determined to separate SHO by distributing, at no cost, rights to purchase all of our common stock to the stockholders of Sears Holdings. Assuming the rights offering is subscribed in full, immediately following completion of the rights offering, Sears Holdings stockholders will own 100% of the outstanding shares of our common stock. We expect that ESL will beneficially own at least approximately 62% of our outstanding common stock following completion of the rights offering. After completion of the rights offering, we will operate as a publicly traded company independent from Sears Holdings, which will have a range of impacts on our operations:
General Administrative and Separation Costs . Historically, we have used the corporate functions of Sears Holdings for a variety of services including treasury, accounting, tax, legal, and other shared services, which include the costs of payroll, employee benefits and other payroll related costs. Sears Holdings also contributes to other corporate functions such as senior management and centrally managed employee benefit arrangements. We were allocated $19.6 million in 2011, which includes $5.3 million allocated in the first quarter of 2011, $18.6 million in 2010 and $18.7 million in 2009 of shared services costs incurred by Sears Holdings. We were also allocated $3.9 million of shared services costs incurred by Sears Holdings in the first quarter of 2012. We believe that the assumptions and methodologies underlying the allocation of these expenses from Sears Holdings are reasonable. However, such expenses may not be indicative of the actual level of expense that would have been or will be incurred by us when we operate as a publicly traded company independent from Sears Holdings. We expect to enter into agreements with Sears Holdings for the continuation of certain of these services. We believe that the existing arrangements, as reflected in the historical financial statements contained herein, are not materially different from the arrangements that will be entered into as part of the separation.
We will also incur increased costs as a result of becoming a publicly traded company independent from Sears Holdings. As an independent public company, we expect to incur incremental costs to support our businesses, including management personnel, legal, finance, and human resources as well as certain costs associated with being a public company. These additional annual operating charges are estimated to be approximately $8.0 million to $9.0 million. We believe cash flows from operations will be sufficient to fund these additional corporate expenses.
In addition, we estimate one-time information technology costs related to the separation to be approximately $6.0 million to $7.0 million. These one-time costs include the segregation of Company data contained within information technology systems of Sears Holdings and the application of security requirements to protect the segregated data and give employees of the Company secured access to the Company data within Sears Holdings information technology systems. A portion of these expenditures may be capitalized and amortized over their useful lives and others will be expensed as incurred, depending on their nature.
Fiscal Year
Our fiscal year end is the Saturday closest to January 31 each year. Fiscal years 2009, 2010 and 2011 all consisted of 52 weeks. Unless otherwise stated, references to years in this prospectus relate to fiscal years rather than to calendar years. The following fiscal periods are presented herein:
Fiscal year |
Ended | Weeks | ||
2009 |
January 30, 2010 | 52 | ||
2010 |
January 29, 2011 | 52 | ||
2011 |
January 28, 2012 | 52 |
61
Results of Operations
The following table sets forth items derived from our combined results of operations for 2009, 2010 and 2011, and the 13 weeks ended April 30, 2011 and April 28, 2012.
Fiscal | 13 Weeks Ended | |||||||||||||||||||
thousands | 2009 | 2010 | 2011 |
April 30,
2011 |
April 28,
2012 |
|||||||||||||||
NET SALES |
$ | 2,329,925 | $ | 2,347,387 | $ | 2,344,199 | $ | 584,632 | $ | 621,078 | ||||||||||
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COSTS AND EXPENSES |
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Cost of sales and occupancy |
1,794,453 | 1,811,227 | 1,820,516 | 459,262 | 462,379 | |||||||||||||||
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Gross margin dollars |
535,472 | 536,160 | 523,683 | 125,370 | 158,699 | |||||||||||||||
Margin rate |
23.0 | % | 22.8 | % | 22.3 | % | 21.4 | % | 25.6 | % | ||||||||||
Selling and administrative |
426,749 | 442,296 | 458,635 | 110,298 | 121,904 | |||||||||||||||
Selling and administrative expense as a percentage of net sales |
18.3 | % | 18.8 | % | 19.6 | % | 18.9 | % | 19.6 | % | ||||||||||
Depreciation |
8,992 | 11,402 | 9,774 | 2,354 | 2,305 | |||||||||||||||
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Total costs and expenses |
2,230,194 | 2,264,925 | 2,288,925 | 571,914 | 586,588 | |||||||||||||||
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Operating income |
99,731 | 82,462 | 55,274 | 12,718 | 34,490 | |||||||||||||||
Interest expense |
(588 | ) | (421 | ) | (913 | ) | (439 | ) | (669 | ) | ||||||||||
Other income |
9 | 207 | 422 | 63 | 226 | |||||||||||||||
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Income before income taxes |
99,152 | 82,248 | 54,783 | 12,342 | 34,047 | |||||||||||||||
Income tax expense |
(39,037 | ) | (32,492 | ) | (21,727 | ) | (4,927 | ) | (13,454 | ) | ||||||||||
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NET INCOME |
$ | 60,115 | $ | 49,756 | $ | 33,056 | $ | 7,415 | $ | 20,593 | ||||||||||
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References to comparable store sales amounts within the following discussion include sales for all stores operating for a period of at least 12 full months, including remodeled and expanded stores, but excluding store relocations and stores that have undergone format changes. Comparable store sales amounts have also been adjusted for the change in the unshipped sales reserves recorded at the end of each reporting period.
In addition to our net income determined in accordance with GAAP, for purposes of evaluating operating performance, we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization, or Adjusted EBITDA, which is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our business, as well as executive compensation metrics, for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. Adjusted EBITDA should not be considered as a substitute for GAAP measurements.
While Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:
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EBITDA excludes the effects of financing and investing activities by eliminating the effects of interest and depreciation costs; and |
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Other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of results. |
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The following table presents a reconciliation of Adjusted EBITDA to net income, the most comparable GAAP measure for each of the periods indicated:
Fiscal | 13 Weeks Ended | |||||||||||||||||||
thousands | 2009 | 2010 | 2011 |
April 30,
2011 |
April 28,
2012 |
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Net income |
$ | 60,115 | $ | 49,756 | $ | 33,056 | $ | 7,415 | $ | 20,593 | ||||||||||
Income tax expense |
39,037 | 32,492 | 21,727 | 4,927 | 13,454 | |||||||||||||||
Other income |
(9 | ) | (207 | ) | (422 | ) | (63 | ) | (226 | ) | ||||||||||
Interest expense |
588 | 421 | 913 | 439 | 669 | |||||||||||||||
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Operating income |
99,731 | 82,462 | 55,274 | 12,718 | 34,490 | |||||||||||||||
Depreciation |
8,992 | 11,402 | 9,774 | 2,354 | 2,305 | |||||||||||||||
Store closing charges and severance costs (1) |
| | 15,871 | | | |||||||||||||||
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Adjusted EBITDA |
$ | 108,723 | $ | 93,864 | $ | 80,919 | $ | 15,072 | $ | 36,795 | ||||||||||
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(1) | See Note 7 to our Combined Financial Statements included herein. |
13 Week Period ended April 28, 2012 Compared to the 13 Week Period Ended April 30, 2011
Net Sales
Net sales in the first quarter of 2012 increased $36.4 million, or 6.2%, to $621.1 million from the first quarter of 2011. Net sales increased as a result of new store openings, as well as an increase in comparable store sales of 1.2%. The increase in comparable store sales in 2012 was primarily driven by increases in the home appliances, lawn and garden, tools and paint, mattresses and apparel categories.
Gross Margin
Gross margin was $158.7 million, or 25.6% of net sales, in the first quarter of 2012, as compared to $125.4 million, or 21.4% of net sales, in the first quarter of 2011. The 420 basis point increase in gross margin rate was primarily driven by a decrease in clearance markdowns due to improved inventory productivity and improved delivery margins due to eliminating free delivery offers to customers in the first quarter of 2012. In addition, occupancy expense decreased in the first quarter of 2012 compared to the prior year quarter due to the increase in the number of franchised store locations. This decrease in occupancy expense was offset by increased selling and administrative expenses due to the increase in commissions paid as noted below. The total increase in gross margin dollars of $33.3 million was due to the increase in net sales as well as the increase in gross margin rate.
Selling and Administrative Expenses
Selling and administrative expenses increased to $121.9 million, or 19.6% of net sales, in the first quarter of 2012 from $110.3 million, or 18.9% of net sales, in the prior year quarter. The increase was primarily due to increases in commissions paid to dealers and franchisees due to increased sales, overall sales growth and a higher number of stores.
Operating Income
We recorded operating income of $34.5 million in the first quarter of 2012 as compared to operating income of $12.7 million in the prior year quarter. The $21.8 million increase in operating income was driven by overall improvements in net sales and gross margin rate, partially offset by an increase in selling and administrative expenses.
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Income Taxes
Income tax expense of $13.5 million and $4.9 million was recorded in the first quarter of 2012 and 2011, respectively. The effective tax rate was 39.5% and 39.9% in the first quarter of 2012 and 2011, respectively.
Net Income
We recorded net income of $20.6 million for the first quarter of 2012 as compared to $7.4 million for the prior year quarter. The increase in net income was attributable to the factors discussed above.
2011 Compared to 2010
Net Sales
Net sales in 2011 were $2.3 billion, consistent with 2010. Net sales increased as a result of new store openings, but were offset by a decrease in comparable stores sales of 3.4%. The decline in comparable store sales for 2011 was driven by lower sales in the home appliance and lawn and garden categories.
Gross Margin
Gross margin was $524 million, or 22.3% of net sales, in 2011, as compared to $536 million, or 22.8% of net sales, in 2010. The total decline in gross margin dollars of $12 million included a charge of $12.1 million related to store closures recorded in 2011.
Selling and Administrative Expenses
Selling and administrative expenses increased $16.3 million in 2011 to $459 million, or 19.6% of net sales, from $442 million, or 18.8% of net sales, in 2010. Selling and administrative expense for 2011 increased primarily due to sales growth, a higher number of Sears Outlet Stores, investments in marketing to increase awareness of our Outlet Stores and $3.8 million for store closing and severance costs.
Operating Income
We recorded operating income of $55.3 million in 2011 as compared to operating income of $82.5 million in 2010. Operating income for 2011 included total charges of $16.1 million related to store closures. The remaining decline in operating income of $11.1 million was due to the increase in selling and administrative expenses.
Income Taxes
Income tax expense of $21.7 million and $32.5 million was recorded in 2011 and 2010, respectively. The effective tax rate was 39.7% and 39.5% in 2011 and 2010, respectively.
Net Income
We recorded net income of $33.1 million for 2011 as compared to $49.8 million for 2010. The decrease in net income was attributable to the factors discussed above.
2010 Compared to 2009
Net Sales
For 2010, net sales were $2.3 billion, consistent with 2009. The slight increase in net sales was primarily due to sales from new store openings, partially offset by a decline in comparable store sales of 3.2%. The decline in comparable store sales for 2010 was driven by decreases in the consumer electronics and tools categories, which were partially offset by increased home appliance sales due to government-sponsored stimulus programs.
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Gross Margin
Gross margin was $536 million, or 22.8% of net sales, in 2010, as compared to $535 million, or 23.0% of net sales, in 2009. The decrease of 20 basis points in gross margin rate was primarily due to higher promotion expenses related to appliance sales in Sears Hometown and Hardware, partially offset by higher margins from growth in Sears Outlet apparel sales.
Selling and Administrative Expenses
Selling and administrative expenses increased $15.5 million in 2010 to $442 million, or 18.8% of net sales, from $427 million, or 18.3% of net sales, in 2009. The increase in selling and administrative expenses was primarily due to higher volume, new stores and increased commission expense related to the conversion of company-operated stores to franchises.
Operating Income
We recorded operating income of $82.5 million in 2010 as compared to operating income of $99.7 million in 2009. The decline in operating income was predominately due to the above-noted increase in selling and administrative expenses.
Income Taxes
Income tax expense of $32.5 million and $39.0 million was recorded in 2010 and 2009, respectively. The effective tax rate was 39.5% and 39.4% in 2010 and 2009, respectively.
Net Income
We recorded net income of $49.8 million for 2010 as compared to $60.1 million for 2009. The decrease in net income was attributable to the factors discussed above.
Business Segment Results
Sears Hometown and Hardware
Sears Hometown and Hardware results and key statistics were as follows:
Fiscal Year | 13 Weeks Ended | |||||||||||||||||||
thousands, except for number of stores | 2009 | 2010 | 2011 |
April 30,
2011 |
April 28,
2012 |
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Net sales |
$ | 1,934,837 | $ | 1,915,216 | $ | 1,838,797 | $ | 462,851 | $ | 479,857 | ||||||||||
Comparable store sales % |
(5.9 | )% | (3.7 | )% | (6.1 | )% | (6.6 | )% | 0.1 | % | ||||||||||
Cost of sales and occupancy |
1,513,484 | 1,508,840 | 1,463,636 | 373,954 | 362,586 | |||||||||||||||
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Gross margin dollars |
421,353 | 406,376 | 375,161 | 88,897 | 117,271 | |||||||||||||||
Margin rate |
21.8 | % | 21.2 | % | 20.4 | % | 19.2 | % | 24.4 | % | ||||||||||
Selling and administrative |
351,415 | 358,241 | 356,351 | 87,785 | 96,414 | |||||||||||||||
Selling and administrative expense as a percentage of net sales |
18.2 | % | 18.7 | % | 19.4 | % | 19.0 | % | 20.1 | % | ||||||||||
Depreciation |
4,673 | 4,766 | 4,083 | 1,006 | 835 | |||||||||||||||
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Total costs and expenses |
1,869,572 | 1,871,847 | 1,824,070 | 462,745 | 459,835 | |||||||||||||||
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Operating income |
$ | 65,265 | $ | 43,369 | $ | 14,727 | $ | 106 | $ | 20,022 | ||||||||||
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Total Sears Hometown and Hardware stores |
1,073 | 1,103 | 1,158 | 1,106 | 1,116 |
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13 Week Period ended April 28, 2012 Compared to the 13 Week Period Ended April 30, 2011Sears Hometown and Hardware
Net Sales
Sears Hometown and Hardware net sales increased $17.0 million, or 3.7%, to $479.9 million in the first quarter of 2012 from $462.9 million in the first quarter of 2011. The increase was primarily due to new store openings as well as a 0.1% increase in comparable store sales. Since the first quarter of 2011, we opened 35 new Sears Hometown Stores and 45 Sears Home Appliance Showrooms, which resulted in an increase in net sales of approximately $19.9 million. In addition, 48 Sears Hometown Stores were closed throughout the first quarter of 2012, which did not have a material impact on the year over year net sales variance. The slight increase in comparable store sales for 2012 was driven by sales increases in the lawn and garden and tools and paint categories, which were offset by declines in consumer electronics and floorcare. The increase in lawn and garden sales was primarily a result of the unseasonable warmer weather across the country in March 2012 which generated sales earlier in the spring selling season while the increase in tools and paint sales was driven by an increase in advertising for this category. The decrease in consumer electronics sales from the prior year quarter was a result of the product category being removed from the assortment in a select number of our stores during the quarter and replaced with more profitable merchandise offerings. The decrease in floorcare sales was a result of lower inventory levels only experienced in the first quarter of 2012.
Gross Margin
Gross margin was $117.3 million, or 24.4% of net sales in the first quarter of 2012, as compared to $88.9 million, or 19.2% of net sales, in the prior year quarter. The 520 basis point improvement in gross margin rate over the prior year quarter was driven by a decrease in clearance markdowns resulting from improved inventory productivity as well as improved delivery margins due to eliminating free delivery offers to customers in the first quarter of 2012. In addition, occupancy expense decreased in the first quarter of 2012 compared to the prior year quarter due to the increase in the number of franchised store locations. This decrease in occupancy expense was offset by increased selling and administrative expenses due to the increase in commissions paid as noted below. The total increase in gross margin dollars of $28.4 million was driven by the above-noted sales increase and improvement in gross margin rate.
Selling and Administrative Expenses
Selling and administrative expenses increased to $96.4 million, or 20.1% of net sales, in the first quarter of 2012 from $87.8 million, or 19.0% of net sales, in the prior year quarter. Selling and administrative expense for 2012 increased due to an increase in commissions paid to dealers and franchisees as a result of the increase in net sales.
Operating Income
We recorded operating income of $20.0 million in the first quarter of 2012 as compared to operating income of $0.1 million in the prior year quarter. The overall increase in operating income of $19.9 million was driven by the above noted increases in net sales and gross margin rate.
2011 Compared to 2010Sears Hometown and Hardware
Net Sales
Sears Hometown and Hardware net sales decreased $76.4 million, or 4.0%, to $1.8 billion in 2011 from $1.9 billion in 2010. The decrease was primarily due to a 6.1% decline in comparable store sales which was partially offset by an increase in net sales due to new store openings. The decline in comparable store sales for 2011 was driven by a decline in home appliance comparable store sales which resulted from the government-sponsored
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appliance stimulus programs in 2010. During 2010, as part of the economic recovery measures, the U.S Federal Government distributed approximately $300 million to various states and territories for use in providing rebates to consumers who purchased new energy efficient home appliances. This program benefited the Company in 2010, but was not repeated in 2011. In addition, lawn and garden sales declined primarily due to weather-related conditions in the southwest region of the country, which experienced a significant drought and reduced demand for such items. We opened 34 new Sears Hometown stores and 42 Sears Home Appliance Showrooms which resulted in an increase of approximately $22.5 million in net sales.
Gross Margin
Gross margin was $375 million, or 20.4% of net sales in 2011, as compared to $406 million, or 21.2% of net sales in 2010. The total decline in gross margin dollars of $31.2 million was primarily driven by the above-noted sales decline along with charges of $12.1 million related to store closures and $11.7 million of expenses related to the Shop Your Way Rewards program. In 2011, we made the decision to close 84 underperforming stores and recorded a charge of $12.2 million. See Note 7 in Notes to Combined Financial Statements for additional details. We did not make any such decisions in 2010 and as such we did not record any charges in 2010. Sears Holdings was in its initial launch of the Shop Your Way Rewards program in 2010. In 2011, after the initial launch, each business of Sears Holdings was charged for expenses related to members purchases in their stores.
Selling and Administrative Expenses
Selling and administrative expenses decreased to $356 million in 2011 from $358 million in 2010. Selling and administrative expenses as a percentage of net sales increased to 19.4% of net sales in 2011 from 18.7% of net sales in 2010 primarily due to the decrease in sales. Selling and administrative expense for 2011 included charges of $3.8 million for store closing and severance costs.
Operating Income
We recorded operating income of $14.7 million in 2011 as compared to operating income of $43.4 million in 2010. Operating income for 2011 included total charges of $16.1 million related to store closures. The overall decline in operating income of $28.6 million was due to the decline in gross margin dollars and rate.
2010 Compared to 2009Sears Hometown and Hardware
Net Sales
Sears Hometown and Hardware net sales were $1.9 billion in both 2010 and 2009. Comparable store sales declined 3.7%, but were offset by sales from new store openings. The decline in comparable store sales for 2010 was driven by the continued price compression of the consumer electronics business and a decline in the tools category, partially offset by an increase in home appliance sales as a result of the government-sponsored appliance stimulus programs.
Gross Margin
Gross margin was $406 million, or 21.2% of net sales, in 2010, as compared to $421 million, or 21.8% of net sales, in 2009. The decrease of 60 basis points in gross margin rate was primarily due to higher promotional activity in the home appliance category given the macroeconomic challenges in stimulating demand, as well as increased clearance markdowns associated with a higher than average transition to new home appliance products.
Selling and Administrative Expenses
Selling and administrative expenses increased to $358 million, or 18.7% of net sales in 2010 from $351 million, or 18.2% of net sales in 2009. The increase was primarily due to higher commission expense related to
67
the conversion of company operated stores to franchises. In addition, selling and administrative expenses were impacted by the addition of new stores, which generate expenses on a lower starting sales base as compared to mature stores.
Operating Income
We recorded operating income of $43.4 million in 2010 as compared to $65.3 million in 2009. The decrease in operating income was attributable to the factors discussed above.
Sears Outlet
Sears Outlet results and key statistics were as follows:
Fiscal | 13 Weeks Ended | |||||||||||||||||||
thousands, except for number of stores | 2009 | 2010 | 2011 |
April 30,
2011 |
April 28,
2012 |
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Net sales |
$ | 395,088 | $ | 432,171 | $ | 505,402 | $ | 121,781 | $ | 141,221 | ||||||||||
Comparable store sales % |
1.3 | % | (0.4 | )% | 8.7 | % | 2.7 | % | 5.4 | % | ||||||||||
Cost of sales and occupancy |
280,969 | 302,387 | 356,880 | 85,308 | 99,793 | |||||||||||||||
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Gross margin dollars |
114,119 | 129,784 | 148,522 | 36,473 | 41,428 | |||||||||||||||
Margin rate |
28.9 | % | 30.0 | % | 29.4 | % | 29.9 | % | 29.3 | % | ||||||||||
Selling and administrative |
75,334 | 84,055 | 102,284 | 22,513 | 25,490 | |||||||||||||||
Selling and administrative expense as a percentage of net sales |
19.1 | % | 19.4 | % | 20.2 | % | 18.5 | % | 18.0 | % | ||||||||||
Depreciation |
4,319 | 6,636 | 5,691 | 1,348 | 1,470 | |||||||||||||||
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Total costs and expenses |
360,622 | 393,078 | 464,855 | 109,169 | 126,753 | |||||||||||||||
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Operating income |
$ | 34,466 | $ | 39,093 | $ | 40,547 | $ | 12,612 | $ | 14,468 | ||||||||||
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Total Sears Outlet stores |
93 | 102 | 116 | 104 | 122 |
13 Week Period ended April 28, 2012 Compared to the 13 Week Period Ended April 30, 2011Sears Outlet
Net Sales
Sears Outlet net sales increased $19.4 million, or 16.0%, to $141.2 million in the first quarter of 2012 from $121.8 million in the first quarter of 2011. The increase was primarily due to new store openings as well as a 5.4% increase in comparable store sales. Since the first quarter of 2011, we opened 21 new Sears Outlet stores which resulted in an increase in net sales of approximately $12.3 million. The increase in comparable store sales for 2012 was driven by sales increases in the home appliances, mattresses, apparel and tools categories. Increases in these categories were driven by improved inventory levels in home appliances, assortment expansion in both the mattresses and tools categories, and an increase in the number of stores that carry apparel.
Gross Margin
Gross margin was $41.4 million, or 29.3% of net sales in the first quarter of 2012, as compared to $36.5 million, or 29.9% of net sales in the prior year quarter. Margin rate decreased 60 basis points in the first quarter of 2012 compared to the prior year quarter primarily due to lower receipts of higher margin sold as-is home appliances partially offset by a higher balance of sales in higher margin categories such as apparel and mattresses. Total gross margin dollars increased $5.0 million in the first quarter of 2012 to $41.4 million due to the increase in net sales being offset by the above-noted decline in gross margin rate.
68
Selling and Administrative Expenses
Selling and administrative expenses increased to $25.5 million in the first quarter of 2012 from $22.5 million in the prior year quarter due to sales growth and a higher number of Sears Outlet stores. Selling and administrative expenses as a percentage of net sales decreased to 18.0% of net sales in the first quarter of 2012 from 18.5% of net sales in the first quarter of 2011 primarily due to the above-noted increases in expenses being offset by the increase in sales.
Operating Income
We recorded operating income of $14.5 million in the first quarter of 2012 as compared to operating income of $12.6 million in the prior year quarter. The increase in operating income of $1.9 million was driven by the increase in net sales which was offset by the above-noted decrease in gross margin rate and increase in selling and administrative expenses.
2011 Compared to 2010Sears Outlet
Net sales
Sears Outlet net sales increased $73 million, or 16.9%, to $505 million in 2011 from net sales of $432 million in 2010. The increase was primarily due to an increase in comparable store sales of 8.7% as well as an increase in net sales due to new store openings. The increase in comparable store sales in 2011 was driven primarily by increases in the home appliance, lawn and garden, apparel and mattress categories. Increases in these categories were driven by improved functionality of Searsoutlet.com, assortment changes, such as the purchase of patio furniture and grills, increased inventory in certain categories like tractors and an increase in the number of stores that carry apparel. Unlike the Sears Hometown and Hardware stores, the government-sponsored appliance stimulus program did not have a significant impact on Sears Outlet because the program was applicable to new energy-efficient home appliances, which is only a small portion of the home appliance offering at Sears Outlet. In addition. the weather-related conditions in the southwest region of the country had a disproportionately higher impact on Sears Hometown and Hardware stores due to the significantly higher store base, store locations and mix of lawn and garden product. We opened 17 new Sears Outlet stores which resulted in an increase of approximately $23.2 million in net sales.
Gross Margin
Sears Outlet gross margin was $148.5 million, or 29.4% of net sales in 2011, as compared to $129.8 million, or 30.0% of net sales, in 2010. The decrease of 60 basis points in gross margin rate was primarily due to expenses related to the Shop Your Way Rewards program. Sears Holdings was in its initial launch of the Shop Your Way Rewards program in 2010. In 2011, after the initial launch, each business of Sears Holdings was charged for expenses related to members purchases in their stores. Gross margin rates for Sears Outlet are generally higher than those for Sears Hometown and Hardware due to the lower cost of product acquisition for the outlet-value products market.
Selling and Administrative Expenses
Selling and administrative expenses increased $18.2 million in 2011 to $102.3 million, or 20.2% of net sales, from $84.1 million, or 19.4% of net sales, in 2010. The increase in selling and administrative expenses was primarily due to sales growth, a higher number of Sears Outlet stores and additional investments in marketing to increase awareness of our Sears Outlet stores.
Operating Income
We recorded operating income of $40.5 million in 2011, as compared to $39.1 million in 2010, due to increases in net sales being partially offset by a decline in gross margin rate as well as an increase in selling and administrative expenses.
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2010 Compared to 2009Sears Outlet
Net Sales
Sears Outlet net sales in 2010 increased $37.1 million or 9.4% to $432 million, as compared to net sales of $395 million in 2009. The increase in net sales was primarily due to an increase in sales from new store openings, partially offset by a decrease in comparable store sales. The decline in comparable store sales in 2010 was driven primarily by a decline in home appliances.
Gross Margin
Gross margin was $129.8 million, or 30.0% of net sales, in 2010, as compared to $114.1 million, or 28.9% of net sales, in 2009. The increase of $15.7 million in gross margin dollars was primarily due to the overall increase in net sales as well as the 110 basis point increase in gross margin rate which was attributable to growth in the higher margin apparel category.
Selling and Administrative Expenses
Selling and administrative expenses increased $8.7 million in 2010 to $84.1 million, or 19.4% of net sales, from $75.3 million, or 19.1% of net sales, in 2009. The increase in selling and administrative expenses was primarily due to sales growth, an increase in the number of Sears Outlet stores and a higher store payroll rate.
Operating Income
We recorded operating income of $39.1 million in 2010 compared to $34.5 million in 2009. The increase in operating income was primarily attributable to the factors discussed above.
Analysis of Financial Condition
Cash Balances
Our cash and cash equivalents balances at January 29, 2011 and January 28, 2012 were $0.8 million and $0.7 million, respectively. Our cash balances as of April 30, 2011 and April 28, 2012 were $0.8 million and $0.7 million respectively.
For fiscal year 2011 and the first quarter of 2012, we financed our operations and investments primarily with cash generated from operations. Our primary need for liquidity is to fund inventory purchases and capital expenditures and for general corporate purposes.
Cash Flows from Operating Activities
For the first quarter of 2012, we financed our operations and investments primarily with cash generated from operations. Cash provided by operating activities was $20.6 million in the first quarter of 2012 as compared to cash used in operating activities of $9.9 million in the first quarter of 2011. The increase in cash provided by operating activities in the first quarter of 2012 was primarily driven by the increase in net income.
Merchandise inventories were $418.4 million at April 30, 2011 and $405.9 million at April 28, 2012. Merchandise inventories for Sears Hometown and Hardware stores decreased from $347.1 million at April 30, 2011 to $331.3 million at April 28, 2012 primarily due to improved inventory productivity. Merchandise inventories for Sears Outlet stores increased from $71.3 million at April 30, 2011 to $74.6 million at April 28, 2012 primarily due to store growth.
For 2011, we financed our operations and investments primarily with cash generated from operations. Cash provided by operating activities was $38.5 million in 2011 as compared to $49.0 million in 2010 and $14.1 million in 2009.
70
Merchandise inventories were $394.6 million at January 29, 2011 and $393.7 million at January 28, 2012. Merchandise inventories for Sears Hometown and Hardware stores decreased from $319.7 million at January 29, 2011 to $307.8 million primarily due to improved inventory productivity. Merchandise inventories for Sears Outlet stores increased from $74.9 million to $85.9 million primarily due to store growth.
We obtain our merchandise through agreements with Sears Holdings or through vendors. In 2011, merchandise acquired from subsidiaries of Sears Holdings, including Kenmore, Craftsman, DieHard and other products, accounted for approximately 90% of total purchases of all inventory from all vendors. The loss of or a reduction in the amount of merchandise made available to us by Sears Holdings could have a material adverse effect on our business and results of operations.
In addition, our vendor arrangements generally are not long-term agreements (other than the Merchandising Agreement) and none of them guarantee the availability of merchandise in the future. Our growth strategy depends to a significant extent on the willingness and ability of our vendors to supply us with sufficient inventory. As a result, our success depends on maintaining good relations with our existing vendors and developing relationships with new vendors. If we fail to strengthen our relations with our existing vendors or to enhance the quality of merchandise they supply us, or if we cannot maintain or acquire new vendors of favored brand name merchandise, our ability to obtain a sufficient amount and variety of merchandise at acceptable prices may be limited, which would have a negative impact on our competitive position. In addition, we may not be able to develop relationships with new vendors, and products from alternative sources, if any, may be of a lesser quality and more expensive than those we currently purchase.
Cash Flows from Investing Activities
Cash used in investing activities was $1.9 million for the first quarter of 2012 compared to $1.5 million for the first quarter of 2011. Cash used in investing activities in both quarters was for purchases of property and equipment.
Cash used in investing activities was $10.0 million for 2011, $5.8 million for 2010 and $6.1 million for 2009. Cash used in investing activities in all three years was for purchases of property and equipment.
Cash Flows from Financing Activities
Cash used in financing activities was $18.6 million for the first quarter of 2012 compared to cash provided by financing activities of $11.4 million for the first quarter of 2011. The increase of $30.0 million in cash used in financing activities in 2012 from 2011 was due to the increase in repayments to Sears Holdings.
Cash used in financing activities was $28.6 million for 2011, $43.0 million for 2010 and $7.9 million for 2009. The decrease of $14.4 million in cash used in financing activities in 2011 from 2010 was due to the reduction of repayments to Sears Holdings. The increase of $35.1 million in cash used in financing activities in 2010 from 2009 was due to the increased repayments to Sears Holdings.
Financing Arrangements
In connection with the separation, we expect to enter into an asset-based senior secured revolving credit facility, or the Senior ABL Facility, with a group of financial institutions. The Senior ABL Facility is expected to provide (subject to availability under a borrowing base) for aggregate maximum borrowings of $250 million. Up to $75 million of the revolving credit facility is expected to be available for the issuance of letters of credit and up to $25 million is expected to be available for swingline loans.
As of the date of the separation, we expect to have $100 million outstanding under the Senior ABL Facility which will be used to pay a cash dividend to Sears Holdings immediately prior to the separation. The Senior
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ABL Facility is also expected to allow revolving commitment increases in an aggregate principal amount of up to $100 million.
The anticipated principal terms of the Senior ABL Facility are summarized below.
Senior ABL Facility
Maturity; Amortization and Prepayments
The Senior ABL Facility is expected to mature on the earlier of (i) the five year anniversary of the closing date of the credit facility and (ii) six months prior to the expiration of the Services Agreement or certain other material contracts entered into with Sears Holdings or its subsidiaries in connection with the separation, unless such agreements are extended to a date later than that set forth in clause (i) or terminated on a basis reasonably satisfactory to the administrative agent under the Senior ABL Facility.
The Senior ABL Facility is expected to be subject to mandatory prepayment in amounts equal to the amount by which the outstanding extensions of credit exceed the lesser of the borrowing base and the commitments then in effect.
Guarantees; Security
The obligations under the Senior ABL Facility are expected to be guaranteed by us and each of our existing and future direct and indirect wholly owned domestic subsidiaries (subject to certain exceptions). The Senior ABL Facility and the guarantees thereunder are expected to be secured by a first priority security interest in certain assets of the borrowers and guarantors consisting primarily of accounts receivable, inventory, cash, cash equivalents, deposit accounts and securities accounts, as well as certain other assets (other than intellectual property) ancillary to any of the foregoing and all proceeds of any of the foregoing, including cash proceeds and the proceeds of applicable insurance.
Interest; Fees
The interest rates per annum applicable to the loans under the Senior ABL Facility are expected to be based on a fluctuating rate of interest measured by reference to, at the borrowers election, either (1) an adjusted London inter-bank offered rate (LIBOR) plus a borrowing margin or (2) an alternate base rate plus a borrowing margin, with the borrowing margin subject to adjustment based on the average excess availability under the facility for the preceding fiscal quarter.
Customary fees are expected to be payable in respect of the Senior ABL Facility, including letter of credit fees and commitment fees.
Covenants
The Senior ABL Facility is expected to include a number of covenants that, among other things, would limit or restrict our ability and the ability of the borrowers and the other guarantors to, subject to certain exceptions, incur additional indebtedness (including guarantees), grant liens, make investments, make dividends or distributions with respect to our capital stock (other than the up to $100 million dividend to Sears Holdings prior to the separation), make prepayments on other indebtedness, engage in mergers or change the nature of our or their business. In addition, after the first anniversary of the closing date of the Senior ABL Facility, upon excess availability falling below a certain level, we expect to be required to comply with a minimum fixed charge coverage ratio.
The Senior ABL Facility is also expected to contain certain affirmative covenants, including financial and other reporting requirements.
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Events of Default
The Senior ABL Facility is expected to include customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross default to certain other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or security interests, material judgments and change of control.
Uses and Sources of Liquidity
We believe that our existing cash and cash equivalents, cash flows from our operating activities and, to the extent necessary, from availability under the Senior ABL Facility will be sufficient to meet our anticipated liquidity needs for at least the next 12 months. As of April 28, 2012, we had cash and cash equivalents of $0.7 million. As a result, we expect to fund our ongoing operations through cash generated by operating activities and availability under the expected Senior ABL Facility. The adequacy of our available funds will depend on many factors, including the macroeconomic environment and the operating performance of our stores.
Capital lease obligations as of January 29, 2011 and, January 28, 2012 were $6.2 million and $4.0 million, respectively. Capital lease obligations as of April 30, 2011 and April 28, 2012 were $5.7 million and $3.4 million, respectively.
As of the date of this prospectus, Sears Holdings domestic credit facility is (1) secured, in part, by a first lien on the inventory and credit card receivables directly or indirectly owned by SHO and the subsidiaries of Sears Holdings that will become wholly owned subsidiaries of SHO prior to the completion of the separation and (2) guaranteed by SHO and the entities that will become wholly owned subsidiaries of SHO prior to the separation. Prior to the completion of the separation, this lien and these guarantee obligations will be released.
Contractual Obligations and Off-Balance Sheet Arrangements
Information concerning our obligations and commitments to make future payments under contract such as debt and lease agreements and under contingent commitments as of January 28, 2012 is as aggregated in the following table:
thousands | Total |
Within
1 Year |
1-3
Years |
4-5
Years |
After 5
Years |
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Long-term Debt (1) |
$ | 100,000 | $ | | $ | | $ | | $ | 100,000 | ||||||||||
Capital leases |
3,998 | 2,061 | 1,937 | | | |||||||||||||||
Operating leases |
202,662 | 52,653 | 66,634 | 33,922 | 49,453 | |||||||||||||||
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Total Contractual Obligations |
$ | 306,660 | $ | 54,714 | $ | 68,571 | $ | 33,922 | $ | 149,453 | ||||||||||
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(1) | Reflects the expected up to $100 million draw on the Senior ABL Facility which we expect to enter into prior to the separation. |
Application of Critical Accounting Policies and Estimates
In preparing the financial statements, certain accounting policies require considerable judgment to select the appropriate assumptions to calculate financial estimates. These estimates are complex and subject to an inherent degree of uncertainty. We base our estimates on historical experience, terms of existing contracts, evaluation of trends and other assumptions that we believe to be reasonable under the circumstances. We continually evaluate the information used to make these estimates as our business and the economic environment change. Although the use of estimates is pervasive throughout the financial statements, we consider an accounting estimate to be critical if:
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it requires assumptions to be made about matters that were highly uncertain at the time the estimate was made, and |
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changes in the estimate that are reasonably likely to occur from period to period or different estimates that could have been selected would have a material effect on our financial condition, cash flows or results of operations. |
We believe that the current assumptions and other considerations used to estimate amounts reflected in the financial statements are appropriate. However, if actual experience differs from the assumptions and the considerations used in estimating amounts, the resulting changes could have a material adverse effect on our combined results of operations, and in certain situations, could have a material adverse effect on our financial condition.
The following is a summary of our most critical policies and estimates. See Note 2 of the Notes to the Combined Financial Statements for a listing of our other significant accounting policies.
Valuation of Inventory
Our inventory is valued at the lower of cost or market determined primarily using the retail inventory method, or RIM. RIM is an averaging method that is commonly used in the retail industry. To determine inventory cost under RIM, inventory at its retail selling value is segregated into groupings of merchandise having similar characteristics, which are then converted to a cost basis by applying specific average cost factors for each grouping of merchandise. Cost factors represent the average cost-to-retail ratio for each merchandise group based upon the years purchasing activity for each store location. Accordingly, a significant assumption under the retail method is that inventory in each group is similar in terms of its cost-to-retail relationship and has similar turnover rates. We monitor the content of merchandise in these groupings to prevent distortions that would have a material effect on inventory valuation.
RIM inherently requires management judgment and certain estimates that may significantly affect the ending inventory valuation, as well as gross margin. The methodologies utilized by SHO in its application of the RIM are consistent for all periods presented. Such methodologies include the development of the cost-to-retail ratios, the groupings of homogenous classes of merchandise, the development of shrinkage and obsolescence reserves, and the accounting for retail price changes. We believe that SHOs RIM provides an inventory valuation that reasonably approximates cost. Among others, two significant estimates used in inventory valuation are the level and timing of permanent markdowns (clearance markdowns used to clear unproductive or slow-moving inventory) and shrinkage. Amounts are charged to cost of sales at the time the retail value of inventory is reduced through the use of permanent markdowns.
Factors considered in the determination of permanent markdowns include current and anticipated demand, customer preferences, age of the merchandise, fashion and design trends and weather conditions. In addition, inventory is also evaluated against corporate pre-determined historical markdown cadences. When a decision is made to permanently markdown merchandise, the resulting gross margin reduction is recognized in the period the markdown is recorded. The timing of the decision, particularly surrounding the balance sheet date, can have a significant effect on the results of operations.
Income Taxes
We account for income taxes in accordance with accounting standards for such taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting and tax bases of recorded assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If future utilization of deferred tax assets is uncertain, we may record a valuation allowance against certain deferred tax assets. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and results
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of recent operations. In projecting future taxable income, we begin with historical results and incorporate assumptions including the amount of future state, federal and foreign pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income.
We account for uncertainties in income taxes according to accounting standards for uncertain tax positions. We are present in a large number of taxable jurisdictions, and at any point in time, can have audits underway at various stages of completion in any of these jurisdictions. We evaluate our tax positions and establish liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite the belief that the underlying tax positions are fully supportable. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law, and closing of statute of limitations. Such adjustments are reflected in the tax provision as appropriate. Pursuant to a Tax Sharing Agreement, Sears Holdings will be responsible for any unrecognized tax benefits through the date of the separation.
Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against our net deferred tax assets, if any. As further described above, we consider estimates of the amount and character of future taxable income in assessing the likelihood of realization of deferred tax assets. Our actual effective tax rate and income tax expense could vary from estimated amounts due to the future impacts of various items, including changes in income tax laws, tax planning and our forecasted financial condition and results of operations in future periods. Although we believe current estimates are reasonable, actual results could differ from these estimates.
In connection with the separation, we will enter into a Tax Sharing Agreement with Sears Holdings which will govern the rights and obligations of the parties with respect to pre-separation and post-separation tax matters. Under the Tax Sharing Agreement, Sears Holdings will be responsible for any federal, state or foreign income tax liability relating to tax periods ending on or before the separation.
Goodwill Impairment Assessment
We had a goodwill balance of $167 million at both January 28, 2012 and January 29, 2011. We evaluate the carrying value of goodwill for possible impairment under accounting standards governing goodwill and other intangible assets. As required by accounting standards, we perform annual goodwill impairment tests in the fourth quarter and update the tests between annual tests if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and the testing for recoverability of a significant asset group within a reporting unit. Following the separation, our goodwill impairment analysis will also include a comparison of the aggregate estimated fair value of all reporting units to our total market capitalization. Therefore, following the separation, our stock may trade below our book value and a significant and sustained decline in our stock price and market capitalization could result in goodwill impairment charges. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our Combined Financial Statements.
Our goodwill resides in the Sears Hometown reporting unit within the Sears Hometown and Hardware segment. The goodwill impairment test involves a two-step process. The first step is a comparison of the reporting units fair value to its carrying value. We estimate fair value using the best information available, using both a market participant approach, as well as a discounted cash flow model, commonly referred to as the income approach. The market participant approach determines the value of a reporting unit by deriving market multiples for reporting units based on assumptions potential market participants would use in establishing a bid price for
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the unit. This approach therefore assumes strategic initiatives will result in improvements in operational performance in the event of purchase, and includes the application of a discount rate based on market participant assumptions with respect to capital structure and access to capital markets. The income approach uses a reporting units projection of estimated operating results and cash flows that is discounted using a weighted-average cost of capital that reflects current market conditions appropriate to our reporting unit. The projection uses our best estimates of economic and market conditions over the projected period, including growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. Our final estimate of fair value of reporting units is developed by equally weighting the fair values determined through both the market participant and income approaches, where comparable market participant information is available.
If the carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist and the second step must be performed to measure the amount of impairment loss. The amount of impairment is determined by comparing the implied fair value of reporting unit goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination. Specifically, we allocate the fair value to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that would calculate the implied fair value of goodwill. If the implied fair value of goodwill is less than the recorded goodwill, we record an impairment charge for the difference.
We did not record any goodwill impairment charges in 2009, 2010 or 2011.
The use of different assumptions, estimates or judgments in either step of the goodwill impairment testing process, such as the estimated future cash flows of our reporting unit, the discount rate used to discount such cash flows, or the estimated fair value of the reporting units tangible and intangible assets and liabilities, could significantly increase or decrease the estimated fair value of a reporting unit or its net assets, and therefore, impact the related impairment charge. At the 2011 annual impairment test date, the conclusion that no indication of goodwill impairment existed for our Sears Hometown reporting unit would not have changed had the test been conducted assuming: 1) a 100 basis point increase in the discount rate used to discount the aggregate estimated cash flows of our Sears Hometown reporting unit to its net present value in determining its estimated fair value and/or 2) a 100 basis point decrease in the estimated sales growth rate and/or terminal period growth rate.
Based on our sensitivity analysis, we do not believe that the recorded goodwill balance is at risk of impairment at the end of the year because the fair value is substantially in excess of the carrying value and not at risk of failing step one. However, goodwill impairment charges may be recognized in future periods to the extent changes in factors or circumstances occur, including deterioration in the macroeconomic environment, retail industry or in the equity markets, which will include the market value of our common shares, deterioration in our performance or our future projections, or changes in our plans for our Sears Hometown reporting unit.
Quantitative and Qualitative Disclosures about Market Risk
We will be subject to interest rate risk associated with our Senior ABL Facility, which will bear interest at a variable rate. Assuming our Senior ABL Facility were fully drawn in principal amount equal to $250 million, each one percentage point change in interest rates would result in a $2.5 million change in annual cash interest expense on our Senior ABL Facility.
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Our Business
We are a national retailer primarily focused on selling home appliances, hardware, tools and lawn and garden equipment. As of April 28, 2012, we and our dealers and franchisees operated 1,238 stores across all 50 states and Puerto Rico, Guam and Bermuda. This includes five Sears Hometown Stores (net of new store openings), eight Sears Hardware stores and one Sears Outlet Store that we closed since the first quarter of 2012 and one Sears Hardware Store we intend to close in the second half of 2012.
In addition to merchandise, we provide our customers with access to a full suite of services, including home delivery and handling and extended service contracts.
We operate through two segmentsthe Sears Hometown and Hardware segment and the Sears Outlet segment. Our Sears Hometown and Hardware stores are designed to provide our customers with in-store and online access to a wide selection of national brands of home appliances, tools, lawn and garden equipment, sporting goods, consumer electronics and household goods, depending on the particular store. Our Sears Outlet stores are designed to provide in-store and online access to purchase new, one-of-a-kind, out-of-carton, discontinued, obsolete, used, reconditioned, overstocked and scratched and dented products, collectively outlet-value products across a broad assortment of merchandise categories, including home appliances, lawn and garden equipment, apparel, mattresses, televisions, sporting goods and tools, and at prices that are significantly lower than manufacturers suggested retail prices. See Note 8 to our Combined Financial Statements for further information.
Sears Hometown and Hardware
As of April 28, 2012, we and our dealers and franchisees operated a total of 1,116 Sears Hometown and Hardware stores located across 50 states, Puerto Rico, Guam and Bermuda.
The majority of our Sears Hometown and Hardware stores are based on either an authorized dealer model or a franchise model under which, in most cases, independent owners operate the stores and SHO provides brand and marketing support and inventory on consignment. The dealer or franchisee earns a commission based on net sales of the inventory when sold. We also authorize the dealer or franchisee to sell post-sale services, including product protection programs.
Our Sears Hometown and Hardware business operates through three distinct formats: Sears Hometown Stores, or Hometown Stores, Sears Hardware Stores, or Hardware Stores, and Sears Home Appliance Showrooms, or Home Appliance Showrooms.
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Hometown Stores . Our Hometown Stores offer products and services across a wide selection of merchandise categories, including home appliances, consumer electronics, lawn and garden equipment, sporting goods, tools and household goods, with the majority of business driven by big-ticket home appliance and lawn and garden sales. Most of our Hometown Stores carry Sears brand products, such as Kenmore, Craftsman, and DieHard, as well as a wide assortment of other national brands. Primarily independently owned and predominantly located in smaller communities and averaging 8,500 square feet, Hometown Stores are designed to serve more rural markets that may not support a full-service big-box retailer. As of April 28, 2012, there are 944 Hometown Stores in 50 states, Puerto Rico, Guam and Bermuda which includes five stores (net of new store openings) that were closed since the first quarter of 2012. |
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Hardware Stores . Our Hardware Stores offer products and services across a wide selection of merchandise categories and sales are primarily driven by tools, lawn and garden equipment, home appliances, and other home improvement products. In addition, these stores offer certain proprietary in-store services, such as blade sharpening, key cutting and screen repair, as well as products typically found in local hardware stores, |
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such as fasteners, electrical supplies and plumbing supplies. Hardware Stores, averaging nearly 28,000 square feet in size, are primarily located in suburban markets and are positioned as neighborhood stores designed to appeal to convenience-oriented customers. These stores carry Craftsman brand tools and lawn and garden equipment, DieHard brand batteries and a wide assortment of other national brands and other home improvement products. As of April 28, 2012, there are 96 Hardware Stores in 15 states, 93 of which also carry a selection of Kenmore and other national brands of home appliances. 41 of these stores are owned and operated by franchisees, and the remaining 55 stores are operated by us. This number includes eight stores that we closed since the first quarter of 2012 and one store that we plan to close in the second half of 2012. |
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Home Appliance Showrooms . Our Home Appliance Showrooms offer home appliances and related services in stores primarily located in strip malls and lifestyle centers of metropolitan areas. Averaging 5,000 square feet with a simple, primarily appliance showroom design, our Home Appliance Showrooms offer quality-focused customers a unique store shopping experience. Home Appliance Showroom sales are primarily driven by big-ticket cooking, laundry and refrigeration home appliances as well as, in certain stores, mattresses. These stores carry Kenmore and other national brands of home appliances. As of April 28, 2012, there are 76 Home Appliance Showrooms in 19 states. 44 of these stores are owned and operated by franchisees, 30 stores are owned and operated by us and two are owned and operated by independent dealers. |
In 2011, our revenue from our Sears Hometown and Hardware segment was $1.8 billion.
Sears Outlet
Our Sears Outlet stores are designed to provide in-store and online access to purchase outlet-value products across a broad assortment of merchandise categories, including home appliances, consumer electronics, lawn and garden equipment, apparel, sporting goods, tools and household goods, and at prices that are significantly lower than manufacturers suggested retail prices. Sears Outlet stores serve as a liquidation channel of outlet-value home appliances for major appliance vendors. In 2011, Sears Outlets most significant merchandise category was home appliances, which made up 83% of our sales revenue. Outlet-value products are generally covered by a manufacturers warranty, and Sears Outlet also offers a full suite of product protection plans and services options. As of April 28, 2012, Sears Outlet operated 122 locations, of which 92 were retail-only stores, 25 were retail stores with onsite repair facilities, and five were retail apparel stores. This number includes one store that we closed since the first quarter of 2012. Sears Outlet also sells its product through our website, www.searsoutlet.com. We operate all of the Sears Outlet stores.
In 2011, our revenue from our Sears Outlet segment was $505 million.
Competition
Sears Hometown and Hardware
The Sears Hometown and Hardware business is subject to highly competitive conditions, with varying levels of competition within each stores trade area. Sears Hometown and Hardware stores compete with a wide variety of retailers handling similar lines of merchandise, including department stores, discounters, mass merchandisers, specialty retailers, wholesale clubs, and many other competitors operating on a national, regional or local level. The Company also competes with internet and catalog businesses that have similar merchandise offerings.
Sears Hometown and Hardwares key national competitors, all of which provide similar lines of merchandise in the same or comparable trade areas, are The Home Depot, Best Buy, Lowes and Tractor Supply, as well as Ace Hardware and True Value for our Hardware Stores. Subsidiaries of Sears Holdings provide similar lines of merchandise as the Sears Hometown and Hardware business. Nonetheless, the stores operated by the Sears Hometown and Hardware business generally have not been regarded as significant competitors of the
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stores operated by Sears Holdings subsidiaries. Instead, the stores operated by Sears Holdings subsidiaries and the stores operated by the Sears Hometown and Hardware business have been distributors of products supplied by Sears Holdings under the Sears name but have operated essentially in different trade areas. SHO expects that this relationship will continue following consummation of the rights offering. Sears Holdings provides and will continue to provide e-commerce services and support to SHO, and online sales by Sears Holdings subsidiaries that do not originate, or involve merchandise pick up, in physical stores may compete with the e-commerce activity of the Sears Hometown and Hardware business.
We believe that the key differentiating factors between competitors operating in this industry include price, product assortment and quality, service and convenience, brand recognition and availability of retail-related services such as access to credit, product delivery, repair and installation.
Sears Outlet
The Sears Outlet business unit operates in the highly fragmented outlet-value retail industry, in which big-box competitors are at one end of the spectrum, locally owned appliance dealers are at the other end, and regional and emerging outlet competitors occupy the middle ground. Sears Outlets direct competition has been comprised largely of established regional appliance outlet chains and emerging national big-box concept stores that sell outlet-value appliances as well as online retailers.
Sears Outlets key national competitors, some of which provide similar outlet-value products at comparable prices, are The Home Depot, Lowes, HH Gregg and US Appliances. In addition, as we continue to expand our product lines into categories such as mattresses and apparel we expect to face additional competition from other discount retailers that focus solely on those product categories. While subsidiaries of Sears Holdings provide similar lines of merchandise as the Sears Outlet business, the latter is a value-price seller of distressed, refurbished, and marked-out-of-stock merchandise, which the subsidiaries do not sell to end users. Consequently, the Sears Outlet business has not been regarded as a competitor of these subsidiaries. Instead, both have been distributors of products supplied by Sears Holdings under the Sears name, operating in different geographic locations. This relationship will continue following the rights offering.
We believe that the key differentiating factor between competitors operating in this industry is price. Other factors include product assortment and quality, service and convenience, brand recognition and availability of retail-related services such as access to credit and product delivery.
Our Strengths
We believe that our competitive strengths are the following:
Our stores carry a wide variety of well-known, brand-name merchandise.
We offer our customers a broad selection of products, including well-known consumer brand names such as Kenmore, Craftsman and DieHard, and we strive to offer high in-stock levels. A typical Hometown Store offers a selection of products similar to department stores, discounters, mass merchandisers and wholesale clubs and carries more products than specialty retailers and smaller independent appliance and hardware stores. This ability to offer a wide variety of well-known, consumer brand name merchandise enables us to remain competitive in our markets and to continue to attract customers.
We operate across the nation through distinctly tailored store formats.
Our different store formats are targeted to the markets in which they compete. Our Hometown Stores offer customers in more rural communities a wide variety of merchandise. In those markets, we compete against larger national or regional big-box stores on the basis of the convenient shopping experience we provide, and we compete against local independent stores based on our product offerings and competitive pricing.
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Our Hardware Stores are located in neighborhood centers in suburban areas where customers can fulfill their hardware, lawn and garden and, in certain stores, home appliance needs. These stores compete against larger warehouse home centers and smaller local hardware stores by offering a broad assortment of products, convenient outlets and personalized customer assistance.
Our Home Appliance Showrooms are appealing display floors in metropolitan markets where we compete with big-box retailers by offering a high service model, a wide assortment of brand-name home appliances and convenient locations. We differentiate ourselves from our competitors by providing our customers with a consultative and educational purchase experience. To accommodate the lifestyles of our metropolitan customers, we also provide after-hours showings by appointment.
Our Sears Outlet stores offer customers a wide range of outlet-value products at over 120 locations across the United States. Our Sears Outlet stores differentiate themselves from their competitors by providing a wide range of outlet-value brand-name products, including Kenmore, Whirlpool, LG and Samsung, at prices that are significantly lower than manufacturers suggested retail prices.
In addition, SHO has stores located in all 50 states as well as Puerto Rico, Guam and Bermuda, without any concentration in one particular region or market. The ability to generate revenues with a wide variety of products across a diversified mix of regions and markets enables us to benefit from opportunities as they arise.
Our Sears Hometown and Hardware stores are primarily operated by dealers or franchisees, which allows us to leverage the knowledge, experience and capital of our dealers and franchisees.
Our Hometown Stores are primarily owned and operated by individual dealers and the majority of our Home Appliance Showrooms and Hardware Stores are operated by franchisees. Under both our dealer model and our franchise model, SHO provides inventory (on a consignment basis), branding and marketing to the stores and the dealer or franchisee is responsible for start-up costs, lease payments and other operating costs including payroll. This model allows us to leverage the entrepreneurial spirit of our dealers and franchisees and their local knowledge to better serve local trade areas. In addition, our franchise model frees up capital and enables us to focus on strategic planning, including store growth, marketing and pricing strategies. We regularly evaluate the performance of franchised stores and require compliance with established customer service guidelines.
Our Sears Outlet stores are a leading liquidation channel of value-priced home appliances.
As one of the nations largest chain retailers of outlet-value home appliances, our Sears Outlet business has become increasingly relevant to major appliance vendors as a liquidation channel of outlet-value appliances.
Our Strategy
We plan to continue to enhance our competitive position, grow our business and increase our net sales and profitability by implementing the following strategies:
Expand Product Assortment and Optimize Services Offering . We strive to provide customers complete solutions for their home appliance, hardware and other related home needs. We are constantly evaluating other merchandise categories and types of services to enhance our product and service offerings and to create cross-selling opportunities for adjacent products and services. For example, our initiatives to increase product offerings include expanding into apparel and footwear in our Sears Outlet stores and mattresses in our Home Appliance Showrooms.
Promote Customer Growth through Integrated Multi-Channel Capabilities, Improved Customer Experience and Enhanced Marketing . We seek to serve our customers needs and drive revenue growth through our integrated multi-channel sale capabilities. We continue to expand our e-commerce operation and our online product selection to enhance customers online shopping experience. We seek to integrate our online store and
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brick-and-mortar stores to provide our customers with a seamless shopping experience across channels. We offer our customers the option to purchase items on our website and pick them up in our local stores as well as order out-of-stock and other items from our in-store kiosks. These capabilities allow us to better serve customers across various channels and improve sales.
We also participate in Sears Holdings Shop Your Way Rewards program, or SYWR program, which is intended in part to help us transition from serving customers to building relationships with SYWR program members. We believe that the SYWR program will allow us to better meet our customers needs. In addition, we view the SYWR program as a means to expand to our customer base and enhance our ability to communicate both digitally and more effectively with our customers.
We also plan to drive customer growth by expanding our marketing initiatives. We believe that we can grow our customer base through targeted advertising in a number of different media, particularly online and email marketing.
We believe that quality customer service contributes to increased store visits and purchases by our customers. We are focused on building long-term relationships with customers by improving their in-store and post-store experiences. We conduct quality control checks with all dealers, franchisees, store managers and sales associates to improve the quality of customer interaction and product knowledge at all levels of our organization. We continue to improve and augment our post-sale engagement with customers through access to delivery and installation services as well as product protection plans.
Diversify Our Supply Chain . Over time, we intend to diversify our network of merchandise suppliers and service providers. Such diversification, particularly with respect to merchandise suppliers, is intended to reduce our reliance on Sears Holdings for our inventory.
Improve Operating Performance . We intend to focus on various initiatives intended to improve our gross margin structures and inventory management. Our inventory procurement operations are focused on developing customized, individualized merchandise assortments based on store demographics, sales history, customer preferences and margin by product division. Our inventory management focuses on continually adjusting clearance markdown cadences to reflect changes in inventory turnover and customer preferences. In addition, we intend to focus on controlling costs across our business lines, particularly selling and administrative expenses.
Expand Our Store Base . We believe that we are positioned to leverage our competitive advantages and grow our Sears Hometown and Hardware and Sears Outlet store bases over the long term. We continue to evaluate expansion opportunities based on market potential. We have identified the expansion of Sears Outlet stores as a priority to drive revenue growth in that business unit and further enhance our market position and purchasing power in the outlet-value home appliance market. We also intend to grow our Sears Hometown and Hardware store base by exploring expansion into major markets for our Home Appliance Showrooms and a wide range of smaller markets for our Hometown Stores.
Continue to Convert our Home Appliance Showrooms and Hardware Stores to a franchise model . We believe we can unlock significant capital as well as leverage the local knowledge and expertise of our franchisees by moving more of our Home Appliance Showrooms and Hardware Stores to the franchise model.
Our Products and Suppliers
Our focus on the preferences of our customers drives our merchandise selection. Our largest revenue-generating category in 2011 was home appliances, representing approximately 60% of net sales. Our goal is to offer our customers a large selection of brands and products within each of our product categories.
In connection with the separation, we have entered into a Merchandising Agreement with Sears Holdings, Kmart Corporation, or Kmart, and Sears, Roebuck and Co., or SRC, pursuant to which Kmart and SRC will
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(1) sell to us, with respect to certain specified product categories, Sears brand products (including Kenmore, Craftsman and DieHard brand products) and vendor-branded products obtained from Kmarts and SRCs vendors and suppliers and (2) grant us licenses to use the trademarks owned by Kmart, SRC or other subsidiaries of Sears Holdings, including the Kenmore, Craftsman and Diehard trademarks, in connection with the marketing and sale of products sold under the Sears marks. The initial term of the Merchandising Agreement will expire in 2018 subject to certain early termination rights. Both our Sears Hometown and Hardware and Sears Outlet businesses are expected to rely on the Merchandising Agreement for a significant majority of their inventory. For the year ended January 28, 2012, products which we expect to acquire from Sears Holdings following the separation accounted for approximately 90% of our merchandise and a significant majority of our net sales.
Our Sears Outlet business also relies on manufacturers with which we have existing agreements to supply a significant portion of its inventory. For the year ended January 28, 2012, sales of products obtained pursuant to agreements with home appliance third-party suppliers generated approximately 25% of our Sears Outlet revenue.
We have entered into agreements with Sears Holdings, as well as with third-party service providers, to provide processing and administrative functions over a broad range of areas, and we are likely to continue to do so in the future. After the separation, we expect to continue to rely heavily on the infrastructure of Sears Holdings for a variety of key products and services. Our business plan depends to a significant extent on Sears Holdings willingness to continue to supply us with these key products and services.
Our Franchise and Dealer Models
Franchise Model
As of April 28, 2012, 44 of our Home Appliance Showrooms and 41 of our Hardware Stores were operated by independent franchisees. Under our franchise model, the franchisee operates the store and is responsible for its operating costs, including payroll and leasing costs. SHO provides the inventory to the franchisee on a consignment basis, and the franchisee earns a variable commission on sales of merchandise and protection plans. In addition, SHO also provides brand and marketing services to franchisees. We are actively seeking to sell all of our owned Home Appliance Showrooms and Hardware Stores to franchisees, which will permit us to recapture our investment in existing stores by including the invested capital in the purchase price we receive from the franchisee. In certain cases, especially with respect to stores that have been recently sold to a franchisee, SHO remains responsible for leasing costs in the case of a default by a franchisee until the expiration of such lease, at which time our franchisee will be required to negotiate a new lease to which SHO will not be a party.
The franchise relationship is governed by a franchise agreement, which generally has a ten year term, subject to a five year renewal upon certain conditions. The franchise agreement also obligates the franchisee to pay to SHO certain fees, including an initial franchise fee, training fees, transfer fees and successor franchise fees.
Dealer Model
As of April 28, 2012, over 900 of our Hometown Stores were operated by independent authorized dealers who own and operate their stores. The dealer bears responsibility for store operating costs, including all payroll and leasing costs. SHO provides the inventory to the dealer on a consignment basis, and the dealer earns a variable commission on sales of merchandise and protection plans. In addition, Sears Holdings also provides brand and marketing services to dealers.
The dealer relationship is governed by a dealer agreement, which generally has either a three or five-year term (depending on its terms and conditions). In the event that a dealer defaults or fails to renew its dealer agreement, SHO may assume responsibility for the operation of the store on a month-to-month basis until a new dealer is recruited to operate the store.
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Distribution and Systems Infrastructure
The majority of our merchandise comes to our stores directly from vendors or distributors through our agreements with Sears Holdings. Occasionally, we also contract with third-party common carriers to deliver our merchandise to certain stores in more remote locations.
Our business relies extensively on computer systems to process transactions, summarize results and manage our business. Given the number of individual transactions we have each year, it is critical that we maintain uninterrupted operation of our computer and communications hardware and software systems. We currently rely on Sears Holdings to provide us with the computer systems and infrastructure that enable our distribution systems. In addition, we also rely on Sears Holdings for warehousing and other logistics services.
In connection with the separation, we have entered into a Services Agreement pursuant to which Sears Holdings Management Corporation, or SHMC, will provide us with a number of services, including logistics and distribution, information technology, and payment clearing and other financial services. The term of the Services Agreement will expire in 2018, subject to certain termination rights. We will pay fixed fees and rates for the services for the first three years of the Services Agreement, and will negotiate with SHMC the fees and rates for the fourth and fifth years of the term, and the six-month period following the fifth year, on a good-faith basis. In addition, we will also pay all taxes payable in connection with the services provided under the Services Agreement. See Certain Relationships and Related Party TransactionsAgreements with Sears HoldingsServices Agreement.
Employees
As of April 28, 2012, we had approximately 5,300 employees, approximately 38% of whom were full-time employees. We believe that we have a good working relationship with our employees and we have never experienced a material interruption of business as a result of labor disputes. In connection with the separation, we entered into an Employee Transition and Administrative Services Agreement with a subsidiary of Sears Holdings, pursuant to which they will provide us with specified payroll, benefits and certain other human-resources services. See Certain Relationships and Related Party TransactionsAgreements with Sears HoldingsEmployee Transition and Administrative Services Agreement. None of our dealers or franchisees, nor any of their employees, are employees of SHO.
Real Property
Under our dealer and franchise model, as of April 28, 2012, 952 of our Sears Hometown and Hardware locations are leased to their dealers and franchisees, who remain liable for real estate and leasing costs. We own six and lease 158 of our Company-operated or franchised stores in our Sears Hometown and Hardware business.
As of April 28, 2012, we own four and lease 118 of our Sears Outlet locations.
In connection with the separation, Sears Holdings (or one of its subsidiaries) will assign or sublease to us their interests in the leases for all of our stores where Sears Holdings (or one of its subsidiaries), and not us or an independent authorized dealer or a franchisee, is the tenant and either (i) the lease for such store permits assignment or subletting of the lease or (ii) Sears Holdings is able to obtain landlord consent to such assignment or sublease. However, a number of the leases for our stores, or the No-Consent Locations, do not permit assignment or subletting by Sears Holdings (or one of its subsidiaries) or may require landlord consent, which may be withheld. As of August 30, 2012, less than 5% of all of our Sears Outlet locations, approximately 30% of all of our Hardware Store locations and none of our Hometown Store or Home Appliance Showroom locations are No-Consent Locations. Sears Holdings (or one of its subsidiaries) will enter into a sublease with us for each of the No-Consent Locations but if the landlord of a No-Consent Location were to claim that such sublease was a default under the applicable lease then we may be forced to close such store location, which could negatively impact our results of operations. However, we do not believe that the failure to obtain the assignment or
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subletting of the No-Consent Locations and the loss of such stores will have a material effect on our results of operations.
In addition, a small number of our stores are in locations where Sears Holdings currently operates one of its stores. In such cases we will enter into a lease or sublease with Sears Holdings (or one of its subsidiaries) for the portion of the space in which our store will operate and pay rent directly to Sears Holdings on the terms negotiated in connection with the separation. We also expect to lease office space for our corporate headquarters from Sears Holdings. We believe that our facilities are well maintained and are sufficient to meet our current and projected needs. We review all leases set to expire in the short-term to determine the appropriate action to take with respect to them, including moving or closing stores, entering into new leases or purchasing property.
Intellectual Property
In connection with the separation, we entered into Store License Agreements with SRC pursuant to which SRC will grant us, on a royalty-free basis, among other things, (1) an exclusive, non-transferable and terminable license to operate, and to authorize our dealers and franchisees to operate, retail stores and stores-within-a-store using the Sears Outlet Store, Sears Authorized Hometown Store, Sears Home Appliance Showroom and Sears Hardware Store store names, or the store names, (2) an exclusive, non-transferable and terminable license to use the store names to promote our products, and services related to our products, by all current and future electronic means, channels, processes and methods, including via the Internet, (3) a non-exclusive, nontransferable and terminable license to use, and to authorize our dealers and franchisees to use, certain other trademarks to market and sell services related to our products under those trademarks and (4) an exclusive, non-transferable and terminable license to use certain domain names in connection with the promotion of our stores, the marketing, distribution and sale of our products and the marketing and offering of services related to our products. These agreements do not include licenses for the Kenmore, Craftsman or DieHard trademarks. These agreements will expire in 2029.
We have also entered into a Merchandising Agreement with Sears Holdings, Kmart and SRC pursuant to which Kmart and SRC will (1) sell to us, with respect to certain specified product categories, Sears brand products (including Kenmore, Craftsman and DieHard brand products, or, collectively, the KCD products) and vendor-branded products obtained from Kmarts and SRCs vendors and suppliers and (2) grant us licenses to use the trademarks owned by Kmart, SRC or other subsidiaries of Sears Holdings, or the Sears marks, including the Kenmore, Craftsman and Diehard trademarks in connection with the marketing and sale of products sold under the Sears marks. The initial term of the Merchandising Agreement will expire in 2018, subject to two three-year renewal terms with respect to the KCD products. We will pay, on a weekly basis, a royalty determined by multiplying our net sales of the KCD by specified fixed royalties rates for each brands licensed products, subject to an adjustments based on the extent to which we feature Kenmore brand products in certain of our advertising and the extent to which we pay specified minimum commissions to our franchisees and Hometown Store owners.
For more information regarding the agreements between us and Sears Holdings, see Certain Relationships and Related Party TransactionsAgreements with Sears Holdings.
Legal Proceedings
As of the date hereof, we are not party to any litigation which we consider material to our operations.
Notwithstanding the above, we are from time to time subject to various legal claims, including those alleging wage and hour violations, employment discrimination, unlawful employment practices, Americans with Disabilities Act claims, product liability claims as a result of the sale of certain products, as well as various legal and governmental proceedings. Litigation is inherently unpredictable and any proceedings, claims or regulatory actions against us, whether meritorious or not, may be time consuming, result in significant legal expenses,
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require significant amounts of management time, result in the diversion of significant operational resources, require changes in our methods of doing business that could be costly to implement, reduce our net sales, increase our expenses, require us to make substantial payments to settle claims or satisfy judgments, require us to cease conducting certain operations or offering certain products in certain areas or generally, and otherwise harm our business, results of operations, financial condition and cash flows, perhaps materially.
Seasonality
While the retail business is generally seasonal in nature, our businesses have historically generated revenues on a consistent basis during each period of our fiscal year. For product line revenues of our segments, see Note 8 to our Combined Financial Statements included herein.
History and Relationship with Sears Holdings
Our Sears Hometown and Hardware and Sears Outlet businesses have operated as part of Sears Holdings specialty stores business since their inception. Prior to the rights offering we will operate as businesses within Sears Holdings, but following the closing of this offering (1) we will be a publicly traded company independent from Sears Holdings and (2) Sears Holdings will not retain any ownership interest in us except to the extent that the subscription rights are not exercised in full and that shares not purchased through the exercise of basic subscription rights are not purchased pursuant to the over-subscription privilege.
In connection with the separation, we have entered into various agreements with Sears Holdings which, among other things, (1) govern the principal transactions relating to this offering and certain aspects of our relationship with Sears Holdings following the separation, (2) establish terms under which subsidiaries of Sears Holdings will provide us with services following the separation and (3) establish terms pursuant to which subsidiaries of Sears Holdings will obtain merchandise for us. Although these agreements have been executed prior to the distribution of the subscription rights, the effectiveness of the agreements is conditioned upon the consummation of the rights offering and the completion of the separation of the Company from Sears Holdings. The terms of these agreements were agreed to in the context of a parent-subsidiary relationship and in the overall context of our separation from Sears Holdings. Accordingly, the terms of these agreements may be more or less favorable than those we could have negotiated with unaffiliated third parties. For more information regarding the agreements between us and Sears Holdings, see Certain Relationships and Related Party TransactionsAgreements with Sears Holdings.
Corporate Information
Our principal executive offices will be located at 3333 Beverly Road, Hoffman Estates, Illinois 60179 and our telephone number is (847) 286-2500. Our website address is www.shos.com.
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Executive Officers and Directors
The following table sets forth information regarding our executive officers and directors as of the date hereof as well as persons who have agreed to serve as members of our board of directors effective on the separation. The individuals who will be our executive officers following the separation may or may not currently be employees of Sears Holdings subsidiaries.
Name |
Age |
Position |
||||
W. Bruce Johnson |
61 | Chief Executive Officer, President and Director | ||||
William A. Powell |
42 | Senior Vice President and Chief Operating Officer | ||||
Steven D. Barnhart |
50 | Senior Vice President and Chief Financial Officer | ||||
John E. Ethridge II |
39 | Vice President, Supply Chain and Technology | ||||
Charles J. Hansen |
64 | Vice President, General Counsel and Secretary | ||||
Becky Iliff |
43 | Vice President, Human Resources | ||||
William R. Harker |
40 | Chairman of the Board and Director | ||||
E. J. Bird |
49 | Director | ||||
Elizabeth Darst Leykum |
34 | Director | ||||
Jeffrey Flug |
49 | Director | ||||
Josephine Linden |
60 | Director |
Mr. Johnson was named Chief Executive Officer and President of SHO in July 2012. He also serves as Executive Vice PresidentOff-Mall Businesses of Sears Holdings, to which position he was elected in September 2011. From February 2011 until September 2011, he served as Sears Holdings Executive Vice PresidentOff-Mall Business and Supply Chain. He served as Sears Holdings interim Chief Executive Officer and President from February 2008 to February 2011. He previously served as Sears Holdings Executive Vice President, Supply Chain and Operations since the merger of SRC and Kmart Holding Corporation in 2004. He joined Kmart in October 2003 as Senior Vice President, Supply Chain and Operations. Mr. Johnson has extensive knowledge of retail company operations from his many years of experience working for Sears Holdings and companies such as Carrefour SA and Colgate-Palmolive Company. Mr. Johnson has also developed a strong understanding of the Company, its operations and the issues facing the Company through his years of service with Sears Holdings.
Mr. Powell joined Sears Holdings in August 2003 and was named Senior Vice President and Chief Operating Officer of SHO in July 2012. He has served as Senior Vice President and President, Hometown Stores, since November 2008. From November 2007 until November 2008, he served as Vice President and General Manager, Outlet Stores, and from January 2006 to November 2007, he served as Divisional Vice President, Stores/Sales-Dealer Stores.
Mr. Barnhart joined SHO as Senior Vice President and Chief Financial Officer on August 22, 2012. He previously served as Chief Financial Officer of Bally Total Fitness, an operator of fitness centers, from January 2010 to June 2012. He served as Chief Executive Officer and President of Orbitz Worldwide, Inc., an online travel company, or Orbitz, from April 2007 until January 2009. He served in various executive positions with Orbitz and its predecessors from May 2003 until April 2007.
Mr. Ethridge joined Sears Holdings Outlet Stores business in November 2009 and was named Vice President, Supply Chain and Technology of SHO in July 2012. He has served as Vice President and General Manager, Outlet Stores, since June 2011. He served as Divisional Vice President and General Manager, Outlet Stores, from January 2011 until June 2011; Director, Marketing, eCommerce and Business Development, from July 2010 to January 2011; and as Director, Marketing and eCommerce from November 2009 to July 2010. He previously served in the U.S. Navy as Engagement Manager/Project Leader on the staff of the Chief of Naval
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Operations, Assessment Division from September 2007 to November 2009 and as a submarine officer from February 2005 to October 2007.
Mr. Hansen was named Vice President, General Counsel and Secretary of SHO in August 2012. He has served as Vice President, Chief Counsel of Sears Holdings since January 2008. He served as Executive Vice President and General Counsel of Saks Incorporated, an operator of retail and department stores, or Saks, from September 2003 to May 2007. From June 1987 to September 2003, he served in a variety of legal positions with Saks and its predecessors, including serving as the General Counsel of Carson Pirie Scott & Co., an operator of department stores.
Ms. Iliff was named Vice President, Human Resources of SHO on August 8, 2012. Ms. Iliff served as Vice President of People of Cosi, Inc., an operator and franchisor of restaurants, from November 2005 to July 2012. Prior to November 2005, she served in various human resources positions with several companies.
Mr. Harker has been a director and Chairman of the Board of Directors of SHO since August 2012. He founded, and has served as principal of, The Harker Group LLC, a consulting firm, since August 2012. He served as an officer of Sears Holdings from September 2005 until August 2012. From February 2011 until June 2012, Mr. Harker was the Executive Vice President and General Counsel of ESL Investments, Inc. He joined Sears Holdings as Vice President and Chief Counsel in September 2005 and became Vice President, Acting General Counsel and Corporate Secretary in January 2006. In April 2006, Mr. Harker was elected Senior Vice President, Acting General Counsel and Corporate Secretary. He served as Sears Holdings General Counsel and Corporate Secretary from December 2006 to May 2010 and also served as its Senior Vice President, Human Resources, from February 2008 to August 2009. Prior to Sears Holdings, Mr. Harker practiced law with the law firm of Wachtell, Lipton, Rosen and Katz from September 2000 to August 2005. Mr. Harker has been a director of Sears Canada Inc. since November 2008. He has served on the national Board of Trustees of the March of Dimes Foundation since June 2010. Mr. Harker brings a wealth of business and legal knowledge to the Board having held numerous senior business and legal roles.
Mr. Bird has agreed to serve as a member of our board of directors effective on the separation. Mr. Bird is a private investor. He is also the President of Overflow Ministries, a not-for-profit organization, and has held this position since October 2003. Mr. Bird served as an analyst for Levine Investments, an investment partnership with public and private investments, from July 2002 to February 2010 and as Chief Financial Officer of ESL Investments, Inc. from September 1991 to June 2002. Mr. Bird has been a director of GWR Global Water Resources Corp. since December 2010 and has been a director of Sears Canada Inc. since May 2006. Mr. Bird brings a wealth of financial knowledge to the Board and has extensive expertise with respect to financial matters.
Ms. Leykum has agreed to serve as a member of our board of directors effective on the separation. She is a Vice President at Rand Group, an investment management services firm, and has held this position since June 2012. Prior thereto she served as a Vice President of ESL Investments, Inc., which she joined in July 2004. Previously she worked in the Principal Investment Area at Goldman, Sachs & Co., an investment bank. She also currently serves as a trustee of Greenwich Academy where she is a member of its Finance and Investment Committees. Through her work in investment management, she brings to the Board a strong ability to assess and oversee corporate and financial performance.
Mr. Flug has agreed to serve as a member of our board of directors effective on the separation. Since August 2009, Mr. Flug has held a variety of senior positions, including currently as President, with Union Square Hospitality Group, LLC, an exclusive chain of restaurants. Mr. Flug was Chief Executive Officer and Executive Director of Millennium Promise Alliance, Inc. a non-profit organization whose mission is to eradicate extreme global poverty, from April 2006 to June 2008. Mr. Flug was Managing Director and Head of North American Institutional Sales at JPMorgan Chase & Co. from May 2000 to April 2006. From August 1988 to May 2000, Mr. Flug was Managing Director for Goldman Sachs & Co. in its Fixed Income Division. He has been a director of PennantPark Investment Company since February 2007 and of PennantPark Floating Rate Capital Ltd. since
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October 2010. Mr. Flug brings to the Board broad expertise in investment banking, fixed income investing, accounting and business operations.
Mrs. Linden has agreed to serve as a member of our board of directors effective on the separation. She founded and has been the managing member and principal of Linden Global Strategies LLC, a New York-based SEC registered investment management firm working with sophisticated US and international clients, since September 2011. From September 2010 to July 2011, she held an Adjunct Professor position in the Finance department of Columbia Business School. In November 2008, Mrs. Linden retired from Goldman, Sachs & Co. as a Partner and Managing Director after having been with the firm for more than 25 years, where she held a variety of roles, including Managing Director and Regional Manager of the New York office for Private Wealth Management, head of Global Equities Compliance, and an Advisor to GSJBWere, Australia. She is currently a trustee, and serves as chair of the Finance Committee and Treasurer, of Collegiate School in New York, New York and acts as financial advisor to The Prince of Wales Foundation. Mrs. Linden brings extensive knowledge of capital markets and other financial matters to the Board from her 25-year career with Goldman Sachs. She has served as a director of Bally Technologies, Inc. since April 2011.
Board Structure
Our board of directors currently consists of two directors. After our separation from Sears Holdings, our board of directors will be expanded to include Messrs. Bird and Flug, Ms. Leykum, and Mrs. Linden.
For purposes of the NASDAQ Marketplace rules, we expect to be a controlled company. Accordingly, we expect to rely on certain exemptions from corporate governance requirements provided in the NASDAQ Marketplace rules. Specifically, as a controlled company, we would not be required to have (1) a majority of independent directors, (2) a Nominating Committee composed entirely of independent directors or (3) a Compensation Committee composed entirely of independent directors.
All of our directors will stand for election at each annual meeting of our stockholders.
Committees of the Board of Directors
We expect that, immediately following the rights offering, the standing committees of our board of directors will consist of an audit committee, a compensation committee and a nominating and corporate governance committee.
Audit Committee
The duties and responsibilities of the audit committee will be set forth in its charter available on our website, and will include the following:
|
to oversee the quality and integrity of our financial statements and our accounting and financial reporting processes; |
|
to prepare the audit committee report required by the SEC in our annual proxy statements; |
|
to review and discuss with management and the independent registered public accounting firm our annual and quarterly financial statements; |
|
to review and discuss with management and the independent registered public accounting firm our earnings press releases; |
|
to appoint, compensate and oversee our independent registered public accounting firm, and pre-approve all auditing services and non-audit services to be provided to us by our independent registered public accounting firm; |
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|
to review the qualifications, performance and independence of our independent registered public accounting firm; and |
|
to establish procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. |
At the time of listing on the NASDAQ Capital Market, at least one member of the audit committee will be independent, as defined under and required by the rules and regulations of the SEC and the NASDAQ Capital Market, including Rule 10A-3(b)(1) under the Securities and Exchange Act of 1934, as amended, or the Exchange Act, and we expect that at least one member will be an audit committee financial expert as defined under and required by the rules and regulations of the SEC and the NASDAQ Capital Market. A majority of the members of the committee will be independent within 90 days of listing on the NASDAQ Capital Market and all members will be independent within one year of listing on the NASDAQ Capital Market.
Our board of directors will adopt a written charter for the audit committee effective as of the date of our separation from Sears Holdings which will be available on our website.
Nominating and Corporate Governance Committee
The duties and responsibilities of the nominating and corporate governance committee will be set forth in its charter available on our website, and will include the following:
|
to recommend to our board of directors proposed nominees for election to the board of directors by the stockholders at annual meetings, including an annual review as to the renominations of incumbents and proposed nominees for election by the board of directors to fill vacancies that occur between stockholder meetings; |
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to make recommendations to the board of directors regarding corporate governance matters and practices; and |
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to recommend members for each committee of the board of directors. |
Compensation Committee
The duties and responsibilities of the compensation committee will be set forth in its charter available on our website, and will include the following:
|
to determine, or recommend for determination by our board of directors, the compensation of our chief executive officer and other executive officers; |
|
to establish, review and consider employee compensation policies and procedures; |
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to review and approve, or recommend to our board of directors for approval, any employment contracts or similar arrangement between the company and any executive officer of the company; |
|
to review and discuss with management SHOs compensation policies and practices and managements assessment of whether any risks arising from such policies and practices are reasonably likely to have a material adverse effect on SHO; and |
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to review, monitor, and make recommendations concerning incentive compensation plans, including the use of stock options and other equity-based plans. |
Compensation Committee Interlocks and Insider Participation
No member of our compensation committee will serve as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee.
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Code of Ethics
Our board of directors will adopt a code of ethics applicable to our directors, officers and employees, including our Chief Executive Officer, Chief Financial Officer and other senior officers effective as of the time of our listing on the NASDAQ Capital Market, in accordance with applicable rules and regulations of the SEC and the NASDAQ Capital Market. Our code of ethics will be available on our website as of the time of our listing on the NASDAQ Capital Market.
Corporate Governance Guidelines
Our board of directors will adopt a set of corporate governance guidelines that sets forth our policies and procedures relating to corporate governance effective as of the completion of the rights offering. Our corporate governance guidelines will be available on our website as of the time of our listing on the NASDAQ Capital Market.
Policy and Procedures Governing Related Party Transactions
Following the completion of the rights offering, we expect that our board of directors will adopt policies and procedures for the review, approval or ratification of transactions with related parties. We do not currently have such a policy in place.
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Mr. Johnson and Mr. Harker have not received, and will not receive, any compensation for their service on our board of directors prior to the completion of the rights offering and the separation.
After the completion of the rights offering and the separation, the policy of our board of directors will be to compensate non-employee directors with cash compensation. Director compensation will be reviewed by the board of directors annually and from time to time to ensure that compensation levels are fair and appropriate, with any changes generally becoming effective commencing after the annual meeting of stockholders. All directors will be entitled to reimbursement by SHO for reasonable travel to and from meetings of the board of directors, and reasonable food and lodging expenses incurred in connection therewith.
After the completion of the rights offering and the separation, non-employee directors will be compensated according to our Director Compensation Policy in the following manner:
Cash
Compensation (1) |
||||
Annual Retainer: |
||||
Board Member |
$ | 60,000 | ||
Audit Committee Chair (additional) |
10,000 |
(1) | Assumes service for a full year; directors who serve for less than the full year, other than those directors who serve from the date of the separation up to our first annual meeting of stockholders, are entitled to receive a pro-rated portion of the applicable payment. Generally, those directors who serve from the date of the separation up to our first annual meeting of stockholders will receive the full annual retainer without pro-ration. Each year, for purposes of the Director Compensation Policy, begins on the date of our annual meeting of stockholders. |
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Introduction
This section presents information concerning compensation arrangements for certain of our executive officers. We present historical information concerning the compensation of Mr. Johnson, who was an executive officer of Sears Holdings, and Messrs. Powell, Ethridge and Hansen, each of whom was an officer of Sears Holdings and/or a subsidiary of Sears Holdings. The historical compensation information may not be directly relevant to the compensation that any of these officers will receive from SHO. Mr. Barnhart has agreed to serve as our Senior Vice President and Chief Financial Officer effective August 22, 2012. Mr. Barnhart was not employed by Sears Holdings or any of its subsidiaries during fiscal year 2011. Ms. Iliff, who will serve as our Vice President, Human Resources, was not employed by Sears Holdings or any of its subsidiaries during fiscal year 2011. We have presented information below under SHO Employment Arrangements concerning the compensation that our executive officers will receive from SHO that will be in place at the time of the separation. In addition, each of Messrs. Johnson, Powell, Ethridge and Hansen holds equity- and/or cash-based incentive and/or retention awards that were granted by Sears Holdings. Treatment of these awards in the separation is described below under SHO Employment Arrangements .
Compensation Discussion and Analysis
Summary
This Compensation Discussion and Analysis provides information relevant to understanding the fiscal year 2011 compensation of the executive officers who were employed by Sears Holdings or one of its subsidiaries prior to the separation and are identified in the Summary Compensation Table below, whom we refer to as our named executive officers. Our named executive officers are:
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W. Bruce Johnson, Chief Executive Officer and President |
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William A. Powell, Senior Vice President and Chief Operating Officer |
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John E. Ethridge II, Vice President, Supply Chain and Technology |
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Charles J. Hansen, Vice President, General Counsel and Secretary |
Prior to our separation from Sears Holdings, each of our named executive officers has been employed by a subsidiary of Sears Holdings. In connection with the separation, the Board of Directors (or a committee designated by the Board of Directors) of SHO will determine the appropriate executive compensation practices and policies for the employees of SHO, including our named executive officers. SHO compensation practices and policies will be implemented in connection with the separation and may differ from those of Sears Holdings. SHOs compensation practices and policies are currently under review and have not been finalized.
Overall compensation philosophy and structure for Sears Holdings is determined by the Compensation Committee of Sears Holdings Board of Directors, or the Sears Holdings Compensation Committee. The compensation that our named executive officers who were at the level of Senior Vice President of Sears Holdings or above (Messrs. Johnson and Powell) received prior to the separation was determined by the Sears Holdings Compensation Committee. The compensation that our named executive officers who were below the level of Senior Vice President of Sears Holdings (Messrs. Ethridge and Hansen) received prior to the separation was determined in part by the Sears Holdings Compensation Committee and in part by members of senior management of Sears Holdings. The compensation philosophies and practices utilized by Sears Holdings in setting compensation for our named executive officers during fiscal year 2011 are described below.
Sears Holdings Executive Compensation Philosophy and Objectives
The Sears Holdings Compensation Committee has developed a pay-for-performance compensation philosophy for Sears Holdings executive officers. Total annual compensation paid to Sears Holdings executive
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officers generally depends on Sears Holdings financial performance, the level of job responsibility and individual performance, as well as the need to attract top executive talent or retain key executives. The total compensation package provided to Sears Holdings executive officers generally includes both annual and long-term incentive programs designed to motivate and encourage employees to drive performance and achieve superior results for Sears Holdings and its stockholders. The Sears Holdings Compensation Committee also believes that compensation should reflect the value of the job in the marketplace. While the Sears Holdings Compensation Committees objective is to approve compensation and benefits packages that reflect the pay-for-performance compensation philosophy, it recognizes that Sears Holdings must sometimes provide additional inducements, such as sign-on bonuses, retention payments and other provisions, in order to recruit, retain and motivate top-qualified executives. Accordingly, as more fully described below, in fiscal year 2011, Sears Holdings granted additional cash and stock awards to Mr. Powell.
Sears Holdings Competitive Pay Practices
Sears Holdings experience demonstrates that in order to attract qualified external candidates and retain valuable executives, it must offer executive compensation packages that are competitive with the packages offered by companies with which Sears Holdings competes for talent. In making compensation recommendations for its executives Sears Holdings analyzes internal compensation and external market data. Sears Holdings gathers market data with a focus, where appropriate, on retail-specific and online-specific organizations. Sears Holdings does not benchmark against a set list of competitors or a peer group as Sears Holdings believes that its competitive pay analyses provide a reference point in validating proposed or recommended compensation, thereby assuring that executives are offered competitive pay packages.
Sears Holdings Executive Compensation Program: Key Elements
The key elements of Sears Holdings compensation program for its executives include base salary and incentive opportunities. Incentive opportunities include annual and long-term performance-based programs designed to drive long-term performance through effective decision making while also incenting appropriate short-term decision making. In addition, time-based equity awards (i.e., equity that vests with the passage of time) are made to provide additional motivation and encourage retention.
Rewarding Short-Term Performance
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Base Salary Base salary is the fixed element of each executives cash compensation. |
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Annual Incentive Plan The annual incentive program maintained by Sears Holdings is a pay-for-performance program providing for annual cash awards to eligible employees based on achievement of financial performance goals relating to a specific fiscal year. The purpose of this annual incentive program is to motivate participants, including our named executive officers, to achieve financial performance goals by making their cash incentive award variable and dependent upon Sears Holdings or the respective Sears Holdings business units annual financial performance. |
Rewarding Long-Term Performance
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Long-Term Performance-Based Programs The long-term incentive programs maintained by Sears Holdings are designed to motivate its executives to focus on long-term company performance through cash or common stock awards generally based on three-year performance periods and reinforce accountability by linking executive compensation to aggressive performance goals. Sears Holdings believes that these programs are an important instrument in aligning the goals of its executives with its strategic direction and initiatives, which Sears Holdings believes will result in increased stockholder returns. |
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Time-Based Equity Compensation Time-based equity awards encourage retention and provide alignment with the Sears Holdings stockholders as value received will be consistent with return to the stockholders, with vesting schedules that generally range from two to four years. |
As executives assume greater responsibility within Sears Holdings, generally, a larger portion of their total cash compensation opportunity is designed to become dependent on company and/or business unit performance. When making individual compensation decisions for our named executive officers, Sears Holdings took many factors into account, including the individuals performance and experience; the performance of Sears Holdings overall; any retention concerns; the responsibilities, impact and importance of the position within Sears Holdings; the individuals expected future contributions to Sears Holdings; the individuals historical compensation; and internal pay equity (meaning the relative pay differences for different positions within Sears Holdings). Sears Holdings does not have a pre-established policy or target for the allocation between annual and long-term incentive compensation. Instead, Sears Holdings takes a holistic approach to executive compensation and balanced the fiscal year 2011 compensation elements for each of our named executive officers individually.
How Elements Are Used to Achieve Sears Holdings Compensation Objectives
In fiscal year 2011, the Sears Holdings Compensation Committee sought to achieve the objectives of its compensation program through the grant of annual or long-term incentive awards to certain executives. The 2011 annual incentive awards offered participating executives an opportunity for cash compensation based upon EBITDA (earnings before interest, taxes, depreciation and amortization) or a combination of EBITDA and business unit operating profit or, BOP, performance during the fiscal year, and, therefore, rewarded participating executives for achieving a short-term financial performance target. The Sears Holdings Compensation Committee also granted long-term performance-based cash awards to our named executive officers that become payable following the three-year performance cycle upon achievement of a cumulative EBITDA or combination of EBITDA and BOP targets for the three-year performance period.
The Sears Holdings Compensation Committee also believes that the most fair and effective way to motivate Sears Holdings executives officers to produce the best results for its stockholders is to increase the proportion of an executive officers total compensation that is performance-based, including properly deployed time-based equity compensation, as the executives ability to affect those results increases. As a result, the size of the annual and long-term performance awards granted to executive officers, relative to total compensation, generally increases based upon the executive officers relative level of responsibility and potential to affect the financial performance of Sears Holdings or one or more of its business units. Additionally, the Sears Holdings Compensation Committee believes that the payouts for incentive compensation can be achieved only if Sears Holdings and/or its business units perform well in a given fiscal year. Under Sears Holdings incentive compensation structure, the highest amount of compensation can be achieved through consistent superior performance over sustained periods of time. This provides an incentive to manage Sears Holdings for the long term, while minimizing excessive risk taking in the short term.
The annual incentive awards granted to our named executive officers in fiscal year 2011 were calculated based on a multiple of base salary. The multiple, which ranged from 0.50 to 1.0, was based upon our named executive officers relative level of responsibility and potential to affect Sears Holdings overall performance. The performance-based long-term cash awards granted to our named executive officers in fiscal year 2011 were also calculated based on a multiple of base salary. The multiple, which ranged from 0.5 to 2.0, was based upon our named executive officers relative level of responsibility and potential to affect Sears Holdings overall performance. The Sears Holdings Compensation Committee (or, in the case of Messrs. Ethridge and Hansen, members of senior management of Sears Holdings) also considered our named executive officers performance and experience; our named executive officers expected future contributions to Sears Holdings; and internal pay equity.
The Sears Holdings Compensation Committee determines whether the applicable financial performance targets have been attained under the annual and long-term incentive compensation plans. The Sears Holdings
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Compensation Committee can exercise both positive and negative discretion in relation to the annual and long-term incentive compensation awards granted to executives, however, the Sears Holdings Compensation Committee has not yet exercised this discretion.
In fiscal year 2011, Sears Holdings short and long-term incentive programs contained executive compensation recovery provisions. The relevant provisions provide that Sears Holdings will seek reimbursement from executive officers if their financial statements or approved financial measures are subject to restatement due to error or misconduct, to the extent permitted by law.
Fiscal Year 2011 Compensation Decisions
The Sears Holdings Compensation Committee, working with members of the Sears Holdings management team, approved all elements of compensation for Messrs. Johnson and Powell. The compensation approval decision for Messrs. Ethridge and Hansen was made in part by the Sears Holdings Compensation Committee and in part by members of senior management. For Messrs. Johnson and Powell, management presented recommendations to the Sears Holdings Compensation Committee regarding compensation elements for review and final approval. As appropriate, Sears Holdings Chairman generally played an advisory role to the Sears Holdings Compensation Committee during this process.
Base Salary
Sears Holdings set base salaries to reflect our named executive officers performance and experience; the individuals expected future contributions to Sears Holdings; the responsibilities, impact and importance of the position within Sears Holdings; internal pay equity; and competitive pay research. The timing and amount of base salary increases depend on the named executive officers past performance, promotion or other change in responsibilities, expected future contributions to Sears Holdings and current market competitiveness.
The Sears Holdings Compensation Committee reviewed the base salaries of Messrs. Johnson and Powell and no change was made for fiscal year 2011. The base salary of Mr. Ethridge was increased in June 2011 to $220,000 in connection with his promotion and the concomitant increase in his responsibilities. Mr. Hansens salary remained unchanged from the prior year in fiscal year 2011.
2011 Annual Incentive Compensation
The Sears Holdings Annual Incentive Plan, or SHC AIP, is a cash-based program that is intended to reward associates for their contributions to the achievement of certain EBITDA, business unit operating profit or other goals, or a combination of these goals. The Sears Holdings Compensation Committee approved 2011 performance measures under the SHC AIP. For Messrs. Johnson and Hansen, the annual incentive opportunity was tied to achievement of a combination of an SHC EBITDA goal and certain BOP goals. For Messrs. Powell and Ethridge, the annual incentive opportunity was tied to achievement of the BOP goal for the Sears Hometown and Hardware business unit and the Sears Outlet business unit, respectively. The annual incentive opportunities also were based on a multiple of 1.0 times base salary for Mr. Johnson, 0.75 times base salary for Mr. Powell and 0.50 times base salary for each of Messrs. Ethridge and Hansen.
SHC EBITDA is defined as earnings of Sears Holdings before interest, taxes, depreciation and amortization for the performance period computed as operating income on Sears Holdings statement of operations for the applicable reporting period, other than Sears Canada Inc., excluding depreciation and amortization and gains/(losses) on the sales of assets. In addition, it is adjusted to exclude
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significant litigation or claim judgments or settlements (defined as matters which are $1 million or more); |
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the effect of purchase accounting and changes in accounting methods; |
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gains, losses and costs associated with store closings, acquisitions and divestitures; |
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integration costs that are disclosed as merger related; |
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domestic pension expense; and |
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restructuring activities. |
BOP is defined as earnings before interest, taxes, and depreciation and other EBITDA adjustments, if related to the business unit, which are excluded from the definition of EBITDA for each Sears Holdings business unit that is covered by the SHC AIP, as reported on Sears Holdings domestic internal operating statements derived from the vertical financial system. Sears Holdings believes that BOP performance goals support their financial goals by reinforcing responsibility and accountability at the business unit level.
In establishing financial business goals for the fiscal year to be approved by the Sears Holdings Compensation Committee, factors such as the prior fiscal year financial business results, the competitive situation, evaluation of market trends, as well as the general state of the economy and the business all are considered. For fiscal year 2011, threshold and target performance goals were established for SHC EBITDA and the BOPs. For Mr. Johnson, for whom the performance measures are a combination of SHC EBITDA and three specific business unit BOP goals, the threshold level of performance for (a) the percentage that is tied to SHC EBITDA is approximately 61% of the SHC EBITDA target and (b) the percentages that are tied to BOP goals are based on the BOP-specific threshold level set for each such BOP goal (which vary from 50% to 97% of the BOP target). For Mr. Powell, the threshold level of performance is 70% of the BOP goal for the Sears Hometown and Hardware business unit. For Mr. Ethridge, the threshold level of performance is 79.7% of the BOP goal for the Sears Outlet business unit. The threshold level of performance for Mr. Hansen, with respect to the 50% of his award that is tied to SHC EBITDA, is approximately 61% of the SHC EBITDA target; the underlying BOP threshold levels of performance apply to the 50% of his award that is tied to the percentage of AIP payouts achieved by operating businesses. Threshold level performance for SHC EBITDA-based components of the 2011 SHC AIP generate payouts at 40% of incentive opportunity and threshold levels of performance for BOP-based components of the 2011 SHC AIP generate payouts that vary by business unit from a minimum of 40%. The target level performance for SHC EBITDA and BOP components generate payouts of 100% of incentive opportunity. If the target SHC EBITDA or target BOP performance level was exceeded, for each 1% the performance measure exceeds the target performance measure, such named executive officer was eligible to receive a 2% increase in that component of his award. SHC AIP awards payable for performance above target SHC EBITDA or above target BOP were subject to an earnings-to-incentive ratio such that generally, for every $7 in earnings above the target amount, a minimum of $6 in earnings is retained by Sears Holdings for every $1 in incentive paid to participants. The maximum award payable to one of our named executive officers under the SHC AIP was 200% of his target incentive award. The amount of the annual cash incentive award ultimately received depended on the achievement of the applicable performance goals. The Grants of Plan-Based Awards table below shows the range of possible payments to each of the named executive officers under the SHC AIP in fiscal year 2011.
While Sears Holdings did not achieve the SHC EBITDA performance goal under the SHC AIP for fiscal year 2011, the Sears Outlet business unit and the Sears Hardware Stores business were successful in achieving threshold levels of performance under their respective BOP goals. The Sears Outlet business units BOP threshold, target and actual results for fiscal year 2011 were $47,077,000, $59,069,000 and $47,985,000, respectively. The Sears Hardware Stores businesss BOP threshold, target and actual results for fiscal year 2011 were $(10,441,000), $(8,032,000), and $(9,437,000), respectively. Accordingly, Messrs. Johnson and Ethridge received annual incentive payments of $94,545 and $56,962, respectively, based, in each case, solely on the Sears Outlet business units achievement of its BOP threshold level of performance in fiscal year 2011. Mr. Hansen received an annual incentive payment of $960 based solely on the achievement of the BOP threshold level of performance in fiscal year 2011 of each of the Sears Outlet business unit and the Sears Hardware Stores business.
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Long-Term Compensation Opportunities
Beginning in 2005, Sears Holdings has generally granted long-term performance awards each year to its executive officers and others, including our named executive officers. The Summary Compensation Table and Grants of Plan-Based Awards tables below contain information regarding the long-term performance-based compensation opportunities for fiscal year 2011. These opportunities consisted of a performance-based award under the 2011 Long-Term Incentive Program, or the 2011 LTIP, granted to our named executive officers in fiscal year 2011 and a performance-based cash award under the 2010 Long-Term Incentive Program, or the 2010 LTIP, granted to certain of our named executive officers in fiscal year 2010. Certain of our named executive officers also were participating in the 2009 Long-Term Incentive Program, or the 2009 LTIP, a performance-based cash program dependent upon the achievement of Sears Holdings financial goals during our 2009 through 2011 fiscal years; however, based on Sears Holdings financial performance during the performance period, no payments were made to our named executive officers under the 2009 LTIP.
In making compensation decisions, no formal weighting formula was used in determining award amounts under the long-term incentive programs maintained by Sears Holdings. Instead, the Sears Holdings Compensation Committee considered the named executive officers relative level of responsibility and potential to affect the Sears Holdings overall performance when it awarded long-term performance-based compensation.
Sears Holdings current long-term incentive plans are described below.
2009 LTIP
The 2009 LTIP provided the opportunity for employees at the level of divisional vice president and above to receive a potential payment under a 2009 LTIP incentive award subject to the attainment of performance goals for a three-year performance period (fiscal years 2009 to 2011). Awards under the 2009 LTIP represent the right to receive cash or, at the discretion of the Sears Holdings Compensation Committee, shares of Sears Holdings common stock in lieu of cash, or a combination of cash and shares. Threshold and target performance goals were established for the LTIP EBITDA performance goals under the 2009 LTIP. A description of LTIP EBITDA can be found under the caption Long-Term Compensation Opportunities above. A threshold level of performance would have generated payouts at 60% of the long term incentive opportunity, target levels of performance would have generated payouts of 100% of the long term incentive opportunity, and if target levels of performance had been exceeded, for each 1% 2009 LTIP EBITDA exceeds the target performance measure, the participant would have received a 2% increase in his award.
Our named executive officers who participated in the 2009 LTIP are Messrs. Johnson, Powell and Hansen.
In the event a participants death or disability before the payment date for his or her award, a payment would have been made with respect to that participant in an amount equal to his or her prorated target cash incentive opportunity, but only if (a) LTIP EBITDA for the period of the performance period through the month preceding the participants termination of employment had been equal to or greater than target LTIP EBITDA, pro-rated through the date of termination, (b) LTIP EBITDA had been equal to or greater than target LTIP EBITDA for the performance period, and (c) the participant had been employed by Sears Holdings for at least 12 months of the performance period. In the event of voluntary termination or involuntary termination (other than due to death or disability) before the payment date for his or her award, the participant would have forfeited all of his or her LTIP award. To have been eligible to receive payment of an award, a participant was required to have been actively employed as of the payment date following completion of the performance period.
Consistent with Sears Holdings pay-for-performance philosophy, Sears Holdings financial performance during the performance period (fiscal years 2009 to 2011) resulted in no payments under the 2009 LTIP.
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2010 LTIP
The 2010 LTIP provides the opportunity for salaried employees who hold a position of divisional vice president or higher to receive a potential payment under a long-term incentive award equal to either a percentage of his her base salary or a dollar amount subject to the attainment of performance goals for a three-year period (fiscal years 2010 to 2012). Awards under the 2010 LTIP represent the right to receive cash or, at the discretion of the Sears Holdings Compensation Committee, shares of Sears Holdings common stock in lieu of cash or a combination of cash and shares upon the achievement of certain performance goals. The issuance of Sears Holdings common stock under the 2010 LTIP is contingent on the availability of shares of stock under a shareholder approved plan of Sears Holdings providing for the issuance of shares in satisfaction of 2010 LTIP awards.
Our named executive officers who currently participate in the 2010 LTIP are Messrs. Johnson, Powell and Hansen.
The 2010 LTIP includes four different performance plans. The Sears Holdings Compensation Committee determined the level of financial performance for each performance plan, the performance plan that applies to each business, and which performance plan applies to each participant. Messrs. Johnson and Hansen participated in the 100% LTIP EBITDA performance plan under the 2010 LTIP. Mr. Powell participated in the LTIP EBITDA (50%) and Sears Hometown and Hardware (50%) performance plan under the 2010 LTIP.
In the event of a participants death or disability before the payment date for his or her award, a payment will be made with respect to that participant in an amount equal to his or her prorated target cash incentive opportunity, but only if (a) the applicable performance measure(s) for the period of the performance period through the month preceding the participants termination of employment is equal to or greater than the target for such measure(s), pro-rated through the date of termination, (b) applicable the performance measure(s) is equal to or greater than the target for the applicable performance measure(s) for the performance period, and (c) the participant has been employed by Sears Holdings for at least 12 months of the performance period. In the event of voluntary termination or involuntary termination (other than due to death or disability) before the payment date for his or her award, the participant will forfeit all of his or her LTIP award. To be eligible to receive payment of an award, a participant must be actively employed as of the payment date following completion of the performance period.
For the participating named executive officers, achievement of an LTIP EBITDA performance goal accounted for 100% of their 2010 long-term compensation opportunity under the 2010 LTIP. A description of LTIP EBITDA can found under the heading Long-Term Compensation Opportunities above. Threshold, target and maximum goals have been established for all performance threshold measures under the LTIP EBITDA plan. The threshold level of performance is the attainment of a three-year cumulative LTIP EBITDA target for the three-year performance period. A threshold level of performance will generate a payout at 40% of the long-term incentive opportunity and a target level of performance will generate a payout at 100% of the long-term incentive opportunity. If the target LTIP EBITDA performance level is exceeded, for each 1% LTIP EBITDA exceeds the target performance measure, the named executive officer will receive a 2% increase in his award. 2010 LTIP awards payable for performance above target LTIP EBITDA will be subject to an earnings-to-incentive ratio such that for every $7 in earnings above the target amount, a minimum of $6 in earnings is retained by Sears Holdings for every $1 in incentive paid to participants.
During fiscal year 2011, Sears Holdings concluded that the LTIP EBITDA performance goal established in connection with the 2010 LTIP was unlikely to be achieved. Accordingly, Sears Holdings ceased recording expense and reversed the prior expense recognized in connection with the 2010 LTIP awards based on 100% LTIP EBITDA. Payments to participants under the 2010 LTIP at the end of the three-year performance period are not likely to occur.
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2011 LTIP
The 2011 LTIP provides the opportunity for salaried employees who hold a position of divisional vice president or higher to receive a long-term incentive award equal to either a percentage of his or her base salary or a dollar amount subject to the attainment of performance goals for a three-year period (fiscal years 2011 to 2013). Awards under the 2011 LTIP represent the right to receive cash or, at the discretion of the Sears Holdings Compensation Committee, shares of Sears Holdings common stock in lieu of cash or a combination of cash and shares upon the achievement of certain performance goals. The issuance of common stock under the 2011 LTIP is contingent on the availability of shares of stock under a stockholder approved plan of Sears Holdings providing for the issuance of shares in satisfaction of 2011 LTIP awards.
Each of our named executive officers currently participates in the 2011 LTIP.
The 2011 LTIP includes five different performance plans. The Sears Holdings Compensation Committee has determined the level of financial performance for each performance plan, the performance plan to apply to each business, and which performance plan applies to each participant. The 2011 performance plans under the LTIP that cover our named executive officers include an LTIP EBITDA plan and BOP-based plans.
In the event of a participants death or disability before the payment date for his or her award, a payment will be made with respect to that participant in an amount equal to his or her prorated target cash incentive opportunity, but only if (a) the applicable performance measure(s) for the period of the performance period through the month preceding the participants termination of employment is equal to or greater than the target for such measure(s), pro-rated through the date of termination, (b) applicable the performance measure(s) is equal to or greater than the target for the applicable performance measure(s) for the performance period and (c) the participant has been employed by Sears Holdings for at least 12 months of the performance period. In the event of voluntary termination or termination with cause (as defined in the 2011 LTIP) before the payment date for his or her award, the participant will forfeit all of his or her LTIP award. To be eligible to receive payment of an award, a participant must be actively employed as of the payment date following completion of the performance period.
For Messrs. Johnson, Powell and Ethridge, achievement of the LTIP EBITDA performance goal accounts for 50% of their 2011 LTIP opportunity and achievement of a BOP goal for the businesses for which each is responsible accounts for the remaining 50% of their 2011 LTIP opportunity, or LTIP EBITDA-BOP plan. For Mr. Hansen, achievement of the LTIP EBITDA performance goal accounts for 100% of his 2011 LTIP opportunity, or LTIP EBITDA plan. Threshold, target and maximum goals have been established for all performance measures under the 2011 LTIP.
The threshold level of performance for the LTIP EBITDA plan and the LTIP EBITDA portion of the LTIP EBITDA-BOP plan is 70% of target LTIP EBITDA in any year of the three-year performance period. The threshold level of performance for the BOP portions of the LTIP EBITDA-BOP plan is 70% of the three-year cumulative BOP targets for the performance period. For both plans, a threshold level of performance will generate a payout at 25% of the 2011 LTIP opportunity and a target level of performance will generate a payout at 100% of the 2011 LTIP opportunity. For both plans, for a performance level from threshold to 83% of the applicable target, the named executive officer will receive a 1.2% increase in his award for every 1% of additional performance above threshold. For a performance level from 83% of the applicable target to such target, the named executive officer will receive a 3.5% increase in his award for every 1% of additional performance. If the applicable target performance level is exceeded, for each 1% it exceeds the target, the named executive officer will receive a 2% increase in his award. Awards payable under either the LTIP EBITDA plan or LTIP EBITDA-BOP plan for performance above applicable targets will be subject to an earnings-to-incentive ratio such that for every $7 in earnings above the target amount, a minimum of $6 in earnings is retained by Sears Holdings for every $1 in incentive paid to participants. The maximum award payable to a named executive officer under the 2011 LTIP is 200% of his target incentive award.
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Sears Holdings ability to achieve the LTIP EBITDA performance target is dependent upon a number of factors. Given Sears Holdings recent operating performance and current retail market conditions, there is uncertainty with respect to achieving the LTIP EBITDA performance target in the performance period, and payment to participants under the 2011 LTIP at the end of the three-year performance period is not likely to occur.
Other Long-Term Compensation Opportunities
On September 1, 2011, Mr. Powell received a special long-term retention award in the amount of $224,975. This award was granted on and consists of restricted stock issued under Sears Holdings 2006 Stock Plan (the 2006 Stock Plan) valued at approximately 50% of the total award amount, and cash in the amount of approximately 50% of the total award amount. This award vests 100% on the third anniversary of the grant date, subject to employment with Sears Holdings on the vesting date. This long-term retention award was granted to retain and motivate Mr. Powell.
In connection with the spin-off of Sears Holdings interest in Orchard Supply Hardware Stores Corporation, or Orchard, each person, including our named executive officers, who held outstanding shares of unvested restricted stock of Sears Holdings as of December 16, 2011, the record date for the spin-off, was granted a cash right in lieu of shares of Orchard common and preferred stock distributed in the spin-off in respect of such unvested restricted stock. The cash rights were granted in lieu of Orchard shares to preserve the tax-free nature of the spin-off for U.S. federal income tax purposes. The cash rights will be payable on the applicable vesting date for such unvested restricted stock. The cash right amounts were calculated based on the volume-weighted average price per share of the Orchard common and preferred stock over the 10-trading day period beginning January 3, 2012. Messrs. Johnson and Powell received cash rights in the amount of $27,867 and $4,816, respectively. No cash rights held by our named executive officers vested in fiscal year 2011.
Time-Based Equity Compensation
Time-based equity compensation, or equity that vests with the passage of time, assists Sears Holdings to:
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Attract and retain top executive talent; and |
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Link executive and company long-term financial interests of Sears Holdings, including the growth in value of Sears Holdings equity and enhancement of long-term stockholder return. |
Time-based equity compensation is intended to complement the three major compensation elements: base salary, annual incentive awards and long-term incentive awards.
Time-based equity compensation at Sears Holdings is currently awarded in the form of restricted stock. Generally, Sears Holdings practice is to determine the dollar amount of equity compensation and then grant a number of shares of restricted stock having a fair market value equal to that dollar amount on the date of grant. The fair market value is based upon the closing price of Sears Holdings stock on the grant date. Individual grant amounts are generally based on factors such as relative job scope, expected future contributions to Sears Holdings and internal pay equity.
Sears Holdings does not grant restricted stock on a regular basis to its executives. In fiscal year 2011, Sears Holdings granted a restricted stock award to Mr. Powell, as part of his special long-term retention award, as described in Other Long-Term Compensation Opportunities above. On April 6, 2010, Mr. Johnson received an award of 40,000 shares of restricted stock, which award vests in four equal annual installments on the first, second, third and fourth anniversary of the grant date. On March 10, 2011, this award was amended to provide that if his employment with Sears Holdings is involuntarily terminated (other than for cause, death or disability), he will be deemed to be vested in any portion of his award that was scheduled to vest during the 15 months immediately following such termination date.
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Sears Holdings does not have a stock option plan, as currently stock options are not a key pay component for Sears Holdings.
For a discussion of the treatment of our named executive officers Sears Holdings incentive and retention awards in connection with the separation, see the discussion under the heading SHO Employment Arrangements below.
Other Compensation Elements
Perquisites and Other Benefits
Sears Holdings provides our named executive officers with perquisites and other personal benefits that the Sears Holdings Compensation Committee deems reasonable and consistent with Sears Holdings overall compensation program. In fiscal year 2011, Sears Holdings made available to Mr. Johnson company-furnished ground transportation for travel between his primary residence in the Chicago metropolitan area and the Sears Holdings corporate headquarters in Hoffman Estates, Illinois. Mr. Johnson is responsible for any related taxes associated with the personal use of company-furnished transportation. In fiscal year 2011, Sears Holdings paid Mr. Powell $35,000, in four equal quarterly installments of $8,750 each in advance, to cover the cost of Mr. Powells commuting between his primary residence in Cleveland, Ohio and Sears Holdings corporate headquarters in Hoffman Estates, Illinois. The payment is subject to repayment of the unused portion if Mr. Powell voluntarily terminates his employment with Sears Holdings or such employment is terminated for cause. This payment included a tax gross-up of $14,224.
Retirement Plans
Sears Holdings maintains a 401(k) savings plan, which allows participants to contribute towards retirement on a pre-tax (including catch-up contributions) and after-tax basis. Sears Holdings also maintains a frozen, qualified pension plan, or the Sears Holdings Pension Plan, and a frozen, non-qualified pension plan, or SRIP, that provides supplemental retirement income to certain legacy SRC participants, or together the Pension Plans. Sears Holdings eliminated future benefit accruals for the Pension Plans as of December 31, 2005. None of our named executive officer, other than Mr. Powell, participates in the Pension Plans. SHO will not maintain a pension plan following our separation from Sears Holdings.
Severance Benefits
Each of our named executive officers has entered into a severance agreement with Sears Holdings. Under the terms of the agreement, severance is provided for involuntary termination by Sears Holdings without cause (as defined in the agreement) or if the officers employment is terminated for good reason (as defined in the agreement). Our named executive officers would have received the following, depending on the form of agreement:
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Severance equal to one year (or six months, in the case of Mr. Ethridge) of annual base salary, subject to mitigation for salary or wages earned from another employer, including self-employment; or |
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Severance equal to one year of annual base salary and a target bonus (separate from any payment under an annual incentive plan), subject to mitigation for salary or wages earned from another employer, including self-employment. |
If one of our named executive officers had become entitled to benefits under the severance agreement, the named executive officer would have received other Sears Holdings benefits such as continued participation in its medical and dental plans during the salary continuation period. Except as described below under the heading Payments Pursuant to Severance AgreementsOther Severance Benefits, the forms of executive severance agreements do not have specific change-in-control or similar provisions that would have given rise to or impacted the payment of severance benefits to the named executive officers.
Awards under a long-term incentive program are payable in the event of a termination of employment as a result of death or disability during a performance period if certain conditions are met, as described under the applicable long-
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term incentive program. Please see Long-Term Compensation Opportunities below and Potential Payments Upon Termination of Employment below for additional information.
In the event of the death, disability, retirement or involuntary termination of one our named executive officers, at the discretion of the Sears Holdings Compensation Committee, such officers restricted stock awards may be accelerated. In all other cases, any unvested restricted stock award under the 2006 Stock Plan will be forfeited upon termination of employment. However, in connection with the separation and subject to provisions in the offer letters from SHO to the named executive officers, such officers restricted stock awards will be replaced with a cash award. See the discussion under the heading SHO Employment Arrangements below for additional information.
The severance agreements with Sears Holdings with the named executive officers will be assigned to, and assumed by, SHO effective upon the separation. See the discussion under the heading SHO Employment Arrangements elsewhere in this prospectus.
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Summary Compensation Table
The following table sets forth information concerning the total compensation paid by Sears Holdings to each of our named executive officers. These amounts are based on the compensation received by these officers while employed by Sears Holdings for fiscal year 2011.
Name and Principal Position |
Year |
Salary
(a) |
Bonus
(b) |
Stock
Awards (c) (1) |
Non Equity
Incentive Plan Compensation (d) (3) |
Change in
Pension Value and Nonqualified Deferred Compensation Earnings (e) (4) |
All Other
Compensation (f) |
Total | ||||||||||||||||||||||||
W. Bruce Johnson
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2011 | $ | 1,000,000 | | | $ | 94,545 | | $ | 31,575 | (5) | $ | 1,126,120 | |||||||||||||||||||
Chief Executive Officer and President |
2010 | $ | 979,487 | | $ | 4,316,400 | | $ | 24,983 | $ | 5,320,870 | |||||||||||||||||||||
2009 | $ | 850,000 | | $ | 663,400 | | | $ | 1,513,400 | |||||||||||||||||||||||
William A. Powell |
2011 | $ | 450,000 | | $ | 112,475 | (2) | | $ | 616 | $ | 35,000 | (6) | $ | 598,091 | |||||||||||||||||
Senior Vice President and Chief Operating Officer |
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John E. Ethridge II |
2011 | $ | 203,297 | | | $ | 56,962 | | | $ | 260,259 | |||||||||||||||||||||
Vice President, Supply Chain and Technology |
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Charles J. Hansen |
2011 | $ | 410,000 | | | $ | 960 | | | $ | 410,960 | |||||||||||||||||||||
Vice President, General Counsel and Secretary |
(1) | Amounts shown in this column represent the full grant date fair value of the restricted stock awards granted under the Sears Holdings 2006 Stock Plan, or, the 2006 Stock Plan. Generally, the full grant date fair value is the amount that Sears Holdings would expense in its financial statements over the awards applicable vesting period. Restricted stock is common stock that cannot be sold or otherwise transferred by the named executive officer until such restrictions lapse. All of the restricted stock awards shown in the summary compensation table were awarded under the 2006 Stock Plan. |
(2) | On September 1, 2011, Mr. Powell received a restricted stock award of 1,921 shares. These shares are scheduled to vest 100% on September 1, 2014, provided that Mr. Powell is an active employee of Sears Holdings on the vesting date. The closing stock price on the date of grant was $58.55. |
(3) | The amounts shown in this column were earned under the SHC AIP for performance in fiscal year 2011. |
(4) | The amounts shown in this column represent the increase in the actuarial present value of benefits under the Pension Plans from January 31, 2011 to January 31, 2012. As described under the Pension Benefits below, accrual of benefits under the Pension Plans was eliminated effective December 31, 2005; accordingly, amounts reported in the Summary Compensation Table reflect the fact that Mr. Powell is closer to retirement age as defined under the plan, as well as other changes in actuarial assumptions. The Pension Plans do not provide for above-market earnings on deferred compensation amounts. Mr. Powell is the only named executive officers who participates in the Pension Plans . |
(5) | Includes $31,575 attributable to the aggregate incremental cost of Mr. Johnsons commuter travel using Sears Holdings-furnished vehicles. Family members of Mr. Johnson accompanied him on one occasion while he used Sears Holdings-furnished ground transportation. Under the SEC rules, the accompaniment of Mr. Johnson in Sears Holdings cars by members of his family is considered to be a perquisite, even if there is no incremental cost to Sears Holdings. There was no incremental cost to Sears Holdings when Mr. Johnsons family members traveled with him. |
(6) | Represents a fixed amount paid to Mr. Powell in four equal quarterly installments of $8,750 each in advance, to cover the cost of Mr. Powells commuting between his primary residence in Cleveland, Ohio and Sears Holdings corporate headquarters in Hoffman Estates, Illinois, and includes a tax gross-up payment of $14,224. The payments are subject to repayment of the unused portion if Mr. Powell voluntarily terminates his employment with Sears Holdings or, such employment is terminated for cause. |
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Grants of Plan-Based Awards
The following tables set forth awards granted to our named executive officers by Sears Holdings under the incentive plans maintained by Sears Holdings including the SHC AIP, the 2011 LTIP and the 2006 Stock Plan.
Name |
Plan |
Grant Date for
Equity-Based Awards |
Compensation
Committee Action Date for Equity- Based Awards |
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards (a) |
All
Other Stock Awards: Number of Shares of Stock |
Grant Date
Fair Value of Stock and Option Awards (b) |
||||||||||||||||||||||||
Threshold | Target | Maximum | ||||||||||||||||||||||||||||
W. Bruce Johnson |
SHC AIP(c) | | | $ | 566,000 | $ | 1,000,000 | $ | 2,000,000 | | | |||||||||||||||||||
2011 LTIP | | April 27, 2011 | $ | 500,000 | $ | 2,000,000 | $ | 4,000,000 | | | ||||||||||||||||||||
2006 Stock Plan | | | | | | 0 | | |||||||||||||||||||||||
William A. Powell |
SHC AIP(d) | | | $ | 135,000 | $ | 337,500 | $ | 675,000 | | | |||||||||||||||||||
2011 LTIP | | April 27, 2011 | $ | 315,000 | $ | 450,000 | $ | 900,000 | | | ||||||||||||||||||||
2006 Stock Plan | September 1, 2011 | August 15, 2011 | | | | 1,921 | $ | 112,475 | (e) | |||||||||||||||||||||
John E. Ethridge II |
SHC AIP(f) | | | $ | 54,224 | $ | 90,374 | $ | 180,748 | | | |||||||||||||||||||
2011 LTIP | | April 27, 2011 | $ | 77,707 | $ | 101,010 | $ | 202,020 | | | ||||||||||||||||||||
2006 Stock Plan | | | | | | | | |||||||||||||||||||||||
Charles J. Hansen |
AIP(g) | $ | 82,000 | $ | 205,000 | $ | 410,000 | | | |||||||||||||||||||||
2011 LTIP | | April 27, 2011 | $ | 51,250 | $ | 205,000 | $ | 410,000 | | | ||||||||||||||||||||
2006 Stock Plan | | | |
(a) | The amounts in these columns include the threshold, target and maximum amounts for each named executive officer under the SHC AIP and 2011 LTIP. |
(b) | This column reflects the full grant date fair value of restricted stock granted to certain named executive officers. Generally, the full grant date fair value is the amount that Sears Holdings would expense in its financial statements over the awards applicable vesting period. |
(c) | The estimated threshold payout amount is based on the (1) threshold level of performance for SHC EBITDA, which resulted in a payout of $0, and (2) threshold level of performance of three of Sears Holdings operating business units, one of which resulted in a payout of $94,545. The SHC AIP payment earned by Mr. Johnson for 2011 performance is reported as Non-Equity Incentive Plan Compensation in the Summary Compensation Table above. |
(d) | This estimated threshold payout amount is based on the threshold level of performance of one of Sears Holdings business units, which resulted in a payout of $0. |
(e) | The fair value of this restricted stock award under the 2006 Stock Plan was calculated using the closing price of Sears Holdings common stock on the grant date, which was $58.55. |
(f) | The estimated threshold payout amount is based on the threshold level of performance of one of Sears Holdings business units, which resulted in a payout of $56,962. The SHC AIP payment earned by Mr. Ethridge for 2011 performance is reported as Non-Equity Incentive Plan Compensation in the Summary Compensation Table above. |
(g) | The estimated threshold payout amount is based on the (1) threshold level of performance for SHC EBITDA, which resulted in a payment of $0, and (2) threshold level of performance of each of Sears Holdings operating business units, which resulted in a payout of $960. The AIP payment earned by Mr. Hansen for 2011 performance is reported as Non-Equity Incentive Plan Compensation in the Summary Compensation Table above. |
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Outstanding Equity Awards at 2011 Fiscal Year End
The following table shows the number of shares of Sears Holdings common stock covered by unvested restricted stock held by the named executive officers on January 28, 2012. None of the named executive officers held options to purchase shares of Sears Holdings common stock on January 28, 2012.
Stock Awards | ||||||||||||||||
Name |
Number of
Shares or Units of Stock That Have Not Vested |
Market
Value of Shares or Units of Stock That Have Not Vested (a) |
Equity Incentive
Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested |
Equity Incentive
Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested |
||||||||||||
W. Bruce Johnson |
30,000 | $ | 1,321,800 | | | |||||||||||
William A. Powell |
5,185 | $ | 228,451 | | | |||||||||||
John E. Ethridge II |
| | | | ||||||||||||
Charles J. Hansen |
| | | |
(a) | The market value of the outstanding restricted stock awards represents the product of the number of shares of restricted stock that have not vested multiplied by $44.06, the closing price of Sears Holdings common stock on January 27, 2012, the last trading day of Sears Holdings common stock in fiscal year 2011. |
Option Exercises and Stock Vested
The following table shows the number of shares of Sears Holdings common stock acquired upon vesting of restricted stock awards and the value realized, before payment of any applicable withholding tax. None of our named executive officers owned or exercised any options to purchase shares of Sears Holdings common stock during fiscal year 2011.
Stock Awards | ||||||||
Name |
Number of
Shares Acquired on Vesting |
Value
Realized on Vesting |
||||||
W. Bruce Johnson |
6,630 | $ | 529,936 | (a) | ||||
William A. Powell |
| | ||||||
John E. Ethridge II |
| | ||||||
Charles J. Hansen |
| |
(a) | This amount represents 10,000 shares of Sears Holdings common stock that vested on April 6, 2011 (including 3,370 shares withheld by Sears Holdings to satisfy tax obligations associated with the vesting of these shares) multiplied by $79.93, the closing price of Sears Holdings common stock on April 6, 2011. |
Pension Benefits
As discussed under Compensation Discussion and AnalysisOther Compensation ElementsRetirement Plans above, Sears Holdings maintains the Sears Holdings Pension Plan, a frozen, qualified pension plan, and the SRIP, a frozen, non-qualified pension plan that provides supplemental retirement income to certain legacy SRC participants. As also discussed above, future benefit accruals for the Pension Plans have been eliminated. The Pension Plans do not provide for above-market earnings on deferred compensation amounts.
All liabilities in respect of the Pension Plans will be retained by Sears Holdings. The Company will neither have nor assume any responsibility for any defined benefit plan and does not intend to establish a defined benefit plan.
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The table below shows information with respect to the Pension Plans. The years of credited service under the Pension Plans are as of January 31, 2012, rounded to the nearest whole number. The present value of accumulated benefit uses mortality and interest rate assumptions consistent with those used in Sears Holdings financial statements. See footnote (b) for assumptions used for the present value of accumulated benefit calculation. The only named executive officer eligible for pension benefits is Mr. Powell, who is eligible only under the Sears Holdings Pension Plan.
Name |
Plan
Name |
Number
of Years Credited Service (a) |
Present
Value of Accumulated Benefit (b) |
Payments
During Last Fiscal Year |
||||||||||
William A. Powell |
Sears Holdings
Pension Plan |
1 | $ | 2,461 | $ | 0 |
(a) | The number of years of credited service is the number of years in the plan from the first anniversary of the participants hire date to the date his or her benefits ceased to accrue. |
(b) | These amounts represent the present value of accumulated benefit using the Sears Holdings pension measurement date of January 31, 2012. The following assumptions were used in the present value calculation. |
|
Election and commencement of benefits at earliest possible retirement age without any benefit reduction due to age, which for legacy SRC participants under the Pension Plans is age 65. |
|
Form of payment for legacy SRC participants under the Sears Holdings Pension Plan is 45% of plan participants electing lump sums, 55% annuities. |
|
Mortality for Annuity Benefits: RP 2000 table projected 15 years for males and females. |
|
Mortality for Lump Sum Benefits: PPA Optional Combined Unisex Mortality Table required by IRS. |
|
An interest rate equal to the discount rate for January 31, 2012 for qualified lump sum payments and an interest rate of 60% of the qualified plan basis for non-qualified lump sum payments. |
|
Discount rate of 4.90% as of January 31, 2012. |
|
No pre-retirement decrements. |
Potential Payments Upon Termination of Employment
As described under Compensation Discussion and AnalysisOther Compensation ElementsSeverance Benefits above, Sears Holdings entered into severance agreements with the named executive officers. These agreements will be assigned to and assumed by SHO effective as of the separation. The amounts shown in the table for involuntary termination for good reason or termination without cause are based on the following agreement provisions.
|
Good Reason: |
|
A termination by the executive officer is for good reason if it results from (1) a reduction of more than 10% in the sum of the executive officers annual salary and target bonus from those in effect as of the date of the severance agreement; (2) an executive officers mandatory relocation to an office more than 50 miles from the primary location at which the executive officer is required to perform his or her duties; or (3) any action or inaction that constitutes a material breach under the severance agreement, including the failure of a successor company to assume or fulfill the obligations under the severance agreement. Mr. Johnsons severance agreement also provides that a termination is for good reason if it results from a change in reporting relationship such that Mr. Johnson reports to anyone other than the Chief Executive Officer, the Chairman of the Board or the Board of Directors of Sears Holdings. |
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|
CauseA termination by an executive officer is without cause if the executive officer is involuntarily terminated because of job elimination (other than poor performance) or without cause. |
|
Cause generally is defined as (1) a material breach by the executive officer, other than due to incapacity due to a disability, of the executive officers duties and responsibilities which breach is demonstrably willful and deliberate on the executive officers part, is committed in bad faith or without reasonable belief that such breach is in the best interests of the Sears Holdings and such breach is not remedied by the executive officer in a reasonable period of time after receipt of written notice from Sears Holdings specifying such breach; (2) the commission by the executive officer of a felony (in certain cases defined as a felony involving moral turpitude); or (3) dishonesty or willful misconduct in connection with the executive officers employment. |
Severance Benefits upon involuntary termination for good reason or without cause
|
For Mr. Johnson, the sum of (1) base salary at the rate in effect immediately prior to the date of termination and (2) a bonus equivalent to his target bonus for the year in which the termination occurs (or, if no target bonus has been set yet for such year, his target bonus for the year immediately preceding the year in which the termination occurred), payable in the form of salary continuation for 12 months, subject to mitigation |
|
For Mr. Powell, base salary at the rate in effect immediately prior to the date of termination, payable in the form of salary continuation for 12 months, subject to mitigation. |
|
For Messrs. Ethridge and Hansen, base salary at the rate in effect immediately prior to the date of termination, payable in the form of salary continuation for six months, subject to mitigation. |
|
For all named executive officers, continuation of active medical and dental coverage the named executive officer was eligible to participate in prior to the end of employment during the salary continuation period. |
Other Terms of Severance Agreements
An eligible named executive officer will not be entitled to a severance payment under the severance agreements in the event of termination for cause or voluntary termination.
Under the severance agreements, the named executive officers agree to non-disclosure of confidential information, non-solicitation and non-compete (where permissible under applicable state law) covenants, as well as a release of liability for certain claims against Sears Holdings.
The forms of severance agreements do not provide for payments to the participating named executive officers upon termination of employment due to death, disability or retirement. Assuming that a termination was effective as of January 27, 2012, the participating named executive officers would have been eligible to receive payments under Sears Holdings annual and long-term incentive programs upon death, disability or retirement, as provided below.
Payments Pursuant to Incentive Compensation Programs
As described under Compensation, Discussion and Analysis above, Sears Holdings provides annual and long-term incentive awards to our named executive officers. Payments under these programs for termination of employment are limited as described below.
|
SHC AIP . If one of our named executive officers voluntarily terminates employment (for any reason other than disability) or is involuntarily terminated for any reason (other than death) prior to the payment date, he will forfeit his 2011 SHC AIP award, except as prohibited by law. If the employment of a named executive officers is terminated because of death or disability, the named executive officer |
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will be entitled to a pro-rated payment through the termination date if the financial criteria under the 2011 SHC AIP are satisfied. Because certain of Sears Holdings business units were successful in achieving the threshold level of performance under their BOP goals and received payouts under the 2011 SHC AIP, Messrs. Johnson, Ethridge and Hansen would have been entitled receive a distribution under the 2011 SHC AIP if their employment had terminated due to death or disability on January 27, 2012. The remaining named executive officers would not be entitled to a distribution under the 2011 SHC AIP in the event of death or disability because the financial goals were not achieved. |
|
2009 Long-Term Incentive Program; 2010 Long-Term Incentive Program and 2011 Long-Term Incentive Program . If one of our named executive officers voluntarily terminates employment (for any reason other than disability) or is involuntary terminated for any reason (other than death), he will forfeit his 2009 LTIP, 2010 LTIP and 2011 LTIP award, respectively, except as prohibited by law. If one of our named executive officers employment is terminated because of death or disability, the named executive officer will be entitled to a pro-rated payment through the termination date if the financial goals under the 2009 LTIP, 2010 LTIP or 2011 LTIP, as of the termination dates, equal or exceed the applicable targets. As of January 27, 2012, the financial goals under the 2009 LTIP, 2010 LTIP and 2011 LTIP were not equal to or in excess of the applicable targets; therefore, the eligible named executive officers would not be entitled to any payments under these plans in the event of death or disability. |
Time-Based Equity Compensation
Except for Mr. Johnson, any unvested restricted stock held by our named executive officers on January 27, 2012 will be forfeited upon termination of employment with Sears Holdings. For Mr. Johnson, upon an involuntary termination (other than for cause, death or disability) of employment the portion of the April 6, 2010 restricted stock grant that would vest within 15 months of termination will vest.
The table below summarizes the potential payouts to Messrs. Johnson, Powell and Etheridge upon a termination from Sears Holdings, assuming such termination occurred on January 27, 2012, the last business day of Sears Holdings fiscal year 2011:
W. Bruce Johnson |
Salary
Continuation |
Continuation
of Medical/ Welfare Benefits (a) |
Target
Bonus (b) |
SHC AIP
Payment (c) |
LTIP
Payment |
Accelerated
Vesting of Restricted Stock |
Total | |||||||||||||||||||||
Termination for Good Reason |
$ | 1,000,000 | $ | 8,284 | $ | 1,000,000 | | | $ | 881,200 | $ | 2,889,484 | ||||||||||||||||
Termination without Cause |
$ | 1,000,000 | $ | 8,284 | $ | 1,000,000 | | | $ | 881,200 | $ | 2,889,484 | ||||||||||||||||
Termination with Cause |
| | | | | | | |||||||||||||||||||||
Voluntary Termination |
| | | | | | | |||||||||||||||||||||
Termination due to Disability |
| | | $ | 94,545 | | | $ | 94,545 | |||||||||||||||||||
Termination due to Retirement |
| | | | | | | |||||||||||||||||||||
Termination due to Death |
| | | $ | 94,545 | | | $ | 94,545 | |||||||||||||||||||
William A. Powell |
Salary
Continuation |
Continuation
of Medical/ Welfare Benefits (a) |
Target
Bonus (b) |
SHC AIP
Payment (c) |
LTIP
Payment |
Accelerated
Vesting of Restricted Stock |
Total
(d) |
|||||||||||||||||||||
Termination for Good Reason |
$ | 450,000 | $ | 9,072 | | | | | $ | 459,072 | ||||||||||||||||||
Termination without Cause |
$ | 450,000 | $ | 9,072 | | | | | $ | 459,072 | ||||||||||||||||||
Termination with Cause |
| | | | | | | |||||||||||||||||||||
Voluntary Termination |
| | | | | | | |||||||||||||||||||||
Termination due to Disability |
| | | | | | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||
Termination due to Retirement |
| | | | | | | |||||||||||||||||||||
Termination due to Death |
| | | | | |||||||||||||||||||||||
|
|
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John E. Ethridge II |
Salary
Continuation |
Continuation
of Medical/ Welfare Benefits (a) |
Target
Bonus (b) |
SHC AIP
Payment (c) |
LTIP
Payment |
Accelerated
Vesting of Restricted Stock |
Total | |||||||||||||||||||||
Termination for Good Reason |
$ | 110,000 | | | | | | $ | 110,000 | |||||||||||||||||||
Termination without Cause |
$ | 110,000 | | | | | | $ | 110,000 | |||||||||||||||||||
Termination with Cause |
| | | | | | | |||||||||||||||||||||
Voluntary Termination |
| | | | | | | |||||||||||||||||||||
Termination due to Disability |
| | | $56,962 | | | $ | 56,962 | ||||||||||||||||||||
Termination due to Retirement |
| | | | | | | |||||||||||||||||||||
Termination due to Death |
| | | $56,962 | | | $ | 56,962 | ||||||||||||||||||||
Charles J. Hansen |
Salary
Continuation |
Continuation
of Medical/ Welfare Benefits (a) |
Target
Bonus (b) |
AIP
Payment (c) |
LTIP
Payment |
Accelerated
Vesting of Restricted Stock |
Total | |||||||||||||||||||||
Termination for Good Reason |
$ | 205,000 | $ | 3,426 | | | | | $ | 208,426 | ||||||||||||||||||
Termination without Cause |
$ | 205,000 | $ | 3,426 | | | | | $ | 208,426 | ||||||||||||||||||
Termination with Cause |
| | | | | | | |||||||||||||||||||||
Voluntary Termination |
| | | | | | | |||||||||||||||||||||
Termination due to Disability |
| | | $ | 960 | | | $ | 960 | |||||||||||||||||||
Termination due to Retirement |
| | | | | | | |||||||||||||||||||||
Termination due to Death |
| | | $ | 960 | | | $ | 960 |
(a) | Mr. Johnsons amounts represents the continuation of benefits including medical, dental and company-paid life insurance. For Mr. Powell, the amounts represent the continuation of medical and/or dental benefits for one year. Mr. Ethridge does not participate in the Sears Holdings medical or dental plans. For Mr. Hansen, the amounts represent the continuation of medical and/or dental benefits for six months. |
(b) | For Mr. Johnson, this amount represents the target bonus under his severance agreement for the year in which the termination occurred. Messrs. Powell, Ethridge and Hansen are not entitled to receive target bonuses under the terms of their respective severance agreements. |
(c) | Because certain of Sears Holdings business units achieved threshold level of performance under the 2011 SHC AIP and received payouts under the SHC AIP, Messrs. Johnson, Ethridge and Hansen (or their respective estates) would be entitled to a distribution in the amount of $94,545, $56,962 and $960, respectively, under the terms of the SHC AIP in the event of permanent and total disability or death. |
(d) | Total does not include benefits accrued by Mr. Powell under the Pension Plans. Such amounts are set forth under the caption Pension Benefits. |
SHO Employment Arrangements
Set forth below are descriptions of the terms of the offer letters entered into by SHO and Sears Holdings, on the one hand, and the executive officers of SHO, on the other, with respect to their employment with SHO after the separation and the transition to SHO of certain elements of their compensation that existed with Sears Holdings prior to the separation.
Offer Letter with Mr. Johnson
Pursuant to his offer letter dated August 28, 2012, Mr. Johnson will serve as Chief Executive Officer and President of SHO with an annual base salary of $1,000,000. SHO will also assume and continue to provide ground transportation for Mr. Johnson to travel between his residence in the Chicago metropolitan area and SHOs corporate headquarters in Hoffman Estates, Illinois as described above under Compensation Discussion and AnalysisOther Compensation ElementsPerquisites and Other Benefits. Mr. Johnsons Executive Severance Agreement with Sears Holdings described above under Compensation Discussion and AnalysisOther Compensation BenefitsSeverance Benefits and Potential Payments Upon Termination of
109
Employment will be assigned to, and assumed by, SHO effective as of the separation. Mr. Johnson will be eligible to participate in the Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan, or SHO AIP, with an annual incentive opportunity of 100% of his base salary and in the Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Plan, or SHO LTIP, when finalized and approved by the SHO board of directors. Mr. Johnson will also be eligible to participate in the retirement, health and welfare programs made available by SHO to its employees.
Existing benefits for Mr. Johnson under the SHC AIP and LTIP, as well as unvested restricted stock and cash awards made by Sears Holdings, will be transitioned to SHO and paid by SHO as follows. With respect to Mr. Johnsons participation in the SHC AIP for fiscal year 2012, the portion of his target award for the first and second fiscal quarters of fiscal year 2012 that is based on quarterly SHC EBITDA will be determined based on year-to-date results, compared to plan goals and amounts payable, if any, will be paid by SHO under the SHO AIP, subject to achievement of a certain level of SHC EBITDA. Quarterly SHC EBITDA for the third and fourth fiscal quarters of fiscal year 2012 will be converted to a measure of SHO EBITDA under the SHO AIP. With respect to the annual portion of his target award for the first and second fiscal quarters of fiscal year 2012 that is based on the level of performance of the BOP goals for the SHC business units for which he has been responsible, the BOP goals will generally be converted to a new measure of SHO EBITDA. Mr. Johnsons participation in the 2011 LTIP and 2010 LTIP will be closed out effective on the separation and based on performance under those plans through the second fiscal quarter of fiscal year 2012. Benefits payable thereunder, if any, will be prorated based on number of days worked at Sears Holdings and SHO during the performance periods for each plan and will be paid under the SHO LTIP (which will have terms substantially similar to the Sears Holdings LTIP). Unvested SHC restricted stock awards will be forfeited at the time of the separation, and in their place, SHO will provide a cash retention award of equivalent value that will vest on the same schedule as the restricted stock awards that are being replaced. Equivalent value will be determined based on the closing price of Sears Holdings common stock on the day before the effective date of the separation. In lieu of the cash awards made to Mr. Johnson with respect to his unvested restricted stock at the time of (a) the Orchard spin-off that occurred on December 30, 2011, or Orchard Cash Right, and (b) this rights offering, or SHO Cash Award, SHO will make a cash retention award to Mr. Johnson in an amount equal to the sum of the Orchard Cash Right and SHO Cash Award, subject to the existing vesting schedule for the Orchard Cash Right and SHO Cash Award. Payment of these transition amounts is contingent upon Mr. Johnson remaining employed by SHO through the applicable performance periods, payment dates and/or vesting dates.
Offer Letter with Mr. Powell
Pursuant to his offer letter dated August 28, 2012, Mr. Powell will serve as Senior Vice President and Chief Operating Officer of SHO with an annual base salary of $550,000. Mr. Powells Executive Severance Agreement with Sears Holdings described above under Compensation Discussion and AnalysisOther Compensation BenefitsSeverance Benefits and Potential Payments Upon Termination of Employment will be assigned to, and assumed by, SHO effective as of the separation. Mr. Powell will be eligible to participate in the SHO AIP with an annual incentive opportunity of 75% of his base salary and in the SHO LTIP, when finalized and approved by the SHO board of directors. Mr. Powell will also be eligible to participate in the retirement, health and welfare programs made available by SHO to its employees.
Existing benefits for Mr. Powell under the SHC AIP and LTIP, as well as unvested restricted stock and cash awards made by Sears Holdings, will be transitioned to SHO and paid by SHO as follows. With respect to Mr. Powells participation in the SHC AIP for fiscal year 2012, the portion of his target award for the first and second fiscal quarters of fiscal year 2012 that is based on quarterly SHC EBITDA will be determined based on year-to-date results, compared to plan goals and amounts payable, if any, will be paid by SHO under the SHO AIP, subject to achievement of a certain level of SHC EBITDA. Quarterly SHC EBITDA for the third and fourth fiscal quarters of fiscal year 2012 will be converted to a measure of SHO EBITDA under the SHO AIP. With respect to the portion of his target award for the first and second fiscal quarters of fiscal year 2012 that is based on BOP, the target will be converted to a new measure of SHO EBITDA. Mr. Powells participation in the 2011
110
and 2010 LTIP will be closed out effective on the separation and based on performance under those plans through the second fiscal quarter of fiscal year 2012. Benefits payable thereunder, if any, will be prorated based on number of days worked at Sears Holdings and SHO during the performance periods for each plan and will be paid under the SHO LTIP (which will have terms substantially similar to the Sears Holdings LTIP). Unvested restricted stock awards payable in Sears Holdings stock will be forfeited on the separation, and in their place, SHO will provide a cash retention award of equivalent value that will vest on the same schedule as the restricted stock awards that are being replaced. Equivalent value will be determined based on the closing price of Sears Holdings common stock on the day before the effective date of the separation. In lieu of an unvested cash retention award and the Orchard Cash Right made to Mr. Powell, SHO will make a cash retention award to Mr. Powell in an amount equal to the sum of the unvested cash retention award, the Orchard Cash Right and SHO Cash Award, subject to the existing vesting schedule for the Orchard Cash Right. Payment of these transition amounts is contingent upon Mr. Powell remaining employed by SHO through the applicable performance periods, payment dates and/or vesting dates.
Offer Letter with Mr. Barnhart
Pursuant to his offer letter dated August 28, 2012, Mr. Barnhart has agreed to serve as Senior Vice President and Chief Financial Officer of SHO with an annual base salary of $500,000. Mr. Barnhart will receive a one-time sign-on bonus of $300,000 payable within 30 days following the start of his employment; however, if Mr. Barnhart voluntarily terminates his employment or has his employment terminated for misconduct or integrity issues within 12 months following the start of his employment, he will be required to repay the sign-on bonus in full; if such termination occurs during the 13th through 24th months of his employment, Mr. Barnhart must repay the full amount reduced by 1/12th for each month he remains employed during such period. Mr. Barnhart will also receive a special cash retention bonus of $400,000 that will vest and be payable in three equal annual installments on each of the first, second and third anniversary dates of his start date subject to continued employment through the applicable vesting dates; however, if terminated by SHO or Sears Holdings other than for Cause or by him for Good Reason (as defined in the Executive Severance Agreement), he will be deemed vested in any portion of such bonus scheduled to vest in the 12 months following such termination. Mr. Barnharts Executive Severance Agreement with Sears Holdings, which, except as noted herein, is substantially the same as the Executive Severance Agreements described above under Compensation Discussion and AnalysisOther Compensation BenefitsSeverance Benefits and Potential Payments Upon Termination of Employment, will be assigned to, and assumed by, SHO effective as of the separation. Under Mr. Barnharts Executive Severance Agreement, if Mr. Barnharts employment is terminated other than for Cause, death or Disability or Mr. Barnhart terminates employment for Good Reason (as defined in the Executive Severance Agreement) before the first anniversary of the effective date of the separation, he will receive 12 months of salary continuation and an amount equivalent to his target annual incentive at the date of termination, subject to mitigation. If such termination occurs after the first anniversary of the effective date of the separation, he will receive 12 months of salary continuation only, subject to mitigation. In addition, the definition of Good Reason under his Executive Severance Agreement includes the failure of the separation to be completed within 12 months of his start date. Mr. Barnhart will be eligible to participate in the SHO AIP with an annual incentive opportunity of 75% of his base salary. Mr. Barnhart is eligible to receive an incentive payment equal to the greater of (1) 50% of his annual incentive opportunity under the SHO AIP or (2) the actual incentive payable to him under the SHO AIP for 2012 (assuming no proration based on his start date). The former amount will be reduced by any amount payable to Mr. Barnhart under the SHO AIP for 2012. He will also be eligible to participate in the SHO LTIP, when finalized and approved by the SHO board of directors. Mr. Barnhart will also be eligible to participate in the retirement, health and welfare programs made available by SHO to its employees.
Offer Letter with Mr. Ethridge
Pursuant to his offer letter dated August 28, 2012, Mr. Ethridge will serve as Vice President, Supply Chain and Technology of SHO with an annual base salary of $260,000. Mr. Ethridges Executive Severance Agreement with Sears Holdings described above under Compensation Discussion and AnalysisOther Compensation
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BenefitsSeverance Benefits and Potential Payments Upon Termination of Employment will be assigned to, and assumed by, SHO effective as of the separation. Mr. Ethridge will be eligible to participate in the SHO AIP with an annual incentive opportunity of 50% of his base salary and the SHO LTIP, when finalized and approved by the SHO board of directors. Mr. Ethridge will also be eligible to participate in the retirement, health and welfare programs made available by SHO to its employees.
Existing benefits for Mr. Ethridge under the SHC AIP and LTIP will be transitioned to SHO and paid by SHO as follows. With respect to Mr. Ethridges participation in the SHC AIP for fiscal year 2012, the portion of his target award for the first and second fiscal quarters of fiscal year 2012 that is based on quarterly SHC EBITDA will be determined based on year-to-date results, compared to plan goals and amounts payable, if any, will be paid by SHO under the SHO AIP, subject to achievement of a certain level of SHC EBITDA. Quarterly SHC EBITDA for the third and fourth quarters of fiscal year 2012 will not be a component of his target award under the SHO AIP. The portion of his target award for the first and second fiscal quarters of fiscal year 2012 that is based on BOP will be converted to a new measure of SHO EBITDA. Mr. Ethridges participation in the 2011 LTIP will be closed out effective on the separation and based on performance under that plan through the second fiscal quarter of fiscal year 2012. Benefits payable thereunder, if any, will be prorated based on number of days worked at Sears Holdings and SHO during the performance periods for each plan and will be paid under the SHO LTIP (which will have terms substantially similar to the SHC LTIP). Payment of these transition amounts is contingent upon Mr. Ethridge remaining employed by SHO through the applicable performance periods, payment dates and/or vesting dates.
Offer Letter with Mr. Hansen
Pursuant to his offer letter dated August 28, 2012, Mr. Hansen will serve as Vice President and General Counsel of SHO with an annual base salary of $410,000. Mr. Hansens Executive Severance Agreement with Sears Holdings described above under Compensation Discussion and AnalysisOther Compensation Benefits Severance Benefits and Potential Payments Upon Termination of Employment will be assigned to, and assumed by, SHO effective as of the separation. Mr. Hansen will be eligible to participate in the SHO AIP with an annual incentive opportunity of 50% of his base salary and in the SHO LTIP, when finalized and approved by the SHO Board of Directors. Mr. Hansen will also be eligible to participate in the retirement, health and welfare programs made available by SHO to its employees.
Existing benefits for Mr. Hansen under the SHC AIP and LTIP will be transitioned to SHO and paid by SHO as follows. With respect to Mr. Hansens participation in the SHC AIP for fiscal year 2012, the portion of his target award for the first and second fiscal quarters of fiscal year 2012 that is based on quarterly SHC EBITDA will be determined based on year-to-date results, compared to plan goals and amounts payable, if any, and will be paid by SHO under the SHO AIP, subject to achievement of a certain level of SHC EBITDA. Quarterly SHC EBITDA for the third and fourth quarters of fiscal year 2012 will not be a component of his target award under the SHO AIP. The portion of his target award for the first and second fiscal quarters of fiscal year 2012 that is based on BOP will be converted to a new measure of SHO EBITDA. Mr. Hansens participation in the 2011 SHC LTIP will be closed out effective on the separation and, based on performance under those plans through the second fiscal quarter of fiscal year 2012, benefits payable thereunder, if any, will be prorated based on number of days worked at Sears Holdings and SHO during the performance periods for each plan and will be paid under the SHO LTIP (which will have terms substantially similar to the SHC LTIP). Payment of these transition accounts is contingent upon Mr. Hansen remaining employed by SHO through the applicable performance periods, payment dates and/or vesting dates.
Offer Letter with Ms. Iliff
Pursuant to her offer letter dated August 28, 2012, Ms. Iliff will serve as Vice President, Human Resources of SHO with an annual base salary of $240,000. Ms. Iliff will receive a one-time sign-on bonus of $25,000 payable within 30 days following the start of her employment; however, if Ms. Iliff voluntarily terminates her
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employment or has her employment terminated for misconduct or integrity issues within 24 months following the start of her employment, she will be required to repay the sign-on bonus in full. Ms. Iliff will also receive a special cash retention bonus of $150,000 that will vest and be payable in three equal annual installments on each of the first, second and third anniversary dates of her start date subject to continued employment through the applicable vesting periods. Ms. Iliffs Executive Severance Agreement with Sears Holdings, which, except as noted herein, is substantially the same as the Executive Severance Agreements described above (with respect to Messrs. Ethridge and Hansen) under Compensation Discussion and AnalysisOther Compensation BenefitsSeverance Benefits and Potential Payments Upon Termination of Employment, will be assigned to, and assumed by, SHO effective as of the separation. Under Ms. Iliffs Executive Severance Agreement, her salary continuation period is six months. Ms. Iliff will be eligible to participate in the SHO AIP with an annual incentive opportunity of 50% of her base salary and in the SHO LTIP, when finalized and approved by the SHO board of directors. Ms. Iliff will also be eligible to participate in the retirement, health and welfare programs made available by SHO to its employees.
SHO Executive Compensation Plans
In connection with the separation, we have adopted an Umbrella Incentive Program, and the SHO AIP and SHO LTIP, each of which will be established under the Umbrella Incentive Program. We also have adopted the SHO 2012 Stock Plan (as defined below). These programs are designed based upon the short- and long-term incentive compensation plans maintained by Sears Holdings prior to the separation to provide a consistent compensation structure for our employees during the transition. The following description of the material terms and conditions of these plans is qualified by reference to the full text of the respective plans, which have been filed as exhibits to this registration statement.
Umbrella Incentive Program
Purpose . The purpose of the Umbrella Incentive Program is to motivate our salaried employees to achieve significant, lasting change that successfully positions the Company for future growth by aligning employees financial incentives with our financial goals.
Our Compensation Committee may make an award to an eligible employee of ours under the Umbrella Incentive Program, or from time to time may establish annual and long term incentive plans or programs under the Umbrella Incentive Program for specific performance periods for specified groups of eligible employees, including our named executive officers, and make awards under these plans, consistent with the terms of the Umbrella Incentive Program.
Eligible Employees. Any salaried employee of ours (and certain hourly employees of ours) may be designated by our Compensation Committee to participate in the Umbrella Incentive Program or the annual or long-term incentive programs established under the Umbrella Incentive Program. From time to time, our Compensation Committee may also designate as participants those employees who have been newly hired or promoted into the group of eligible employees. Our Compensation Committee may adjust the terms and conditions of awards to these employees, in order to qualify such awards as performance-based compensation for purposes of Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, or the Code, if such awards are intended to meet the requirements of Code Section 162(m).
Awards under the Umbrella Incentive ProgramGenerally. An award may be granted under the Umbrella Incentive Program in the form of a cash incentive award or a stock award. Awards under the Umbrella Incentive Program are designed to vary commensurately with achieved performance. A cash incentive award is the grant of a right to receive a payment of cash (or, in the discretion of our Compensation Committee, shares of common stock of the Company having a fair market value on the payment date equivalent to the cash otherwise payable) that is contingent on the achievement of performance goals established by our Compensation Committee for the applicable performance period. A stock award is a grant of shares of common stock of the
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Company, which grant will be subject to a risk of forfeiture or other restrictions that will lapse upon the achievement of performance goals for the applicable performance period, as established by our Compensation Committee. Our Compensation Committee may impose other conditions, restrictions and contingencies on any cash incentive award or stock award.
Performance-Based Compensation Awards. Under the Umbrella Incentive Program, our Compensation Committee may issue both awards structured to satisfy the requirements for performance-based compensation outlined in Code Section 162(m) (performance based compensation) and awards not so structured. An award intended to be performance based compensation will be conditioned on the achievement of one or more performance goals, to the extent required by Code Section 162(m). The performance goals that may be used for these awards will be based on any one or more of the performance measures described below under Performance Measures selected by our Compensation Committee. All awards under the Umbrella Incentive Program that are intended to be performance-based compensation for purposes of Code Section 162(m) will be structured to meet the applicable requirements.
Maximum Performance-Based Awards. For awards that are intended to be performance-based compensation under Code Section 162(m), the maximum value payable under all such awards granted to any one individual during any (a) consecutive 36 month period shall not exceed $15,000,000, and (b) consecutive 48 month period shall not exceed $20,000,000. Awards that are not intended to constitute performance-based compensation under Code Section 162(m) are not subject to these limits.
Performance Goals. Not later than 90 days after the beginning of the performance period (but in no event after 25% of the performance period has elapsed), and while the outcome as to the performance goals is substantially uncertain, our Compensation Committee shall establish objective written performance goals for awards intended to be performance-based compensation for purposes of Code Section 162(m). These goals will be based on one or more performance measures (described below), and may be with respect to: corporate performance; operating group or sub-group performance; individual company performance; other group or individual performance; or division performance.
A participant otherwise entitled to receive an award intended to be performance-based compensation for any performance period will not receive a settlement of the award until our Compensation Committee determines that the applicable performance goal(s) have been attained. In exercising discretion in making this determination, our Compensation Committee may not increase the amount of the payment of an award intended to be performance-based compensation.
Performance Measures. Performance measures may be based on one or more or any combination (in any relative proportion) of the following: share price; market share; cash flow; revenue; revenue growth; earnings per share; operating earnings per share; operating earnings; earnings before interest, taxes, depreciation and amortization; return on equity; return on assets; return on investment; net income; net income per share; economic value added; market value added; store sales growth; customer satisfaction performance goals measured by independent customer satisfaction surveys and employee opinion survey results measured by an independent firm; and strategic business objectives, consisting of one or more objectives based on meeting specific cost or profit targets or margins, business expansion goals and goals relating to acquisitions or divestitures. Each goal, with respect to a performance period, may be expressed on an absolute and/or relative basis, may be based on the Company as a whole or on any one or more business units or subsidiaries of the Company, and may be based on or otherwise employ comparisons based on internal targets, the past performance of the Company or of any one or more business units or subsidiaries of the Company, and/or the past or current performance of other companies, or an index.
The terms of an award may provide that partial achievement of the performance goals may result in a payment or vesting based on the degree of achievement. In establishing any performance goals, our Compensation Committee may exclude the effects of the following items, to the extent identified in our audited
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financial statements, including footnotes, or the Managements Discussion and Analysis of Financial Condition and Results of Operations accompanying those financial statements; asset write-downs; litigation or claim judgments or settlements; extraordinary, unusual and/or nonrecurring items of gain or loss; gains or losses on acquisitions, divestitures or store closures; domestic pension expense; noncapital, purchase accounting items; changes in tax or accounting principles, regulations or laws; mergers or acquisitions; integration costs disclosed as merger-related; accruals for reorganization or restructuring programs; foreign exchange gains and losses; and tax valuation allowances and/or tax claim judgment or settlements.
To the extent the exclusion of any item affects awards intended to be performance-based compensation, the exclusion will be specified in a manner that satisfies the requirements of Code Section 162(m).
Distribution. Subject to the provisions described below regarding termination of employment, we will distribute, in a single lump sum, the cash or shares of our common stock resulting from an award as soon as practicable after the first Compensation Committee meeting after the results of a performance period are available to our Compensation Committee. For awards intended to be performance-based compensation, we will not make any distribution before our Compensation Committee has certified the satisfaction of the performance goals and the amount to be paid to each participant. For awards not intended to be performance-based compensation, we will make distributions at the time specified by our Compensation Committee in the award.
Termination of Employment. The terms of an award (or the annual or long-term incentive program under which the award is granted) will provide the extent to which a participant may receive an award in the event of the participants death, disability or termination of employment. Receipt of an award in these circumstances may depend on both the reason for the termination, if applicable, and the point in the performance period at which the event occurs (subject, in the case of awards intended to be performance-based compensation, to Code Section 162(m)).
Transferability of Awards. Except as otherwise provided by our Compensation Committee, awards under the Umbrella Incentive Program are not transferable except by will or by the laws of descent and distribution.
Settlement of Awards. We may use cash, shares of our common stock, or a combination of cash and stock to satisfy our obligation to make payments and distributions with respect to awards under the Umbrella Incentive Program. Satisfaction of our obligations under an award may be subject to such conditions, restrictions and contingencies as our Compensation Committee may determine, and, in the case of stock, to the terms of the applicable stock plan.
Source of Awards Settled in Stock. For awards under the Umbrella Incentive Program that are settled in shares of our common stock, the shares will be distributed under a stock plan adopted by us. For this purpose, we currently intend to use the SHO 2012 Stock Plan.
Administration. The Umbrella Incentive Program is administered by our Compensation Committee, which may delegate its authority under the Umbrella Incentive Program, other than with respect to awards intended to constitute performance-based compensation under Code Section 162(m) or as otherwise prohibited by law.
Corporate Transaction or Capital Adjustment. In the event of a corporate transaction or capital adjustment affecting our common stock, our Compensation Committee may adjust awards to preserve but not increase the benefits or potential benefits of the awards. However, our Compensation Committee may not make any adjustment that would cause awards intended to be performance-based compensation to cease to qualify as such.
Amendment and Termination. Our Board or Compensation Committee may, at any time, amend or terminate the Umbrella Incentive Program, and may amend any award granted pursuant to the plan. However, no amendment or termination may, without the written consent of the affected participant, adversely affect the rights of any participant or beneficiary under any outstanding award except to the extent such amendment is required to comply with applicable law.
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Federal Income Tax Consequences. Under present federal income tax laws, a participant will realize taxable income with respect to awards granted under the Umbrella Incentive Plan at the time the incentive award is distributed either in cash or shares of stock in an amount equal to the cash distributed or the fair market value of the shares on the date of distribution, and we will be entitled to a corresponding deduction, subject Code Section 162(m). A U.S. income tax deduction will generally be unavailable to us for annual compensation in excess of $1 million paid to our chief executive officer and any of our three most highly compensated officers (other than our chief financial officer). Amounts that constitute performance-based compensation are not counted toward the $1 million limit. Awards under the Umbrella Incentive Program and under annual and long-term incentive programs may be structured to meet the requirements of performance-based compensation under applicable tax regulations.
SHO Annual Incentive Plan . The SHO AIP was established under and constitutes part of the Umbrella Incentive Program. The SHO AIP provides employees of the Company that have been selected to participate in the plan, including the named executive officers, an opportunity to receive an incentive award equal to a percentage of base salary or a flat dollar amount, subject to the attainment of quarterly and annual performance goals. Awards under the SHO AIP represent the right to receive cash or, at the discretion of our Compensation Committee, shares of the Companys common stock in lieu of cash or a combination of cash and shares. The issuance of common stock under the SHO AIP is contingent on the availability of shares of stock under the Companys stock incentive plan providing for the issuance of shares in satisfaction of SHO AIP awards.
For each performance period (whether it be a fiscal year or a fiscal quarter), our Compensation Committee will establish in writing the financial performance goals and the annual incentive opportunity to be awarded under the SHO AIP with respect to each participant.
Annual awards and quarterly awards relating to the fourth quarter of the fiscal year payable under the SHO AIP will be paid to participants within 75 days after the end of our fiscal year.
SHO Long-Term Incentive Program. The SHO LTIP was established under and constitutes a part of the Umbrella Incentive Program. The SHO LTIP provides the opportunity for employees of the Company who have been selected to participate in the plan to receive a long-term incentive award equal to either a percentage of base salary or a dollar amount, subject to the attainment of performance goals for a specified period. Awards under the SHO LTIP represent the right to receive cash or, at the discretion of our Compensation Committee, shares of the Companys common stock in lieu of cash or a combination of cash and shares upon the achievement of certain performance goals. The issuance of common stock under the SHO LTIP is contingent on the availability of shares of stock under the Companys stock incentive plan providing for the issuance of shares in satisfaction of long-term incentive awards. Awards earned under the SHO LTIP will be paid to participants within 75 days after the end of the applicable performance period. The maximum amount that may be awarded to a participant under the SHO LTIP with respect to any given performance period is $20,000,000.
Generally, participants will forfeit any right to an award under the SHO AIP and SHO LTIP in the event of a termination of employment prior to the payment date. However, a participant whose employment terminates due to his or her death or disability prior to the payment date will, in the case of the SHO AIP, and may, in the case of the SHO LTIP, receive a portion of the annual or long-term incentive award based on the number of days worked during the performance period. The SHO AIP and the SHO LTIP also provide that the Company will seek reimbursement from executive officers if the Companys financial statements or approved financial measures are subject to restatement due to error or misconduct, to the extent permitted by law.
Our Compensation Committee will determine the terms and conditions and the applicable performance goals for awards granted under the SHO AIP and SHO LTIP for performance periods after the separation date.
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SHO 2012 Stock Plan
Awards. The SHO stock plan allows for the grant of restricted stock, options, stock appreciation rights and stock units to eligible individuals.
Shares Reserved Under Stock Plan. There are 4,000,000 shares of common stock reserved for issuance under the SHO stock plan. The shares of our common stock that may be awarded under the SHO stock plan are shares currently authorized but unissued, and shares which have been reacquired by the Company. If any restricted stock award, stock unit award or stock appreciation right is forfeited, the underlying shares will become available for issuance again under the SHO stock plan.
Effective Date and Termination of Plan. The SHO stock plan will become effective upon the effective date of the separation, and will continue in effect, unless earlier terminated by our Compensation Committee, until the earlier of (1) the tenth anniversary of the date the SHO stock plan was adopted by the SHO Board and (2) the date on which all of the stock reserved for issuance under the plan and all cash payments due under any award granted under the SHO stock plan have been paid or forfeited.
Eligible Individuals. Any key employee (including our named executive officers) of, or individual providing services to, our Company or any of our Subsidiaries designated by the Committee will be eligible to participate in the SHO stock plan.
Administration. The SHO stock plan will be administered by a Committee designated by the Board. The Committee has the authority to interpret the terms and intent of the SHO stock plan and to make all other determinations necessary or advisable for the administration of the SHO stock plan. The Committee may allocate its responsibilities and powers to one or more of its members and may delegate all or any part of its responsibilities and powers to any person, subject to applicable law. The Committee may revoke any such allocation or delegation at any time.
Terms and Conditions of Restricted Stock and Stock Unit Awards. A Restricted Stock award is a grant of shares of our common stock that is subject to risk of forfeiture or other restrictions determined by the Committee. A Stock Unit award is a right to receive a payment in cash or shares based on the fair market value of the shares of stock underlying such award. Restricted Stock and Stock Unit awards may be subject to one or more employment, performance or other forfeiture conditions which the Committee shall determine appropriate. In the event of the participants termination of employment, the Committee may permit accelerated vesting or payment. No Restricted Stock or Stock Unit awards in any combination may be made in any calendar year representing more than 100,000 shares of stock.
Dividends. A Restricted Stock award may include the right to receive a cash dividend with respect to the stock subject to the award. These payments may be subject to such conditions, restrictions and contingencies as the Committee establishes. If a cash dividend is paid on the shares of stock subject to the Stock Unit award, the cash dividend will be treated as reinvested in shares of stock and will increase the number of shares subject to the Stock Unit award, unless the Committee determines otherwise at the time of grant. If a stock dividend is declared on a share of Restricted Stock, such stock dividend will be treated as part of the Restricted Stock award and will be subject to the same forfeiture conditions as the Restricted Stock. If a stock dividend is paid on the shares of stock subject to a Stock Unit, the dividend shall increase the number of shares of stock subject to the Stock Unit award, unless the Committee determines otherwise at the time of grant. Eligible Individuals will have the right to vote shares of Restricted Stock but will not have the right to vote with respect to shares covered by a Stock Unit award.
Terms and Conditions of Options and Stock Appreciation Rights. An option is a right to purchase a specified number of shares of stock, upon the satisfaction of certain exercise conditions, at an exercise price not less than the fair market value of a share of stock on the date the option is granted. Options granted under the
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SHO stock plan may be either incentive stock options (ISOs), which qualify for certain tax favored treatment under the Internal Revenue Code if certain conditions are satisfied, or nonqualified stock options. A stock appreciation right is a right to the appreciation in the fair market value of a share of stock in excess of the share value for such share designated at the time of grant, which may be no less than the fair market value of a share of stock on the grant date. The Committee may make an option or a stock appreciation right subject to certain conditions, including performance-based vesting conditions. The Committee may include in the option or stock appreciation right agreement the right to exercise an option or a stock appreciation right following termination of employment or service. No option or stock appreciation right may be exercisable more than ten years from the grant date. Upon exercise of a stock appreciation right, an eligible individual will receive a payment in cash or stock or a combination of the two, equal to the product of (1) the number of shares of stock underlying the stock appreciation right and (2) the excess of the fair market value of a share of stock on the exercise date and the share value assigned on the date of grant. Holders of options or stock appreciation rights will not be entitled to receive dividend equivalents with respect to such award. An eligible individual may not be granted options or stock appreciation rights, in any combination, representing more than 300,000 shares of stock in any calendar year.
Performance Based Awards. In the event the Committee intends for an award granted under the SHO stock plan to qualify as performance based compensation within the meaning of Code Section 162(m), not later than 90 days after the beginning of the performance period (but in no event after 25% of the performance period has elapsed), and while the outcome as to the performance goals is substantially uncertain, the Committee will establish objective written performance goals for such award.
A participant otherwise entitled to receive an award intended to be performance-based compensation will not receive a settlement of the award until the Committee determines that the applicable performance goal(s) have been attained. In exercising discretion in making this determination, the Committee may not increase the amount of the payment of an award intended to be performance-based compensation.
Performance measures may be based on one or more or any combination (in any relative proportion) of the following: share price; market share; cash flow; revenue; revenue growth; earnings per share; operating earnings per share; operating earnings; earnings before interest, taxes, depreciation and amortization; return on equity; return on assets; return on investment; net income; net income per share; economic value added; market value added; store sales growth; customer satisfaction performance goals measured by independent customer satisfaction surveys and employee opinion survey results measured by an independent firm; and strategic business objectives, consisting of one or more objectives based on meeting specific cost or profit targets or margins, business expansion goals and goals relating to acquisitions or divestitures. Each goal, with respect to a performance period, may be expressed on an absolute and/or relative basis, may be based on the Company as a whole or on any one or more business units or subsidiaries of the Company, and may be based on or otherwise employ comparisons based on internal targets, the past performance of the Company or of any one or more business units or subsidiaries of the Company, and/or the past or current performance of other companies, or an index.
In establishing any performance goals, the Committee may exclude the effects of the following items, to the extent identified in our audited financial statements, including footnotes, or the Managements Discussion and Analysis of Financial Condition and Results of Operations accompanying those financial statements: asset write-downs; litigation or claim judgments or settlements; extraordinary, unusual and/or nonrecurring items of gain or loss; gains or losses on acquisitions, divestitures or store closures; domestic pension expense; noncapital, purchase accounting items; changes in tax or accounting principles, regulations or laws; mergers or acquisitions; integration costs disclosed as merger-related; accruals for reorganization or restructuring programs; foreign exchange gains and losses; and tax valuation allowances and/or tax claim judgment or settlements. To the extent the exclusion of any item affects awards intended to be performance-based compensation, the exclusion will be specified in a manner that satisfies the requirements of Code Section 162(m).
Transferability of Awards. Except as otherwise provided by the Committee, awards under the SHO stock plan are not transferable except by will or by the laws of descent and distribution.
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Corporate Transactions. The number, kind, or class (or any combination thereof) of shares of stock reserved for issuance under the SHO stock plan or underlying outstanding awards granted under the SHO stock plan and the grant limitations (described above) will be adjusted by the Committee in an equitable manner to reflect any corporate transaction resulting in a change in capitalization of the Company, including, but not limited to, any dividend (other than a cash dividend that is not an extraordinary dividend) or other distribution, recapitalization, stock split, reverse stock split, combination of shares, reorganization, merger, consolidation, acquisition, split-up, spin-off, combination, repurchase or exchange of stock or other securities of the Company, issuance of warrants or other rights to purchase stock or other securities of the Company or other similar corporate transaction.
Amendment and Termination of the SHO Stock Plan. The Committee may, at any time, amend or terminate the SHO stock plan, and may amend any award agreement under the SHO stock plan. However, no amendment or termination may, without the written consent of an affected participant, adversely affect the rights of a participant or beneficiary under any outstanding award, except to the extent necessary to comply with applicable law. These limitations will not apply to any adjustments caused by a corporate transaction or capital adjustment affecting our common stock.
Federal Income Tax Consequences. Under present federal income tax laws, awards granted under the SHO stock plan will have the following tax consequences:
Restricted Shares, Stock Units, and Performance-Based Awards. Restricted shares and stock units that are subject to a substantial risk of forfeiture generally result in income recognition by the participant in an amount equal to the excess of the fair market value of the shares of stock over the purchase price, if any, of the restricted stock or stock units at the time the restrictions lapse. Performance-based awards are generally subject to tax as ordinary income at the time of payment. A recipient of restricted stock may make an election under Section 83(b) of the internal Revenue Code to be taxed on the excess of the fair market value of the shares granted, measured at the time of grant and determined without regard to any applicable risk of forfeiture or transfer restrictions, over the purchase price, if any, of such restricted stock. A participant who has been granted a stock award that is not subject to a substantial risk of forfeiture for federal income tax purposes will realize ordinary income in an amount equal to the fair market value of the shares at the time of grant. In each of the foregoing cases, the Company will have a corresponding deduction at the same time the participant recognizes such income, provided that the award satisfies the requirements of Code Section 162(m) (described below), if applicable.
Options. Generally, a participant receiving an option grant will not recognize income at the time of grant. Upon the exercise of a non-qualified option, the participant will generally recognized ordinary income equal to the excess of the then fair market value of the shares acquired over the exercise price paid. A participant will generally recognize no income upon the exercise of an ISO. Instead, upon a disposition of the shares received upon the exercise of an ISO after satisfying certain holding period requirements, the participant will generally recognize long-term capital gain in an amount equal to the excess, if any, of the sales price of such shares over the exercise price paid. To receive such capital gain treatment, the sale must occur no earlier than one year from the date of exercise of the ISO and two years from the date the ISO was granted. If either of these holding periods is not satisfied at the time any shares acquired upon the exercise of an ISO are disposed of, the participant will generally recognize ordinary income in the amount equal to the excess of the fair market value of the shares sold at the date of exercise over the exercise price paid. If the sales price exceeds such fair market value, the excess shall be treated as long-term capital gain if such shares have been held for at least one year from the date of exercise, and short-term capital gain if they have not been held for at least one year. However, if the sales price is less than the fair market value of such shares at the date of exercise, the amount of ordinary income recognized will be limited to the excess of the amount realized upon such sale over the participants adjusted basis in such shares.
Stock Appreciation Rights. Generally, a participant receiving a stock appreciation right will not recognize income at the time of grant. If the participant receives the appreciation inherent in the stock appreciation right in cash, the cash will be taxed as ordinary income at the time it is received. If a participant receives the appreciation
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inherent in a stock appreciation right in stock, the spread between the then current market value and the share value designated at the time of grant will be taxed as ordinary income at the time the stock is received. In either case, the Company will be entitled to a corresponding deduction when the participant recognizes such income, provided that the award satisfies the requirements of Code Section 162(m), if applicable.
Section 162(m). A U.S. income tax deduction will generally be unavailable to us for annual compensation in excess of $1 million paid to our chief executive officer and any of our three most highly compensated officers (other than our chief financial officer). Amounts that constitute performance-based compensation are not counted toward the $1 million limit.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Prior to the rights offering, 100% of our common stock was owned by Sears Holdings.
The following table sets forth the beneficial ownership of our common stock as of August 24, 2012 as it would be after the completion of the rights offering, assuming that the subscription rights are exercised in full by all stockholders of Sears Holdings as of the record date, by:
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each person who we know beneficially owns more than 5% of Sears Holdings common stock; |
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each of our directors; |
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each of our named executive officers; and |
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all directors and executive officers as a group. |
Unless otherwise indicated, the address for each beneficial owner who is also a director or executive officer is c/o Sears Hometown and Outlet Stores, Inc., 3333 Beverly Road, Hoffman Estates, Illinois 60179. See Management for a discussion regarding our directors and executive officers.
Beneficial ownership is determined in accordance with the rules and regulations of the SEC. As indicated below, in computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable within 60 days of the determination date are deemed outstanding. These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated, and subject to the applicable community property laws, the stockholders named in the table have sole voting and investment power with respect to the shares shown as beneficially owned by them.
Shares of Our Common Stock Beneficially
Owned After The Rights Offering (1) |
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Name of Beneficial Owner |
Number of Shares | Percentage of Class | ||||||
5% Stockholders: |
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ESL Investments, Inc. and related entities, as a group (2) |
(3) | 61.8 | % | |||||
Fairholme Capital Management, L.L.C. (4) |
(5) | 15.1 | % | |||||
Directors and Executive Officers: |
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W. Bruce Johnson |
* | |||||||
William A. Powell |
* | |||||||
Steven D. Barnhart |
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John E. Ethridge II |
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Charles J. Hansen |
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Becky Iliff |
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William R. Harker |
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*
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E.J. Bird (6) |
* | |||||||
Elizabeth Darst Leykum |
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Jeffrey Flug |
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Josephine Linden |
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Directors and Executive Officers as a group (11 persons) |
* |
* | Less than 0.1% |
(1) | Assumes that the subscription rights are exercised in full by all stockholders of Sears Holdings. |
(2) |
The group consists of ESL Investments, Inc., a Delaware corporation; Edward S. Lampert; ESL Institutional Partners, L.P., a Delaware limited partnership (Institutional); CRK Partners, LLC, a Delaware limited liability company (CRK LLC); ESL Partners, L.P., a Delaware limited partnership (Partners); ESL Investors L.L.C., a Delaware limited liability company (Investors); SPE I Partners, LP, a Delaware |
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limited partnership (SPE Partners); and SPE Master I, LP, a Delaware limited partnership (SPE Master). Mr. Lampert is the sole stockholder, chief executive officer and director of ESL Investments, Inc. ESL Investments, Inc. is the general partner of RBS Partners, L.P, a Delaware limited partnership (RBS), the sole member of CRK LLC and the manager of RBS Investment Management, L.L.C., a Delaware limited liability company (RBSIM). RBS is the general partner of Partners, SPE Partners and SPE Master, and the managing member of Investors. RBSIM is the general partner of Institutional. The address for ESL Investments, Inc. and the related entities is 1170 Kane Concourse, Suite 200, Bay Harbor, Florida 33154. |
(3) | Beneficial ownership is based on a Schedule 13D/A filed by ESL on July 5, 2012 reporting the beneficial ownership of its shares of common stock outstanding as of June 30, 2012. ESL disclosed beneficial ownership as to 65,744,084 shares of Sears Holdings; ESL Investments, Inc. disclosed sole voting power and sole dispositive power as to 42,996,631 shares of Sears Holdings and shared dispositive power as to 22,747,453 shares of Sears Holdings; Edward S. Lampert disclosed sole voting power as to 65,744,084 shares of Sears Holdings, sole dispositive power as to 42,996,631 shares of Sears Holdings and shared dispositive power as to 22,747,453 shares of Sears Holdings; CRK LLC disclosed sole voting power and sole dispositive power as to 747 shares of Sears Holdings; RBS disclosed sole voting power and sole dispositive power as to 42,985,654 shares of Sears Holdings and shared dispositive power as to 22,747,453 shares of Sears Holdings; Partners disclosed sole voting power and sole dispositive power as to 33,673,063 shares of Sears Holdings and shared dispositive power as to 22,747,453 shares of Sears Holdings; RBSIM disclosed sole voting power and sole dispositive power as to 10,230 shares of Sears Holdings; Institutional disclosed sole voting power and sole dispositive power as to 10,230 shares of Sears Holdings; Investors disclosed sole voting power and sole dispositive power as to 4,877,936 shares of Sears Holdings; SPE Partners disclosed sole voting power and sole dispositive power as to 1,939,872 shares of Sears Holdings and SPE Master disclosed sole voting power and sole dispositive power as to 2,494,783 shares of Sears Holdings. |
(4) | Beneficial ownership is based on a Schedule 13G/A filed by Fairholme Capital Management, L.L.C. on February 14, 2012 reporting its beneficial ownership in Sears Holdings as of December 31, 2011. The address for Fairholme Capital Management, L.L.C. is 4400 Biscayne Boulevard, 9th Floor, Miami, FL 33137. |
(5) | The shares of common stock are owned, in the aggregate, by Bruce R. Berkowitz and various investment vehicles managed by Fairholme Capital Management, L.L.C. (FCM), of which 14,212,673 shares of Sears Holdings are owned by The Fairholme Fund and 387,800 shares of Sears Holdings are owned by The Fairholme Allocation Fund, each a series of Fairholme Funds, Inc. FCM disclosed shared voting power as to 15,359,773 shares of Sears Holdings and shared dispositive power as to 16,108,492 shares of Sears Holdings. Fairholme Funds, Inc. disclosed shared voting power and shared dispositive power as to 14,600,473 shares of Sears Holdings. Because Mr. Bruce R. Berkowitz, in his capacity as the Managing Member of FCM or as President of Fairholme Funds, Inc., has voting or dispositive power over all shares beneficially owned by FCM, he is deemed to have beneficial ownership of all of the shares. |
(6) | Includes shares owned by the mother-in-law of Mr. Bird, for which Mr. Bird has investment authority. Also includes shares held in seven additional accounts for six individuals for which Mr. Bird has investment authority. Mr. Bird disclaims beneficial ownership for all the shares listed herein. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Separation Agreement
In connection with the separation, we entered into a Separation Agreement with Sears Holdings on August 8, 2012 pursuant to which we have consummated the transactions described in Reorganization of SHO Prior to the Separation. The Separation Agreement also provides for certain other arrangements to be effected contingent upon the consummation of the rights offering and the completion of the separation of the Company from Sears Holdings.
Agreements with Sears Holdings
Following the separation, SHO and Sears Holdings will operate independently of each other, and neither will have any ownership interest in the other, except that Sears Holdings will have an ownership interest in us to the extent that the subscription rights are not exercised in full and that shares are not purchased through the exercise of basic subscription rights that are not purchased pursuant to the over-subscription privilege. In order to govern relationships between SHO and Sears Holdings after the separation and to provide mechanisms for an orderly transition, Sears Hometown and Outlet Stores, Inc. and its applicable subsidiaries (referred to collectively in this Certain Relationships and Related Party Transactions section as SHO, we or us) and Sears Holdings Corporation and its subsidiaries (referred to collectively in this Certain Relationships and Related Party Transactions section as Sears Holdings) have entered into agreements pursuant to which Sears Holdings will provide us with specified services and rights following the separation. Although these agreements with Sears Holdings generally do not provide specific total dollar amounts to be paid that are practicable to quantify or estimate for the lives of the agreements, we believe that all of the agreements collectively describe the relationship between the Company and Sears Holdings upon which we expect to rely significantly in order to continue our operations as described herein and to obtain and sell merchandise following the separation. Following the separation, if we are unable to maintain our relationship with Sears Holdings or to obtain the products and services to be provided by Sears Holdings or its subsidiaries pursuant to these agreements, our business could be materially and adversely affected and as a result we may not be able to operate our business as described herein. See Risk FactorsRisks Relating to Our Separation from, and Continued Dependence on, Sears Holdings.
Although these agreements have been executed prior to the distribution of the subscription rights, the effectiveness of the agreements is conditioned upon the consummation of the rights offering and the completion of the separation of the Company from Sears Holdings.
The following is a summary of the terms of the material agreements we have entered into with Sears Holdings.
Store License Agreements
In connection with the separation, we entered into Store License Agreements with SRC on August 8, 2012, pursuant to which SRC will grant us (1) an exclusive, non-transferable and terminable license to operate, and to authorize our dealers and franchisees to operate, retail stores and stores-within-a-store using the Sears Outlet Store, Sears Authorized Hometown Store, Sears Home Appliance Showroom and Sears Hardware Store store names, or the store names, (2) an exclusive, non-transferable and terminable license to use the store names to promote our products, and services related to our products, by all current and future electronic means, channels, processes and methods, including via the Internet, or digital methods, (3) a non-exclusive, non-transferable and terminable license to use, and to authorize our dealers and franchisees to use, certain other trademarks to market and sell services related to our products under those trademarks and (4) an exclusive, non-transferable and terminable license to use certain domain names in connection with the promotion of our stores,
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the marketing, distribution and sale of our products and the marketing and offering of services related to our products. The Store License Agreements do not include licenses for the Kenmore, Craftsman or DieHard trademarks.
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Term and Termination : The terms of the Store License Agreements will expire in 2029. The Store License Agreements may be terminated (1) by either party for cause upon a material breach either if the breaching party fails to cure such breach within 30 days following written notice of such breach or, if such breach is not curable, immediately upon delivery of notice of the non-breaching partys intention to terminate, (2) immediately by SRC upon 10 days notice upon a change of control whereby a majority of our voting power, or a majority of the voting power of any of our subsidiaries, is acquired by specified competitors of Sears Holdings, (3) by either party upon 30 days notice if such party (or any of its affiliates) terminates the Separation Agreement, any other Store License Agreement, the Trademark License Agreement, the SYWR Agreement or the Merchandising Agreement as a result of the other partys (or its affiliates) material breach of or default under such agreement, (4) immediately by SRC upon 10 days notice if we have operated, or have authorized our dealers and franchisees to operate, any retail store or store-within-a-store using a name other than a store name specified in the Store License Agreements for twelve consecutive months or (5) immediately by SRC upon 10 days notice if we do not extend the term of the Merchandising Agreement for either of its two renewal periods. In addition, the Store License Agreements with Sears Authorized Hometown Stores, LLC, or SAHS, and Sears Home Appliance Showrooms, LLC, or SHAS, permit SRC to require SAHS and SHAS to terminate for cause any dealer or franchisee that (i) causes SAHS or SHAS to be in non-compliance with a material term of the Store License Agreements or (ii) fails to maintain the high quality and reputation of the store names, domain names and/or other Sears trademarks, provided that prior to termination SAHS and SHAS are given a reasonable opportunity to cause the dealer or franchisee to cure such non-compliance or failure. |
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Fees : The license grants referred to above are royalty-free. |
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Indemnification : We are required to defend and indemnify SRC, Sears Brands, LLC and their affiliates for all liability, even though such liability may result from false, fraudulent or groundless claims, arising from the death of or injury to any person, damage to any property, or loss suffered by a third party related to (1) the operation of our stores, (2) any acts or omissions by us, our affiliates, our dealers or our franchisees in connection with the Store License Agreements, (3) any violation by us, our affiliates, our dealers or our franchisees of any anti-corruption law, (4) any actual or alleged infringement of any intellectual property, (5) any latent or patent defect in any of our products not purchased from SRC or its affiliates, (6) any actual or alleged failure of our stores, websites, or any of our products not purchased from SRC or its affiliates to comply with any laws, (7) our use of any licensed trademark other than in accordance with the Store License Agreements or (8) any lack of validity or enforceability of the Store License Agreements caused by us. SRC is required to defend and indemnify us for all liability arising from the death of or injury to any person, damage to any property or loss suffered by a third party related to (i) claims that our use of the licensed trademarks constitutes copyright infringement, (ii) claims as to the lack of validity or enforceability of the registrations or ownership rights of the licensed trademarks or (iii) any lack of enforceability or validity of the Store License Agreements caused by SRC. |
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License to Use Sears Digital Methods : SRC also grants us the right to use the store names to sell our products by all digital methods that are owned or operated by SRC and Kmart Corporation, or Kmart, including the website for our Sears Outlet business, provided that SRC may terminate this right upon two years notice. If SRC exercises this termination right, it must grant us licenses to (1) market our products by all digital methods outside the United States, Puerto Rico, Bermuda and Guam, or the territories, and (2) sell our products by all digital methods both in and outside of the territories. However, these licenses will only be granted to the extent that they do not conflict with third party obligations of SRC and Kmart that otherwise limit SRC and Kmarts right to license or authorize us to market any of our products. |
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Trademark License Agreement
In connection with the separation, we entered into a Trademark License Agreement with SRC on August 8, 2012, pursuant to which SRC will grant us (1) a license to use the Sears trademark as part of our corporate name in the United States and to promote our businesses and (2) a fully paid-up license to use the searshometownandoutlet.com and ownasearsstore.com domain names solely to promote our businesses.
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Term and Termination : The term of the Trademark License Agreement will expire in 2029. The Trademark License Agreement may be terminated (1) by either party for cause upon a material breach either if the breaching party fails to cure such breach within 30 days following written notice of such breach or, if such breach is not curable, immediately upon delivery of notice of the non-breaching partys intention to terminate, (2) immediately by SRC upon 10 days notice upon a change of control whereby a majority of our voting power, or a majority of the voting power of any of our subsidiaries, is acquired by specified competitors of Sears Holdings, (3) by either party upon 30 days notice if such party (or any of its affiliates) terminates the Separation Agreement, any Store License Agreement, the SYWR Agreement or the Merchandising Agreement as a result of the other partys (or its affiliates) material breach of or default under such agreement, (4) immediately by SRC upon 10 days notice if we have not conducted business using our corporate name specified in the Trademark License Agreement for twelve consecutive months or (5) immediately by SRC upon 10 days notice if we do not extend the term of the Merchandising Agreement for either of its two renewal periods. |
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Fees : The license grants referred to above are royalty-free. |
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Indemnification : We are required to defend and indemnify SRC and its affiliates against third party claims relating to any breach by us of the Trademark License Agreement. SRC is required to defend and indemnify us against third party claims relating to any breach by SRC of the Trademark License Agreement. |
Merchandising Agreement
In connection with the separation, we entered into a Merchandising Agreement with Sears Holdings, Kmart and SRC on August 8, 2012 pursuant to which Kmart and SRC will (1) sell to us, with respect to certain specified product categories, Sears brand products (including Kenmore, Craftsman and DieHard brand products, or, collectively, the KCD products) and vendor-branded products obtained from Kmarts and SRCs vendors and suppliers and (2) grant us licenses to use the trademarks owned by Kmart, SRC or other subsidiaries of Sears Holdings, or the Sears marks, including the Kenmore, Craftsman and Diehard trademarks, or, the KCD marks, in connection with the marketing and sale of products sold under the Sears marks.
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Term and Termination : The initial term of the Merchandising Agreement will expire in 2018, subject to two three-year renewal terms with respect to the KCD products. The Merchandising Agreement may be terminated (1) by either party for cause upon a material breach either if the breaching party fails to cure such breach within 30 days following written notice of such breach or, if such breach is not curable, immediately upon delivery of the non-breaching partys notice of intention to terminate, (2) by Kmart and SRC if an unaffiliated third party acquires all rights, title and interest in and to all of the KCD marks, (3) immediately by Kmart and SRC if we (i) purport to assign the Merchandising Agreement without Kmart and SRCs consent, (ii) are unable to pay our debts or if we enter into a voluntary suspension of payments or bankruptcy, (iii) undergo a change of control whereby a majority of our voting power, or a majority of the voting power of any of our subsidiaries, is acquired by specified competitors of Sears Holdings, or (iv) cease to conduct business using the Sears name, or (4) by either party upon 30 days notice if such party (or any of its affiliates) (A) terminates the Separation Agreement, any Store License Agreement, the Trademark License Agreement or the SYWR Agreement as a result of the other partys (or its affiliates) material breach of or default under the Separation Agreement or (B) terminates any Store License Agreement or the Trademark License Agreement as a result of the other partys (or its affiliates) material breach of or default under such |
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agreement. In addition, if an unaffiliated third party acquires all rights, title and interest in and to one or more (but not all) of the KCD marks, Kmart and SRC may terminate their obligation to sell to us KCD products that are branded with the KCD marks that were subject to such acquisition. Furthermore, if we reject Kmart and SRCs proposed increase in the royalty rate of one or more KCD product categories prior to the expiration of the initial term (to take effect during the first renewal period) or the first renewal term of the agreement (to take effect during the second renewal period), then Kmart and SRC may terminate either (a) their obligation to sell to us all KCD products in such rejected categories or (b) the Merchandising Agreement altogether. |
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Pricing: We will determine, at our sole discretion, advertised prices, promotional prices and retail prices for all merchandise acquired from Kmart or SRC for use in our Sears Hometown Stores, Sears Hardware Stores and Sears Home Appliance Showrooms. Kmart and SRCs vendors may from time to time adopt minimum advertised price policies, or MAP, and unilateral pricing policies, or UPP, that may apply to Kmart and SRC and their sale of Hometown and Outlet Store products to us. The failure to comply with a vendors MAP or UPP could result in the imposition of financial penalties on Kmart and SRC and a vendors refusal to sell one or more Hometown and Outlet Store products to Kmart and SRC, which ultimately could result in Kmart and SRCs inability to sell one or more Hometown and Outlet Store products to us in accordance with the terms of the Merchandising Agreement. Furthermore, Kmart and SRC may seek to implement their own MAP and UPP with respect to Hometown and Outlet Store products. We will determine, at our sole discretion, advertised prices, promotional prices and retail prices for all merchandise acquired from Kmart or SRC for use in our Sears Outlet stores. |
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Fees : Kmart and SRC will invoice us for all products that they sell to us. Kmart and SRC will provide us with the proportionate share of certain vendor-provided subsidies that Kmart and SRC receive with respect to the products sold to us, except to the extent that their vendors (i) do not permit the pass-through of such subsidies or (ii) refuse to pay a subsidy to Kmart or SRC with respect to the products sold to us. Kmart and SRC have agreed to use commercially reasonable efforts to obtain vendor permission to share subsidies. |
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Royalties : We will pay, on a weekly basis, royalties determined by multiplying our net sales of KCD products by specified fixed royalties rates for each brands licensed products, subject to an adjustment based on the extent to which we feature Kenmore brand products in certain of our advertising and the extent to which we pay specified minimum commissions to our franchisees and Hometown Store owners. |
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License to Use KCD and Sears Marks : Subject to certain limitations, Kmart and SRC will grant us (1) a non-exclusive, non-transferable and revocable right and license to use, in connection with the marketing and selling of products sold under Sears marks (including KCD marks), but in no event to alter, the KCD marks and (2) a non-exclusive, non-transferable, royalty-free and revocable right and license to use, in connection with the marketing and selling of products sold under Sears marks (including KCD marks), but in no event to alter, all Sears marks other than the KCD marks. |
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Indemnification : We are required to defend and indemnify Kmart, SRC and other subsidiaries of Sears Holdings against third-party claims related to (1) the use of any Sears marks by us or our franchisees other than in accordance with the Merchandising Agreement, (2) the sale, display, assembly, service, repair or installation of any given product (excluding claims related to services to be performed under the Services Agreement and all other services that are performed for us by Kmart, SRC or other subsidiaries of Sears Holdings), (3) the failure by us to perform our obligations under the Merchandising Agreement or (4) any other act or omission by us, subject to the terms and conditions of the Separation Agreement that require a sharing of liability, as applicable. Kmart and SRC are required to defend and indemnify us against third-party claims related to (i) the violation by Kmart, SRC or other subsidiaries of Sears Holdings of any intellectual property rights of third parties, (ii) the failure by Kmart, SRC or other subsidiaries of Sears Holdings to perform their obligations under the Merchandising Agreement or (iii) any other act or omission by Kmart, SRC or other subsidiaries of |
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Sears Holdings, subject to the terms and conditions of the Separation Agreement that require a sharing of liability, as applicable. |
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Other Provisions: Kmart and SRC will provide us with a reasonable supply of marketing and promotional materials, including electronic marketing support. |
Services Agreement
In connection with the separation, we entered into a Services Agreement, or Services Agreement, with SHMC on August 8, 2012, pursuant to which SHMC will provide us with certain tax, accounting, procurement, risk management and insurance, advertising and marketing (including online services), loss prevention, environmental, product and human safety, facilities, logistics and distribution, information technology, payment clearing and other financial, real estate management, merchandise-related and other support services.
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Term and Termination: The Services Agreement will expire in 2018. The agreement may be terminated (1) by either party for cause upon a material breach either if the breaching party fails to cure such breach within 30 days following written notice of such breach or, if such breach is not curable, immediately upon delivery of the non-breaching partys notice of intention to terminate, (2) by SHMC for cause upon a change of control whereby a majority of our voting power, or a majority of the voting power of any of our subsidiaries, is acquired by specified competitors of Sears Holdings, or (3) by either party upon 30 days notice if such party (or any of its affiliates) (i) terminates the Separation Agreement , any Store License Agreement, the Trademark License Agreement, the SYWR Agreement or the Merchandising Agreement as a result of the other partys (or its affiliates) material breach of or default under such agreement or (ii) terminates any Store License Agreement or the Trademark License Agreement as a result of the other partys (or its affiliates) material breach of or default under such agreement. We may also terminate any individual service upon 60 days notice to SHMC, provided that such termination does not adversely affect SHMCs ability to perform another service for us. |
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Termination of Individual Services by SHMC: SHMC may terminate an individual service upon 90 days notice if (1) an affiliate of SHMC is unwilling or unable to provide the service, (2) an affiliate of SHMC does not provide a similar service to SHMC or its other affiliates on terms that are comparable to the terms of the Services Agreement, (3) SHMC is unable to retain a replacement service provider to provide the service on terms that are comparable to the terms of the Services Agreement and (4) such termination will have no effect upon the provision of other services under the Services Agreement. SHMC may also terminate an individual service upon 90 days notice if (i) an unaffiliated service provider of SHMC or one of its affiliates that provides a service is unwilling or unable to allow us to use such service under the existing (or comparable) terms, (ii) SHMC is unable to retain a replacement service provider to provide the service on terms that are comparable to the terms of the Services Agreement and (iii) such termination will have no effect upon the provision of other services under the Services Agreement. In addition, SHMC may also terminate an individual service upon 60 days notice if the parties fail to execute an amendment regarding the fees payable for one or more individual services for the fourth or fifth years of the term, or the six-month period following the fifth year. |
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Fees: We will pay fixed fees and rates for the services for the first three years of the Services Agreement. We will also negotiate with SHMC the fees and rates for the fourth and fifth years of the term, and the six-month period following the fifth year, on a good-faith basis. In addition, we will be responsible for the payment of all taxes payable in connection with the services provided under the Services Agreement, including sales, use, excise, value-added, business, service, goods and services, consumption, withholding, and other similar taxes or duties, including taxes incurred on transactions between and among SHMC, its affiliates and third-party contractors, along with any related interest and penalties. |
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Indemnification: We are required to defend and indemnify SHMC, Sears Holdings and the subsidiaries of Sears Holdings against third-party claims, except to the extent such claims are found to be caused by |
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(1) SHMCs breach of the Services Agreement or (2) the negligence or willful misconduct in SHMCs, Sears Holdings or the subsidiaries of Sears Holdings performance of the Services Agreement. SHMC is required to defend and indemnify us against third-party claims that relate to (i) bodily injury or death of any person or damage to real and/or tangible personal property directly caused by the negligence or willful misconduct of SHMC, Sears Holdings or the subsidiaries of Sears Holdings during the performances of the services or (ii) the infringement of any copyright or trade secret misappropriation by an asset owned by SHMC, Sears Holdings or the subsidiaries of Sears Holdings and used by SHMC in the performance of the services. However, SHMC will not indemnify us to the extent indemnification claims are found to be caused by (A) our breach of the Services Agreement, (B) our negligence or willful misconduct in the performance of the Services Agreement or (C) with respect to infringement claims, (a) our use, misuse, marketing or distribution of SHMCs assets except as provided for in the Services Agreement or (b) information, direction, specification or materials provided by us or on our behalf. |
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We will agree not to sue SHMCs associates individually, absent fraud or other intentional misconduct, with respect to the services provided in accordance with the Services Agreement. |
Retail Establishment Agreement
In connection with the separation, we entered into a Shop Your Way Rewards Retail Establishment Agreement, or SYWR Agreement, with SHMC on August 8, 2012, pursuant to which SHMC will authorize us to participate in the SYWR program. Under the SYWR Agreement, SHMC will issue rewards points to SYWR program members when they purchase program-eligible merchandise and services from our stores and, for each qualifying purchase, we will pay SYWR a fee equal to an agreed percentage of the qualifying purchase for base points issued and for bonus points issued, if any. In addition, SHMC will (1) authorize us to redeem points for SYWR program members as part or all of the purchase prices paid by SYWR program members when they make qualifying purchases from our stores and (2) reimburse us for the dollar value of the points redeemed.
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Term and Termination: The SYWR Agreement will expire in 2022, but may be terminated (1) by either party for cause upon a material breach either if the breaching party fails to cure such breach within 30 days following written notice of such breach or, if such breach is not curable, immediately upon delivery of the non-breaching partys notice of intention to terminate, (2) by SHMC upon a change in control whereby a majority of our voting power, or a majority of the voting power of any our subsidiaries, is acquired by a competitor who operates a points-issuance/redemption business that competes in any material respect with the SYWR program or with any other rewards or points-issuance/redemption businesses operated by SHMC or any of its affiliates, (3) 66 months after the effective date, by either party for convenience upon 180 days notice to the other party, (4) by either party upon 30 days notice if such party (or any of its affiliates) terminates the Separation Agreement, the Trademark License Agreement, and Store License Agreement or the Merchandising Agreement as a result of the other partys (or its affiliates) material breach of or default under such agreement or (5) by SHMC if we fail to consent to an amendment or modification to the SYWR program that applies on a non-discriminatory basis to all of SHMCs authorized vendors and authorized providers but has a material adverse effect on us, provided that SHMC has used commercially reasonable efforts to provide an accommodation for our consent, which consent may not be unreasonably withheld. |
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Fees : The SYWR Agreement specifies the fees that we will pay to SHMC for each SYWR program-eligible purchase made by a SYWR program member at our stores. |
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Indemnification : We are required to defend and indemnify SHMC, Sears Holdings and each of Sears Holdings subsidiaries against third-party claims arising or relating to, among other things, our (1) negligence, recklessness or willful misconduct relating to the SYWR program, (2) breach or default of the SYWR Agreement, (3) fraud, (4) non-compliance with applicable law or (5) infringement of intellectual property. SHMC is required to defend and indemnify us against third-party claims relating to, among other things, SHMCs (i) negligence, recklessness or willful misconduct relating to the SYWR |
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program, (ii) breach or default of the SYWR Agreement, (iii) fraud, (iv) infringement of intellectual property or (v) failure to satisfy any of its obligations or liabilities to SYWR Program members. |
Tax Sharing Agreement
In connection with the separation, we entered into a Tax Sharing Agreement with Sears Holdings as of August 8, 2012, regarding the sharing of federal, state, local and foreign tax liabilities, the preparation and filing of tax returns for such taxes and disputes with taxing authorities regarding such taxes. Under the terms of the Tax Sharing Agreement, Sears Holdings generally will be responsible for all pre-separation taxes that relate to our business other than non-income taxes that are accrued and unpaid as of the separation date, for which we will be responsible, and we generally will be responsible for all post-separation taxes that relate to our business. Subject to certain limitations and the agreement to cooperate in good faith with SHO, under the terms of the Tax Sharing Agreement, Sears Holdings shall have the right to resolve any difference or disagreement on any matter that arises out of the application and interpretation of the Tax Sharing Agreement.
Employee Transition and Administrative Services Agreement
In connection with the separation, we entered into an Employee Transition and Administrative Services Agreement, or the ETASA, with a subsidiary of Sears Holdings. Under the ETASA, in order to facilitate a smooth transfer and transition of payroll, benefits and certain other human resources-related matters from Sears Holdings to us, Sears Holdings Management Corporation, or SHMC, a subsidiary of Sears Holdings, will provide us with administrative services with respect to our employees including, payroll, benefits and certain other human resources support services.
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Term and Termination : The ETASA will expire in 2018. The ETASA may be terminated (1) by either party for cause upon a material breach either if the breaching party fails to cure such breach within 30 days following written notice of such breach, or if such breach is not curable, immediately upon delivery of the non-breaching partys notice of intention to terminate, (2) by SHMC for cause upon a change of control whereby a majority of our voting power, or a majority of the voting power of our subsidiaries, is acquired by specified competitors of Sears Holdings, or (3) by either party upon 30 days notice if such party (or any of its affiliates) terminates the Separation Agreement, any Store License Agreement, the Trademark License Agreement, the SYWR Agreement, or the Merchandising Agreement as a result of the other partys (or its affiliates) material breach of or default under such agreement. The agreement may also be terminated by either party on one years notice. SHOs continued participation in certain Sears Holdings benefit programs may continue until December 31, 2013. |
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Services . Under the ETASA, SHMC agrees to provide us with certain administrative services relating to employee matters, including payroll, benefits administration and other typical administrative services, to be described in various statements of work to be agreed by the parties. SHMC may subcontract out some of the administrative services. |
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Fees : For the first 24 months of the ETASA, we will pay a per-employee fee to SHMC, plus reimbursement of all payroll and other direct costs. Following the first 24 months, we will pay a negotiated per-employee fee based on a combination of SHMCs costs to provide the services plus a specified profit margin. We and SHMC will negotiate in good faith to determine the applicable fees. In addition, during the term of the ETASA we will be responsible for the payment of all taxes payable in connection with the services provided under the ETASA, including sales, use, excise, value-added, business, service, goods and services, consumption, withholding, payroll, unemployment, and other similar taxes or duties, along with any related interest and penalties. |
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Indemnification : We are required to defend and indemnify SHMC and its affiliates against all third party claims that relate to or arise out of the ETASA (including claims by employees), except to the extent such claims are found to be caused by SHMCs gross negligence or willful misconduct or willful |
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failure in the performance of the ETASA. SHMC and its affiliates is required to defend and indemnify us against any third-party claims that relate to (i) bodily injury or death of any person or damage to real and/or tangible personal property, to the extent directly caused by the negligence or willful misconduct of SHMC and its affiliates and used by SHMC and its affiliates in the performance of the services, or (ii) specified intellectual-property infringement claims. However, SHMC and its affiliates will not indemnify us to the extent indemnification claims are found to be caused by (A) our breach of the ETASA, (B) our gross negligence or willful misconduct or willful failure in the performance of the ETASA, or (C) with respect to infringement claims: (a) our use, misuse, marketing or distribution of SHMC and its affiliatess assets except as provided for in the ETASA, or (b) information, direction, specification or materials provided by us or on our behalf. |
Non-Competition and Exclusivity Arrangements Between Sears Holdings and SHO
Following the separation, the non-competition and exclusively arrangements between Sears Holdings and SHO will be governed primarily by the terms and conditions of the Merchandising Agreement. None of the arrangements set forth below will restrict (i) Sears Holdings right to market or sell its products and services by all current and future electronic means, channels, processes and methods, including via the Internet or (ii) subject to certain limitations, our right to market or sell non-Sears brand products and services by all current and future electronic means, channels, processes and methods, including via the Internet .
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Sears Hometown and Hardware Stores: New Sears Hometown and Hardware stores will be permitted without restriction in all Micropolitan Statistical Areas, or MicroSAs, as defined by the U.S. Office of Management and Budget, or OMB, (i.e., defined areas of less than 50,000 residents). New Sears Hometown and Hardware stores will be permitted in Metropolitan Statistical Areas, or MSAs, as defined by the OMB (i.e., defined areas of greater than 50,000 residents), but only if (1) such stores are located at least eight miles away from existing stores owned or operated by Kmart or SRC or its affiliates and branded with the name Sears, or Sears stores, (2) for new Sears Hometown and Hardware stores located between five and eight miles from existing Sears stores, SHO will pay to Kmart and SRC on an annual basis a specified percentage of the new stores EBITDA for the first five years such stores are open for business, (3) such stores distribute products primarily on a rent-to-own basis or (4) Kmart and SRC have already approved of such stores location. |
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Sears Outlet Stores: New Sears Outlet stores will be permitted in all MicroSAs and MSAs. The Merchandising Agreement will also establish an exclusive relationship, subject to certain conditions, until 2017 between Sears Holdings and SHO with respect to the sale and purchase of distressed and refurbished merchandise and marked-out-of-stock merchandise (including apparel). In addition, Sears Holdings will give us a right of first offer on all of Sears Holdings (1) discontinued or obsolete products, (2) overstock products and home goods and furniture that are new and still in original packaging, (3) distressed, refurbished, discontinued and obsolete home goods and furniture and (4) marked out-of-stock footwear except with respect to products that Kmart and SRC do not sell to end-user consumers. |
Following the separation, Kmart, SRC and other subsidiaries of Sears Holdings may continue to, and may authorize others to continue to, own and operate all stores owned and operated by them on the date of the separation. However, following the separation Kmart, SRC and other subsidiaries of Sears Holdings will not be able to:
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in any MicroSA, open, own or operate, or any new store, or authorize a store, each an authorized store, to market or sell or merchandise (or a store to which Kmart, SRC or other subsidiaries of Sears Holdings sell merchandise), that is (1) a store branded with any mark that includes the Kenmore, Craftsman or DieHard marks or (2) a Sears store; |
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open, own or operate any new store, or sell certain specified products to any new authorized store, that is substantially similar to one of the Sears Hometown Stores, Sears Home Appliance Showrooms or Sears Outlet store formats existing as of the separation; or |
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open, own or operate any new store, or authorize any new authorized store, that markets, sells or authorizes any person, entity or business enterprise to market or sell any Kenmore-branded clothes washers, clothes dryers, dishwashers, rangers or full-size refrigerators, or, collectively, exclusive merchandise, at a store located in a geographical area with respect to which, and to the extent, we have agreed with the owner of a Sears Hometown Store, Sears Hardware Store or Sears Home Appliance Showroom to refrain from selling exclusive merchandise in such geographical area. |
In addition, following the separation, we may not enter into or amend any agreements, each, an authorizing agreement, that authorize an unrelated third-party owner or franchisee to operate a new Sears Hometown Store, Sears Hardware Store or Sears Home Appliance Showroom if such authorizing agreement contains product-exclusivity rights. If, following the separation, we seek to renew or permit the assignment of an existing authorizing agreement for a Sears Hometown Store, Sears Hardware Store or Sears Home Appliance Showroom that includes product-exclusivity rights, we must use commercially reasonable efforts to ensure that such renewal or assignment also eliminates the product-exclusivity rights.
Real Property Transactions
In connection with the separation, Sears Holdings will assign or sublease to us the leases for all of our stores where the lease for such store permits assignment or subletting of the lease or where Sears Holdings is able to obtain landlord consent to such assignment or sublease. However, a number of the leases for our stores do not permit assignment or subletting or may require landlord consent which may be withheld. We currently expect the terms of any such subleases to match the terms, including the payment of rent and expiration date, of the existing lease between Sears Holdings (or one of its subsidiaries) and the landlord.
In addition, a small number of our stores are in locations where Sears Holdings currently operates one of its stores. In such cases we will enter into a lease or sublease with Sears Holdings (or one of its subsidiaries) for the portion of the space in which our store will operate and pay rent directly to Sears Holdings on the terms negotiated in connection with the separation. We also expect to lease office space for our corporate headquarters from Sears Holdings.
ABL Tri-Party Agreement
In connection with the separation and the entry into the Senior ABL Facility, we will enter into an agreement with Sears Holdings and the agent under the Senior ABL Facility, or the ABL Agent, whereby Sears Holdings will commit to continue to provide services to us in connection with a realization on the lenders collateral after default under the Senior ABL Facility, notwithstanding our default under the underlying agreements with Sears Holdings, and to provide certain notices and services to the ABL Agent, for so long as any obligations remain outstanding under the Senior ABL Facility.
Reorganization of SHO Prior to the Separation
SHO, which was formed as a Delaware corporation on April 23, 2012, is a wholly owned subsidiary of Sears Holdings. Sears Holdings operated our businesses through subsidiaries, including Sears Authorized Hometown Stores, LLC, Sears Outlet Stores, L.L.C., and Sears Home Appliance Showrooms, LLC, each of which was a wholly owned subsidiary of SRC.
Prior to completion of the rights offering and as part of the separation, the following transactions have occurred:
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Certain subsidiaries of Sears Holdings, including SRC, transferred certain assets historically used in our businesses to Sears Authorized Hometown Stores, LLC and to Sears Outlet Stores, L.L.C.; |
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Following these transfers, SRC made a distribution to Sears Holdings consisting of the outstanding equity interests of Sears Authorized Hometown Stores, LLC, Sears Outlet Stores, L.L.C., and Sears Home Appliance Showrooms, LLC; and |
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Following this distribution, Sears Holdings transferred the outstanding equity interests of Sears Authorized Hometown Stores, LLC, Sears Outlet Stores, L.L.C., and Sears Home Appliance Showrooms, LLC to SHO. |
SHO, as an independent company, operates substantially all of its business through its wholly owned operating subsidiaries. In addition, prior to the separation, we will effect a 231,000 for one stock split of our common stock.
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DESCRIPTION OF OUR CAPITAL STOCK
General
The following is a summary of information concerning our capital stock. For a complete legal description of our capital stock and related matters, please refer to our Certificate of Incorporation and Bylaws, both of which will be effective immediately prior to our separation from Sears Holdings. The forms of these documents will be included as exhibits to our Registration Statement, of which this prospectus is a part.
Distributions of Securities
Currently and at all times prior to the separation, Sears Holdings will own 100% of our common stock, which has not been registered under the Securities Act. In the past three years, SHO has not sold any securities, including sales of reacquired securities, new issues, securities issued in exchange for property, services, or other securities, and new securities resulting from the modification of outstanding securities, that were not registered under the Securities Act or issued pursuant to an exemption from registration under the Securities Act. Prior to the separation we effected a 231,000 for one stock split of our common stock.
Authorized Capital Stock
Immediately following the rights offering, our authorized capital stock will consist of 400,000,000 shares of common stock, par value $0.01 per share.
Common Stock
Holders of common stock will be entitled:
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to cast one vote for each share held of record on all matters submitted to a vote of the stockholders; |
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to receive, on a pro rata basis, dividends and distributions, if any, that the board of directors may declare out of legally available funds; and |
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upon our liquidation, dissolution or winding up, to share equally and ratably in any assets remaining after the payment of all debt and other liabilities. |
Any dividends declared on the common stock will not be cumulative.
The holders of our common stock will not have any preemptive, cumulative voting, subscription, conversion, redemption or sinking fund rights. The common stock will not be subject to future calls or assessments by us.
Before the date of this prospectus, there has been no public market for our common stock.
Certain Provisions of Delaware Law, Our Certificate of Incorporation and Bylaws
Certificate of Incorporation and Bylaws
Certain provisions in our proposed Certificate of Incorporation and Bylaws summarized below may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the board of directors and in the policies formulated by the board of directors and to discourage certain types of transactions that may involve an actual or threatened change of control.
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Requirements for Advance Notification of Stockholder Nomination and Proposals . Under our proposed Bylaws, stockholders of record will be able to nominate persons for election to our board of directors or, at annual meetings, bring other business constituting a proper matter for stockholder action only by providing proper notice to our secretary. Proper notice must be generally received not less than 90 days nor more than 120 days prior to the first anniversary date of the annual meeting for the preceding year (or, in some cases, including in the case of a special meeting, prior to the tenth day following announcement of the meeting), and must include, among other information, the name and address of the stockholder giving the notice, certain information relating to each person whom such stockholder proposes to nominate for election as a director and a brief description of any business such stockholder proposes to bring before the meeting and the reason for bringing such proposal. Nothing in the proposed Bylaws will be deemed to affect any rights of stockholders to request inclusion of proposals in our proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Vacancies and Removal of Directors . Under our proposed Certificate of Incorporation, a director may resign or be removed with or without cause, by the affirmative vote of the holders of not less than a majority of the shares of our common stock then outstanding and entitled to vote, without the necessity for concurrence by the directors. Vacancies in our board of directors may be filled only by our board of directors. Any director elected to fill a vacancy will hold office until such directors successor shall have been duly elected by a majority of the stockholders at a meeting called for such purpose.
Special Stockholder Meetings . Under our proposed Bylaws, special meetings of stockholders of SHO may be called at any time by the board of directors acting pursuant to a board resolution or a written instrument signed by a majority of the directors. In addition, under our proposed Bylaws, special meetings of stockholders of SHO may be called upon the written request of one or more record holders of shares of our common stock representing not less than 20%, in the aggregate, of the total number of shares of our outstanding common stock.
Action by Written Consent . Under our proposed Bylaws, any action required or permitted to be taken at any annual or special meeting of stockholders may be taken by written consent of stockholders representing the minimum number of votes that would be necessary to take such action at a meeting of stockholders.
Delaware Takeover Statute
The Delaware General Corporation Law, or the DGCL, contains a business combination statute that protects domestic corporations from hostile takeovers and from actions following such a takeover, by prohibiting some transactions once an acquiror has gained a significant holding in the corporation. This statute generally prohibits business combinations, including mergers, sales and leases of assets, issuances of securities and similar transactions by a corporation or a subsidiary with an entity or person who beneficially owns 15% or more of a corporations voting stock, or an interested shareholder, within three years after the person or entity becomes an interested shareholder, unless:
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the board of directors of the target corporation has approved, before the acquisition date, either the business combination or the transaction that resulted in the person becoming an interested shareholder; |
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upon consummation of the transaction that resulted in the person becoming an interested shareholder, the person owns at least 85% of the corporations voting stock (excluding for purposes of determining the voting stock outstanding shares owned by directors who are officers and shares owned by employee stock plans in which participants do not have the right to determine confidentially whether shares will be tendered in a tender or exchange offer); or |
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after the person or entity becomes an interested shareholder, the business combination is approved by the board of directors and authorized by the vote of the holders of shares representing at least two-thirds of the outstanding voting power not owned by the interested shareholder. |
We have opted out of Section 203 of the DGCL, which contains these restrictions on business combinations, in our Certificate of Incorporation that will take effect immediately prior to our separation from Sears Holdings.
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Indemnification and Limitation of Liability of Directors and Officers
Delaware General Corporate Law
Pursuant to the DGCL, a corporation may indemnify any person who was or is a party to or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or serving at the request of such corporation in such capacity for another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of such corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The DGCL also permits indemnification by a corporation under similar circumstances for expenses (including attorneys fees) actually and reasonably incurred by such persons in connection with the defense or settlement of an action or suit by or in the right of the corporation to procure a judgment in its favor, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to such corporation unless the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.
To the extent a present or former director or officer is successful in the defense of such an action, suit or proceeding, the corporation is required by the DGCL to indemnify such person for actual and reasonable expenses incurred thereby.
Expenses (including attorneys fees) incurred by an officer or director of the corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it is ultimately determined that such person is not entitled to be so indemnified. Such expenses (including attorneys fees) incurred by former directors and officers or other employees and agents of the corporation or by persons serving at the request of the corporation as directors, officers, employees or agents of another corporation, partnership, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the corporation deems appropriate.
The DGCL provides that the indemnification described above shall not be deemed exclusive of other indemnification that may be granted by a corporation pursuant to its by-laws, disinterested directors vote, shareholders vote, agreement or otherwise.
The DGCL also provides corporations with the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation in a similar capacity for another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him or her and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability as described above.
SHO Certificate of Incorporation and Bylaws
Our proposed Certificate of Incorporation requires us to indemnify and hold harmless any current or former director or officer of SHO to the fullest extent permitted by Delaware law. Such indemnification rights include the right to be paid by SHO the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition. However, except for proceedings to enforce indemnification or advancement rights, we will indemnify such a director or officer who initiates an action, suit or proceeding (or part thereof) only if such action, suit or proceeding (or part thereof) was authorized by the board of directors of SHO.
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The proposed Certificate of Incorporation also contains certain procedures and presumptions that will govern any action brought by a person granted advancement or indemnification rights in SHOs Certificate of Incorporation to enforce those rights.
The indemnification and advancement rights conferred by SHO are not exclusive of any other right to which persons seeking indemnification or advancement may be entitled under any statute, our Certificate of Incorporation or Bylaws, any agreement, vote of stockholders or disinterested directors or otherwise.
Our proposed Certificate of Incorporation also exculpates any director from being personally liable to SHO or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption is prohibited by Delaware law.
Transfer Agent and Registrar
After the separation, the transfer agent and registrar for our capital stock will be Computershare Trust Company, N.A.
Listing and Market Information
There is currently no established public market for any of our capital stock. We have applied to list our common stock on the NASDAQ Capital Market under the symbol SHOS and expect that trading will begin the first trading day after the completion of the rights offering.
Authorized But Unissued Capital Stock
The DGCL does not require shareholder approval for any issuance of authorized shares. However, the listing requirements of the NASDAQ Capital Market, which would apply so long as our common stock is listed on the NASDAQ Capital Market, require shareholder approval of certain issuances equal to or exceeding 20% of the then-outstanding voting power or then outstanding number of shares of common stock. These additional shares may be used for a variety of corporate purposes, including future public offerings, to raise additional capital or to facilitate acquisitions.
One of the effects of the existence of unissued and unreserved capital stock may be to enable our board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of our company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of our management and possibly deprive the stockholders of opportunities to sell their shares of capital stock at prices higher than prevailing market prices.
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Sears Holdings will offer the shares of SHO common stock under the terms of the transferable subscription rights that it will distribute to its stockholders as of the record date. There is no managing or soliciting dealer for the offering and neither Sears Holdings nor SHO will pay any kind of fee for the solicitation of the exercise of the rights.
We have applied to list the rights for trading under the symbol SHOSR on the NASDAQ Capital Market. The listing of the rights on the NASDAQ Capital Market is subject to the fulfillment of all listing requirements of the NASDAQ Capital Market. If the listing requirements are fulfilled, we expect that the subscription rights will be listed on the NASDAQ Capital Market on , 2012. The subscription rights will cease trading at 4:00 p.m., New York time, on , 2012 the fourth business day prior to the scheduled expiration date of the rights offering, unless Sears Holdings terminates or extends the rights offering.
Sears Holdings will be an underwriter within the meaning of Section 2(a)(11) of the Securities Act with respect to the sale of SHO common stock. Because Sears Holdings will be an underwriter, Sears Holdings will be subject to the prospectus delivery requirements of the Securities Act and will be subject to certain statutory liabilities, including, but not limited to, under the Securities Act and the Exchange Act.
There is currently no established public market for our common stock. We have applied to list our common stock on the NASDAQ Capital Market under the symbol SHOS and expect that trading will begin the first trading day after the completion of the rights offering.
The subscription rights are transferable during the course of the subscription period, and we have applied to list the rights for trading on the NASDAQ Capital Market under the symbol SHOSR. We expect that most holders of subscription rights, including Sears Holdings directors and officers may freely transfer their rights subject to applicable volume and manner of sale restrictions under Rule 144.
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The Subscription Rights
Sears Holdings is distributing to the record holders of its common stock as of the record date, transferable subscription rights to purchase shares of SHO common stock at a price of $15.00 per share. Each holder of record of Sears Holdings common stock will receive one subscription right for each share of common stock owned by that holder as of 5:00 p.m., New York City time, on September 7, 2012, the record date, except that holders of Sears Holdings restricted stock that is unvested as of the record date will receive cash awards in lieu of subscription rights. Each subscription right will entitle the holder to purchase of a share of SHO common stock. Each subscription right entitles the holder to a basic subscription right and an over-subscription privilege. The subscription rights entitle the holders of subscription rights to purchase an aggregate of 23,100,000 shares for an aggregate purchase price of $346.5 million.
Sears Holdings may withdraw and cancel the rights offering if, at any time prior to its expiration, the board of directors of Sears Holdings determines, in its sole discretion, that the rights offering is not in the best interest of Sears Holdings or its stockholders, or that market conditions are such that it is not advisable to consummate the rights offering. If Sears Holdings cancels the rights offering, it will issue a press release notifying stockholders of the cancellation, and the subscription agent will return all subscription payments to the subscribers, without interest or penalty, as soon as practicable.
Basic Subscription Right. With your basic subscription right, you may purchase of a share of common stock per subscription right, subject to delivery of the required documents and payment of the subscription price of $15.00 per whole share, before the rights offering expires. You may exercise all or a portion of your basic subscription right, or you may choose not to exercise any of your subscription rights. If you do not exercise your basic subscription rights in full, you will not be entitled to purchase any shares under your over-subscription privilege.
Fractional shares resulting from the exercise of the basic subscription right will be eliminated by rounding down to the nearest whole share.
For example, if you owned 1,000 shares of Sears Holdings common stock on the record date, you would have received 1,000 subscription rights and would have the right to purchase shares of SHO common stock ( rounded down to the nearest whole share) for $15.00 per whole share.
Sears Holdings will credit your account or the account of your nominee record holder with shares of SHO common stock that you purchased with the basic subscription right as soon as practicable after the rights offering has expired.
All shares of SHO common stock purchased pursuant to the exercise of the subscription rights will be issued by way of direct registration in book-entry form. Registration in book-entry form refers to a method of recording share ownership when no physical share certificates are issued.
Over-subscription Privilege. If you purchase all shares of SHO common stock available to you pursuant to your basic subscription rights, you may also choose to purchase a portion of any shares of common stock that other holders of subscription rights do not purchase through the exercise of their basic subscription rights. Only holders who fully exercise all of their basic subscription rights, after giving effect to any purchases or sales of subscription rights by them prior to such exercise, may participate in the over-subscription privilege. If you wish to exercise your over-subscription privilege, you must indicate on your rights certificate, or the form provided by your nominee if your shares are held in the name of a nominee, how many additional shares of common stock you would like to purchase pursuant to your over-subscription privilege, and provide payment as described below.
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ESL has indicated to Sears Holdings that it intends to exercise its over-subscription privilege in full, such that it will purchase the maximum number of shares allocated to it according to the formula described below, although it has not entered into any agreement to do so.
Shares of our common stock will be allocated in the rights offering as follows:
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First, shares will be allocated to holders of rights who exercise their basic subscription rights at a ratio of of a share of common stock per exercised subscription right. |
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Second, any remaining shares that were eligible to be purchased in the rights offering will be allocated among the holders of rights who exercise the over-subscription privilege, in accordance with the following formula: |
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Each holder who exercises the over-subscription privilege will be allocated a percentage of the remaining shares equal to the percentage that results from dividing (i) the number of basic subscription rights which that holder exercised by (ii) the number of basic subscription rights which all holders who wish to participate in the over-subscription privilege exercised. Such percentage could result in the allocation of more or fewer over-subscription shares than the holder requested to purchase through the exercise of the over-subscription privilege. |
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For example, if Stockholder A holds 200 subscription rights and Stockholder B holds 300 subscription rights and they are the only two stockholders who exercise the over-subscription privilege, Stockholder A will be allocated 40% and Stockholder B will be allocated 60% of all remaining shares available. (Example A) |
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Third, if the allocation of remaining shares pursuant to the formula described above in the second step would result in any holder receiving a greater number of shares of common stock than that holder subscribed for pursuant to the over-subscription privilege, then such holder will be allocated only that number of shares for which the holder over-subscribed. |
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For example, if Stockholder A is allocated 100 shares pursuant to the formula described above but subscribed for only 40 additional shares pursuant to the over-subscription privilege, Stockholder As allocation would be reduced to 40 shares. (Example B) |
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Fourth, any shares of common stock that remain available as a result of the allocation described above being greater than a holders over-subscription request (the 60 additional shares in Example B above) will be allocated among all remaining holders who exercised the over-subscription privilege and whose initial allocations were less than the number of shares they requested. This second allocation will be made pursuant to the same formula described above and repeated, if necessary, until all available shares of our common stock have been allocated or all over-subscription requests have been satisfied in full. |
To properly exercise your over-subscription privilege, you must deliver the subscription payment related to your over-subscription privilege before the rights offering expires. Because we will not know the total number of unsubscribed shares of common stock before the rights offering expires, if you wish to maximize the number of SHO shares you purchase pursuant to your over-subscription privilege, you will need to deliver payment in an amount equal to the aggregate subscription price for the maximum number of shares that could be available to you at the time you exercise your basic subscription rights (i.e., the aggregate payment for both your basic subscription right and for all additional shares you desire to purchase pursuant to your over-subscription request). Any excess subscription payments received by the subscription agent, including payments for additional shares you requested to purchase pursuant to the over-subscription privilege but which were not allocated to you, will be returned, without interest or penalty, promptly following the expiration of the rights offering.
Fractional shares resulting from the exercise of the over-subscription privilege will be eliminated by rounding down to the nearest whole share. Computershare Inc., our subscription agent for the rights offering, will determine, in its sole discretion, the over-subscription allocation based on the formula described above.
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We can provide no assurances that you will actually be entitled to purchase the number of shares of common stock issuable upon the exercise of your over-subscription privilege in full at the expiration of the rights offering. Sears Holdings will not be able to satisfy any orders for shares pursuant to the over-subscription privilege if all holders of rights exercise their basic subscription rights in full.
Reasons for the Rights Offering
Sears Holdings board of directors has determined that pursuing a disposition of SHO through a rights offering is in the best interests of Sears Holdings and its stockholders, and that separating SHO from Sears Holdings would provide, among other things, financial and operational benefits to both SHO and Sears Holdings, including but not limited to the following expected benefits:
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Strategic Focus and Flexibility . Sears Holdings board of directors believes that following the rights offering, SHO and Sears Holdings will each have more focused businesses and be better able to dedicate resources to pursue appropriate growth opportunities and execute strategic plans best suited to their respective businesses in an efficient manner. |
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Additional Liquidity . The rights offering (including the expected $100 million dividend to be paid to Sears Holdings prior to the separation) is expected to provide Sears Holdings with approximately $446.5 million in gross proceeds, strengthening its balance sheet and liquidity. |
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Stockholder Flexibility to Avoid Dilution . Since the subscription rights are being distributed, at no charge, to Sears Holdings existing stockholders, stockholders will have the choice to hold shares in both companies or in either company separately and the opportunity to retain its existing Sears Holdings ownership percentage in the two companies. However, stockholders may wish to sell their subscription rights to fund any tax incurred upon the receipt of the subscription rights, which would decrease the amount of shares of SHO common stock available to such stockholders. If the distribution of the rights to a stockholder is subject to withholding tax, the stockholders broker (or other applicable withholding agent) may sell all or a portion of the subscription rights to fund the withholding tax, which would decrease the number of shares of SHO common stock available to such stockholder. See Material United States Federal Income Tax Considerations. |
Principal Stockholder
As of the record date, Sears Holdings owns 100% of the common stock of SHO. As of the date hereof, ESL beneficially owns approximately 62% of the common stock of Sears Holdings.
Assuming the subscription rights are exercised in full, Sears Holdings will dispose of all of its shares of SHO common stock as a result of the rights offering and will cease to be a stockholder of SHO. To the extent that the subscription rights are not exercised in full and that shares not purchased through the exercise of basic subscription rights are not purchased pursuant to the over-subscription privilege, Sears Holdings will retain ownership of a portion of our common stock. To the extent that Sears Holdings retains ownership of shares of SHO common stock after the completion of the rights offering, Sears Holdings may dispose of its remaining shares, including through sales into the public market or otherwise.
ESL has advised Sears Holdings that it intends to exercise its subscription rights in full, subject to the successful completion of the separation transactions, though it has not entered into any agreement to do so. In addition, ESL has indicated to Sears Holdings that it intends to exercise its over-subscription privilege in full, such that it will purchase the maximum number of shares allocated to it under the over-subscription privilege, though it has not entered into any agreement to do so. As a result, following the completion of the rights offering, we expect ESL will beneficially own at least approximately 62% of our common shares. However, as further described below, under certain circumstances, ESL may only beneficially own approximately 58% of our common shares assuming the subscription rights are exercised in full by all other holders of rights. ESL may
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increase its percentage beneficial ownership of SHO through its exercise of the over-subscription privilege, through open market purchases of subscription rights or SHO common stock or otherwise. Consequently, depending on whether other holders of subscription rights exercise their subscription rights, ESL may beneficially own up to 100% of our outstanding shares following the separation.
An investment vehicle affiliated with ESL that holds approximately 4.6% of the common stock of Sears Holdings that is beneficially owned by ESL no longer makes new investments of cash such as the exercise of the rights without the consent of the investor in the vehicle. If the investor declines to provide such consent, other entities affiliated with ESL may purchase the rights from this entity or the rights held by it will be distributed to the investor. To the extent the investor in this investment vehicle decides not to consent to the exercise in full of the subscription rights held by it, or if other entities affiliated with ESL do not purchase all such rights, and assuming all other subscription rights are exercised in full by all other holders of rights, ESL may only beneficially own approximately 58% of our common shares following the separation. Other than with respect to the investment vehicle described above, for which the consent of a third party is required, ESL intends to exercise its subscription rights in full, subject to the successful completion of the separation transactions, with respect to all subscription rights that it receives in the distribution as well as any subscription rights it may purchase in the open market.
As a result of ESL holding more than 50% of our common stock, we expect to qualify and elect to be a controlled company under the NASDAQ Marketplace rules following the completion of the rights offering, which would allow us to rely on exemptions from certain corporate governance requirements otherwise applicable to NASDAQ-listed companies.
You should not view the intentions of ESL or Mr. Lampert as a recommendation or other indication, by them or any member of the Sears Holdings or SHO boards of directors, regarding whether the exercise of the subscription rights or the exercise of the over-subscription privilege is or is not in your best interests.
Conditions, Withdrawal and Cancellation
Sears Holdings obligation to close the rights offering and to issue the shares of our common stock subscribed for in the rights offering is conditioned on the satisfaction or waiver of the following conditions:
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the Sears Holdings board of directors shall have authorized and approved the separation and related transactions and not withdrawn such authorization and approval, and shall have declared the dividend of the subscription rights to Sears Holdings stockholders; |
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each of the agreements to be entered into between Sears Holdings and SHO governing the separation transactions shall have been executed by each party thereto and all the actions required to be performed prior to the closing of the rights offering shall have been completed; |
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the SEC shall have declared effective our Registration Statement on Form S-1, of which this prospectus is a part, under the Securities Act, and no stop order suspending the effectiveness of the Registration Statement shall be in effect, and no proceedings for such purpose shall be pending before or threatened by the SEC; |
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our common stock and the subscription rights shall have been accepted for listing on the NASDAQ Capital Market or another national securities exchange or quotation system approved by Sears Holdings, subject to official notice of issuance; |
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no order, injunction or decree issued by any governmental authority of competent jurisdiction or other legal restraint or prohibition preventing consummation of the separation shall be in effect, and no other event outside the control of Sears Holdings shall have occurred or failed to occur that prevents the consummation of the separation; |
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the individuals listed as members of our post-separation board of directors in this prospectus shall have been duly elected, and such individuals shall be the members of our board of directors immediately after the separation; |
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prior to the separation, Sears Holdings shall deliver or cause to be delivered to SHO resignations, effective as of immediately after the separation, of each individual who will be an officer or director of SHO after the separation and who is an officer or director of Sears Holdings immediately prior to the separation; and |
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immediately prior to the separation, our Certificate of Incorporation and Bylaws, each in substantially the form filed as an exhibit to the Registration Statement of which this prospectus forms a part, shall be in effect. |
The fulfillment of the foregoing conditions will not create any obligation on the part of Sears Holdings to close the rights offering.
In addition, Sears Holdings reserves the right to withdraw and cancel the rights offering if, at any time prior to the expiration of the rights offering, the board of directors of Sears Holdings determines, in its sole discretion, that the offering is not in the best interest of Sears Holdings or its stockholders, or that market conditions are such that it is not advisable to consummate the rights offering. If Sears Holdings cancels the rights offering, it will issue a press release notifying stockholders of the cancellation.
If Sears Holdings cancels the rights offering, all affected subscription rights will expire without value, and all subscription payments received by the subscription agent will be returned, without interest, as soon as practicable.
If Sears Holdings cancels the rights offering and you have not exercised any rights, the subscription rights will expire, be of no value and cease to be exercisable for SHO common shares. If you purchase subscription rights during the subscription period and Sears Holdings cancels the rights offering, you will lose the entire purchase price paid to acquire such subscription rights, however any subscription payments received by the subscription agent will be returned to you, without interest or penalty, as soon as practicable. See Risk FactorsRisks Relating to the Rights OfferingSears Holdings may cancel the rights offering at any time prior to the expiration of the rights offering and in such case neither Sears Holdings nor the subscription agent will have any obligation to you except to return your exercise payments.
Effect of the Rights Offering on Outstanding Common Stock of Sears Holdings
The issuance of SHO shares in the rights offering will not affect the number of shares of Sears Holdings common stock you own or your percentage ownership of Sears Holdings. If you do not exercise your subscription rights to purchase shares of SHO common stock, following the separation you will no longer retain an ownership interest in the SHO businesses as the common stock of Sears Holdings that you hold will not reflect the assets or liabilities of SHO.
The trading price of Sears Holdings common stock immediately following the rights offering may be higher or lower than immediately prior to the rights offering because the assets and liabilities of SHO will no longer be held by Sears Holdings, the ongoing earnings of SHO will no longer be reflected in Sears Holdings earnings and Sears Holdings will receive cash proceeds of approximately $446.5 million as a result of the sale of SHOs common shares (assuming the subscription rights are exercised in full) and the expected $100 million dividend to be paid prior to the separation.
Method of Exercising Subscription Rights
The exercise of subscription rights is irrevocable and may not be cancelled or modified. You may exercise your subscription rights as follows:
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Subscription by Registered Holders. If you are a registered holder of Sears Holdings common stock, the number of shares of SHO common stock you may purchase pursuant to your basic subscription right will be indicated on the rights certificate that you receive. You may exercise your subscription rights by properly completing and duly executing the rights certificate and forwarding it, together with your full payment, to the subscription agent at the address given below under Subscription Agent and Information Agent, to be received before 5:00 p.m., New York City time, on , 2012.
Subscription by Beneficial Owners. If you are a beneficial owner of shares of Sears Holdings common stock that are registered in the name of a broker, dealer, custodian bank or other nominee, you will not receive a rights certificate. Instead, the Depository Trust Company, or DTC, will electronically issue one subscription right to your nominee record holder for every share of Sears Holdings common stock that you own as of the record date. If you are not contacted by your nominee, you should promptly contact your nominee in order to subscribe for shares of our common stock in the rights offering.
Subscription by Purchasers of Subscription Rights.
If you purchase subscription rights during the subscription period through a broker, dealer, custodian bank or other nominee, you will not receive a rights certificate. Instead, your broker, dealer, custodian bank or other nominee must exercise the subscription rights on your behalf. If you wish to exercise your subscription rights and purchase our common stock through the rights offering, you should contact your nominee as soon as possible. Please follow the instructions of your nominee. Your nominee may establish a deadline that may be before the expiration date of the rights offering.
If you purchase subscription rights during the subscription period directly from a registered holder of Sears Holdings common stock, you should contact the subscription agent as soon as possible regarding the exercise of your subscription rights. Please follow the instructions of the subscription agent in order to properly exercise your subscription rights.
Payment Method
Your payment of the subscription price must be made in U.S. dollars for the full number of shares of common stock that you wish to acquire in the rights offering by cashiers or certified check drawn upon a United States bank payable to the subscription agent at the address set forth below under the heading Subscription Agent and Information Agent. Your payment must be delivered to the subscription agent prior to the expiration of the rights offering. Personal checks and wire transfers will not be accepted. Payment received after the expiration of the rights offering will not be honored, and the subscription agent will return your payment to you, without interest or penalty, as soon as practicable.
You should carefully read and strictly follow the instruction letter and any other documents accompanying the rights certificate. Do not send subscription documents, rights certificates or payments directly to us or to Sears Holdings. Sears Holdings will not consider your subscription received until the subscription agent has received delivery of a properly completed and duly executed rights certificate and payment of the full subscription amount. The risk of delivery of all subscription documents, rights certificates and payments is borne by the holders of subscription rights, not by the subscription agent, Sears Holdings or us. If sent by mail, we recommend that you send those rights certificates and payments by overnight courier or by registered mail, properly insured, with return receipt requested, and that you allow a sufficient number of days to ensure delivery to the subscription agent.
If you hold your shares of Sears Holdings common stock in the name of a custodian bank, broker, dealer or other nominee and wish to purchase shares of our common stock, you should contact your nominee as soon as possible regarding the exercise of the subscription rights and the payment for the shares of our common stock.
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Medallion Guarantee May Be Required
Your signature on your rights certificate must be guaranteed by an eligible institution, such as a member firm of a registered national securities exchange or a member of the Financial Industry Regulatory Authority, Inc., or a commercial bank or trust company having an office or correspondent in the United States, subject to standards and procedures adopted by the subscription agent, unless:
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you provide on the rights certificate that shares are to be delivered to you as record holder of those subscription rights; or |
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you are an eligible institution. |
Missing or Incomplete Subscription Information
If you hold your shares of common stock in the name of a custodian bank, broker, dealer or other nominee, the nominee will exercise the subscription rights on your behalf in accordance with your instructions. Your nominee may establish a deadline that may be before the 5:00 p.m., New York City time, , 2012 expiration date that Sears Holdings has established for the rights offering. If you send a payment that is insufficient to purchase the number of shares of common stock you requested, or if the number of shares you requested is not specified in the forms, the payment received will be applied to exercise your subscription rights to the fullest extent possible based on the amount of the payment received, subject to the availability of shares under the over-subscription privilege and the elimination of fractional shares. Any excess subscription payments received by the subscription agent will be returned, without interest, as soon as practicable following the expiration of the rights offering.
Expiration Date and Extension
The subscription period, during which you may exercise your subscription rights, expires at 5:00 p.m., New York City time, on , 2012, which is the expiration of the rights offering. If you do not exercise your subscription rights before that time, your subscription rights will expire and will no longer be exercisable. Sears Holdings will not be required to sell SHO shares to you if the subscription agent receives your rights certificate or your subscription payment after that time. Sears Holdings has the option to extend the rights offering, although it does not presently intend to do so. Sears Holdings may extend the rights offering by giving oral or written notice to the subscription agent before the rights offering expires, but in no event will we extend the rights offering beyond , 2012. If Sears Holdings elects to extend the rights offering, it will issue a press release announcing the extension no later than 9:00 a.m., New York City time, on the next business day after the most recently announced expiration date of the rights offering.
If you hold your shares of Sears Holdings common stock in the name of a broker, dealer, custodian bank or other nominee, the nominee will exercise the subscription rights on your behalf in accordance with your instructions. Please note that the nominee may establish a deadline that may be before the 5:00 p.m., New York City time, , 2012 expiration date that Sears Holdings has established for the rights offering.
Determination of Subscription Price
Sears Holdings engaged Duff & Phelps to act as a financial advisor in connection with the separation of the SHO businesses to provide, among other things, an opinion with respect to the fair market value of the equity of SHO. In determining the subscription price, the directors considered, among other things, (1) the opinion of Duff & Phelps, (2) the desirability of broad participation in the rights offering by Sears Holdings stockholders and of the development of a trading market for both the subscription rights and the SHO common stock and (3) Sears Holdings liquidity needs and the aggregate amount of proceeds to be paid to Sears Holdings pursuant to the dividend and the rights offering if the rights offering were fully subscribed. See Determination of Subscription PriceDetermination by Sears Holdings Board of Directors of the Exercise Price.
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Subscription Agent and Information Agent
The subscription agent for this offering is Computershare Inc. The address to which rights certificates and payments should be mailed or delivered by hand delivery or overnight courier is provided below. If sent by mail, we recommend that you send documents and payments by registered mail, properly insured, with return receipt requested, and that you allow a sufficient number of days to ensure delivery to the subscription agent. Do not send or deliver these materials to Sears Holdings or SHO.
By first class mail: |
By hand or overnight courier: | |
Computershare Inc. c/o Voluntary Corporate Actions PO Box 43011 Providence, RI 02940-3011 |
Computershare Inc. c/o Voluntary Corporate Actions 250 Royall Street Suite V Canton, MA 02021 |
If you deliver subscription documents or rights certificates in a manner different than that described in this prospectus, Sears Holdings may not honor the exercise of your subscription rights.
You should direct any questions or requests for assistance concerning the method of subscribing for the shares of our common stock or for additional copies of this prospectus to the information agent, Georgeson Inc., by calling (866) 695-6074 (toll-free) or, if you are a bank, broker or other nominee, (212) 440-9800.
Fees and Expenses
Sears Holdings is not charging any fee or sales commission to issue the subscription rights to you or to issue shares to you if you exercise your rights. If you exercise your subscription rights through the record holder of your shares, you are responsible for paying any commissions, fees, taxes or other expenses your record holder may charge you. We will pay all reasonable fees charged by Computershare Inc., as the subscription agent and Georgeson Inc., as the information agent.
No Fractional Shares
All shares of common stock will be sold at a purchase price of $15.00 per whole share. We will not issue fractional shares. Fractional shares resulting from the exercise of the basic subscription rights and the over-
Notice to Nominees
If you are a broker, dealer, custodian bank or other nominee holder that holds shares of Sears Holdings common stock for the account of others on the record date, you should notify the beneficial owners of the shares for whom you are the nominee of the rights offering as soon as possible to learn their intentions with respect to exercising their subscription rights. You should obtain instructions from the beneficial owners of Sears Holdings common stock. If a registered holder of Sears Holdings common stock so instructs, you should complete the rights certificate and submit it to the subscription agent with the proper subscription payment by the expiration date. You may exercise the number of subscription rights to which all beneficial owners in the aggregate otherwise would have been entitled had they been direct holders of Sears Holdings common stock on the record date, provided that you, as a nominee record holder, make a proper showing to the subscription agent by submitting the form entitled Nominee Holder Certification, which is provided with your rights offering materials. If you did not receive this form, you should contact the subscription agent to request a copy.
Beneficial Owners
If you are a beneficial owner of shares of Sears Holdings common stock and will receive your subscription rights through a broker, dealer, custodian bank or other nominee, we will ask your nominee to notify you of the
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rights offering. If you wish to exercise your subscription rights, you will need to have your nominee act for you, as described above. To indicate your decision with respect to your subscription rights, you should follow the instructions of your nominee. If you wish instead to obtain a separate rights certificate, you should contact your nominee as soon as possible and request that a rights certificate be issued to you. You should contact your nominee if you do not receive notice of the rights offering, but you believe you are entitled to participate in the rights offering. Sears Holdings and SHO are not responsible if you do not receive the notice by mail or otherwise from your nominee or if you receive notice without sufficient time to respond to your nominee by the deadline established by your nominee, which may be before the 5:00 p.m., New York City time, , 2012 expiration date.
Transferability of Subscription Rights
The subscription rights are transferable during the course of the subscription period. We have applied to list the subscription rights for trading on the NASDAQ Capital Market under the symbol SHOSR and we currently expect that they will begin to trade on the first business day following the distribution of the subscription rights, and will continue to trade until 4:00 p.m., New York City time, on , 2012, the fourth business day prior to the expiration date of this rights offering (or, if the offer is extended, on the fourth business day immediately prior to the extended expiration date). As a result, you may transfer or sell your subscription rights if you do not want to exercise them to purchase shares of our common stock. However, the subscription rights are a new issue of securities with no prior trading market, and there can be no assurances provided as to the liquidity of the trading market for the subscription rights or their market value.
If you are a beneficial owner of shares of Sears Holdings common stock on the record date or will receive your subscription rights through a broker, dealer, custodian bank or other nominee, Sears Holdings will ask your broker, dealer, custodian bank or other nominee to notify you of the rights offering. If you wish to sell your subscription rights, in addition to any other procedures your broker, custodian bank or other nominee may require, you must deliver your order to sell to your broker, custodian bank or other nominee such that it will be actually received prior to 4:00 p.m., New York City time, on , 2012, the fourth business day prior to the , 2012 expiration date of this rights offering.
If you are a registered holder of Sears Holdings common stock as of the record date and receive a rights certificate, you may take your rights certificate to a broker and request to sell the rights represented by the certificate. The broker will instruct you as to what is required to sell your subscription rights.
Validity of Subscriptions
Sears Holdings will resolve all questions regarding the validity and form of the exercise of your subscription rights, including time of receipt and eligibility to participate in the rights offering. Such determination will be final and binding. Once made, subscriptions and directions are irrevocable, and Sears Holdings will not accept any alternative, conditional or contingent subscriptions or directions. Sears Holdings reserves the absolute right to reject any subscriptions or directions not properly submitted or the acceptance of which would be unlawful. You must resolve any irregularities in connection with your subscriptions before the subscription period expires, unless Sears Holdings waives them in its sole discretion. Neither SHO, Sears Holdings nor the subscription agent is under any duty to notify you or your representative of defects in your subscriptions. A subscription will be considered accepted, subject to Sears Holdings right to withdraw and cancel the rights offering, only when the subscription agent receives a properly completed and duly executed rights certificate and any other required documents and the full subscription payment. Sears Holdings interpretations of the terms and conditions of the rights offering will be final and binding.
Escrow Arrangements; Return of Funds
The subscription agent will hold funds received in payment for shares in escrow in a segregated bank account pending completion of the rights offering. The subscription agent will hold this money in escrow until
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the rights offering is completed or is withdrawn and cancelled. If the rights offering is cancelled for any reason, all subscription payments received by the subscription agent will be returned, without interest or penalty, as soon as practicable.
Stockholder Rights
You will have no rights as a holder of the shares of our common stock that you purchase in the rights offering until your account or the account of your nominee is credited with the shares of our common stock purchased in the rights offering.
Foreign Stockholders
We will not mail this prospectus or any rights certificates to holders of Sears Holdings common stock on the record date whose address of record is outside the United States and Canada, or is an Army Post Office (APO) address or Fleet Post Office (FPO) address. Foreign stockholders will be sent written notice of the rights offering by the subscription agent. The subscription agent will hold the rights certificates to which those holders subscription rights relate for the account of these stockholders. To exercise their subscription rights, foreign stockholders must send a letter of instruction indicating the number of subscription rights to be exercised, together with payment of the subscription price for each share of common stock subscribed for, to the subscription agent. The subscription agent must receive the letter of instruction, together with payment of the subscription price at or prior to 5:00 p.m., New York City time, on , 2012. The stockholder must demonstrate to the satisfaction of the subscription agent and Sears Holdings, such as by providing a legal opinion from local counsel, that the exercise of such subscription rights does not violate the laws of the jurisdiction of such stockholder. If no instructions are received by the subscription agent prior to 5:00 p.m., New York City time, on , 2012, the subscription rights will expire, have no value, and cease to be exercisable for SHO common shares. See Risk FactorsRisks Relating to the Rights OfferingIf you receive but do not sell or exercise the subscription rights before they expire, you may be subject to adverse U.S. federal income tax consequences.
The rights offering is not being made in any state or other jurisdiction in which it would be unlawful to do so. We are not selling to, or accepting any offers from, foreign stockholders to purchase subscription rights if such stockholders are a resident of any such state or other jurisdiction.
No Revocation or Change
Once you submit the rights certificate or have instructed your nominee of your subscription request, you are not allowed to revoke or change the exercise or request a refund of monies paid. All exercises of subscription rights are irrevocable, even if you learn information about us that you consider to be unfavorable. You should not exercise your subscription rights unless you are certain that you wish to purchase shares of our common stock at the subscription price.
Material U.S. Federal Income Tax Treatment of Rights Distribution
For a discussion of the material U.S. federal income tax considerations relating to the receipt, sale, exercise, expiration and cancellation of the subscription rights, see Material United States Federal Income Tax Considerations. Stockholders should consult their own tax advisors regarding the U.S. federal, state and local and non-U.S. income, estate and other tax considerations relating to the receipt, sale, exercise, expiration and cancellation of the subscription rights in light of their particular circumstances.
No Recommendation to Rights Holders
Neither the Sears Holdings nor SHO board of directors is making any recommendation regarding your exercise of the subscription rights. Stockholders who exercise subscription rights will incur investment risk on
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new money invested. Neither Sears Holdings nor SHO can predict the price at which shares of our common stock will trade after the rights offering. The market price for our common stock may decrease to an amount below the subscription price, and if you purchase shares of common stock at the subscription price, you may not be able to sell the shares in the future at the same price or a higher price. You should make your investment decision based on your assessment of our business and financial condition, its prospects for the future, the terms of the rights offering and the information contained in, or incorporated by reference into, this prospectus. See Risk Factors for a discussion of some of the risks involved in investing in our common stock.
Listing
The subscription rights are transferable, and we have applied to list the subscription rights for trading on the NASDAQ Capital Market under the symbol SHOSR, however, we cannot assure you that a market for the subscription rights will develop. We have applied to list shares of our common stock for trading on the NASDAQ Capital Market under the symbol SHOS.
Treatment of Common Stock Held in Employee Savings Plans
The Sears Holdings Savings Plan, the Sears Holdings Puerto Rico Savings Plan and the Lands End, Inc. Retirement Plan or, collectively, the Savings Plans, offer an employer stock fund through which participants (current and former Sears Holdings employees) may invest in Sears Holdings common stock. The applicable trust of each Savings Plan will, on behalf of each participant, receive one subscription right for each full share of Sears Holdings common stock held in the Sears Holdings stock fund under the applicable Savings Plan as of the record date. Sears Holdings has submitted a prohibited transaction exemption to the U.S. Department of Labor requesting that it grant a prohibited transaction exemption on a retroactive basis, effective as of the date of the distribution of the subscription rights, with respect to the acquisition, holding and sale or exercise of the subscription rights under the Savings Plans. The prohibited transaction exemption is necessary because the Savings Plans are not permitted to hold an employer-issued security that is not qualifying within the meaning of Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, or ERISA, and the subscription rights are not qualifying. If the exemption is not granted, Sears Holdings may be required to take appropriate remedial action. The applicable fiduciary for each Savings Plan has engaged an independent fiduciary to determine whether and/or when to exercise or sell the subscription rights on behalf of the trusts of the Savings Plans, subject to the terms of the prohibited transaction exemption
Shares of Our Common Stock Outstanding After the Rights Offering
As of August 31, 2012, 23,100,000 shares of our common stock were issued and outstanding. No additional shares of our common stock will be issued or outstanding as a result of the rights offering.
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DETERMINATION OF SUBSCRIPTION PRICE
On August 3, 2012, the Sears Holdings board of directors determined that the aggregate exercise price for the SHO common stock being distributed in the rights offering is $346.5 million. The subscription price is equal to the aggregate exercise price divided by the total number of whole shares of SHO common stock outstanding immediately prior to the separation. In evaluating the aggregate value of the SHO common stock for purposes of establishing the aggregate exercise price, the Sears Holdings board of directors considered a number of factors, including those described below. There can be no assurance that the SHO common stock will not trade below the subscription price or that it will trade at prices near or above the subscription price after the date of this prospectus. You should not consider the subscription price to be an indication of the price at which the SHO common stock will trade following the rights offering.
Determination by Sears Holdings Board of Directors of the Exercise Price
Sears Holdings engaged Duff & Phelps to act as a financial advisor in connection with the separation of the SHO business to provide, among other things, advice with respect to the valuation of the SHO business and the setting of the aggregate exercise price for the Rights Offering and to render an opinion as to the fair market value of the equity of SHO. At a meeting of the Sears Holdings board of directors held on August 1, 2012, the board heard presentations by members of Sears Holdings management and SHOs management regarding the material terms of the proposed separation and the business plan for SHO and a presentation by Duff & Phelps, which included the delivery of the opinion of Duff & Phelps as to the fair market value of the equity of SHO. On August 3, 2012, subsequent to the management presentations and the Duff & Phelps presentation and delivery of the Duff & Phelps opinion, and taking into account the dividend to be paid to Sears Holdings, the board determined to set the aggregate exercise price for the rights offering at $346.5 million.
In the course of reaching its determination on the aggregate exercise price, Sears Holdings board considered a number of factors, including without limitation:
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that the structure of the rights offering treats all stockholders of Sears Holdings equally through a distribution of transferable subscription rights on a pro rata basis to all stockholders; |
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Sears Holdings liquidity needs and the aggregate amount of proceeds to be paid to Sears Holdings pursuant to the dividend and the rights offering if the rights offering were fully subscribed; |
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the material terms of the separation, including the allocation of assets and liabilities of the SHO businesses to SHO and the terms of the agreements to be entered into between Sears Holdings and SHO; |
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the desirability of the rights offering relative to other potential transaction structures involving the SHO business, including the opportunity afforded by a rights offering to Sears Holdings stockholders to participate in future growth of the SHO business; |
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the desirability of broad participation in the rights offering by Sears Holdings stockholders and of the development of a trading market for both the rights and the SHO common stock; |
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the ranges of values of SHO as set forth in the Duff & Phelps report and opinion, on both an enterprise and an equity basis, the analyses set forth in such report and the opinion delivered to the board during the Duff & Phelps presentation regarding the fair market value of the equity of SHO; |
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the presentations by Sears Holdings and SHO management and the information provided to the board regarding the business plan and proposed debt capitalization for SHO, including the indebtedness to be incurred by SHO for the dividend; and |
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the information regarding rights offerings for U.S. exchange-listed companies provided by Duff & Phelps to the board in the Duff & Phelps report and during the Duff & Phelps presentation, including as to the discounts to recent market values at which such rights offerings have been priced. |
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The foregoing discussion of the information and factors considered by Sears Holdings board of directors is not intended to be exhaustive, but includes the material factors considered by Sears Holdings board of directors in setting the aggregate exercise price. In view of the wide variety of factors considered by Sears Holdings board of directors in evaluating the rights offering and the aggregate exercise price, Sears Holdings board of directors did not find it practicable, and did not attempt, to quantify, rank or otherwise assign relative weights to the foregoing factors in reaching its conclusion. In addition, individual members of Sears Holdings board of directors may have given different weights to different factors and may have viewed some factors more positively or negatively than others. The Sears Holdings board of directors determinations and recommendations described above were based upon the totality of the information considered.
Opinion of Duff & Phelps, LLC
Sears Holdings engaged Duff & Phelps to render an opinion as to the fair market value of the equity of SHO in connection with the separation. As a leading global independent provider of financial advisory and investment banking services, Duff & Phelps is regularly engaged in the valuation of businesses and securities and the preparation of opinions in connection with mergers, acquisitions, spin-offs, financings, and other strategic transactions.
On August 1, 2012, Duff & Phelps delivered its analysis and opinion to the board of directors of Sears Holdings that, subject to the assumptions, qualifications, and limitations set forth therein, the enterprise value of SHO was in the range of $425.0 million to $515.0 million and that after subtracting pro forma debt, capital lease obligations and the present value of certain one-time items (net of cash and cash equivalents, the present value of franchise sale proceeds and franchise receivables) of approximately $80 million, the fair market value of the equity of SHO was in the range of $345.0 million to $435.0 million as of such date. The full text of the written opinion of Duff & Phelps, which sets forth, among other things, assumptions made, procedures followed, matters considered and qualifications and limitations of the review undertaken in rendering the opinion, is attached as Exhibit 99.7 to this prospectus. You are urged to read the opinion carefully and in its entirety prior to making a decision to exercise any or all of your subscription rights.
The following is a summary of the material analyses performed by Duff & Phelps in connection with rendering its opinion. Duff & Phelps noted that the analyses have been designed specifically for the opinion and may not translate to any other purposes. While this summary describes the analyses and factors that Duff & Phelps deemed material in its opinion, it does not purport to be a comprehensive description of all analyses and factors considered by Duff & Phelps. The opinion is based on the comprehensive consideration of the various analyses performed. This summary is qualified in its entirety by reference to the full text of the opinion attached as Exhibit 99.7 to this prospectus.
In arriving at its opinion, Duff & Phelps did not attribute any particular weight to any particular analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Several analytical methodologies were employed by Duff & Phelps in its analyses, and no one single method of analysis should be regarded as critical to the overall conclusion reached by Duff & Phelps. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. Accordingly, Duff & Phelps believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by Duff & Phelps, without considering all analyses and factors in their entirety, could create a misleading or incomplete view of the evaluation process underlying the Duff & Phelps opinion. The conclusion reached by Duff & Phelps, therefore, is based on the application of Duff & Phelps own experience and judgment to all analyses and factors considered by Duff & Phelps, taken as a whole.
Duff & Phelps has consented to the use of its opinion regarding the valuation of SHO in this prospectus. In giving such consent, Duff & Phelps does not thereby admit that they are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933.
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Scope of Duff & Phelps Analysis
In connection with its opinion, Duff & Phelps made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and with respect to similar business enterprises, in particular. Duff & Phelps procedures, investigations, and financial analyses with respect to the preparation of its opinion included, but were not limited to, the items summarized below:
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A review of the following documents: |
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SHOs Form S-1, as amended, filed with the Securities and Exchange Commission containing SHOs audited financial statements for the fiscal years ended on or around January 31, 2010 to January 31, 2012 and SHOs unaudited interim financial statements for the three months ended on or around April 30, 2012; |
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Pro forma financial statements for SHO on a standalone basis for the fiscal year ended on or around January 31, 2012; |
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Summary internal financial forecast for SHO for the three months ending on or around July 31, 2012; |
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Financial projections (the Management Projections) for SHO prepared by management of Sears Holdings, including certain of those persons expected to become members of management of SHO following the separation (collectively, Sears Holdings and SHO Management), for the fiscal years ending on or around January 31, 2013 through January 31, 2015; and |
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The following agreements between SHO and Sears Holdings and its subsidiaries, which are expected to be entered into in connection with the separation: |
a. | Separation Agreement between Sears Holdings and SHO; |
b. | Store License Agreement between Sears, Roebuck and Co. and Sears Authorized Hometown Stores, LLC; |
c. | Store License Agreement between Sears, Roebuck and Co. and Sears Home Appliance Showrooms, LLC; |
d. | Store License Agreement between Sears, Roebuck and Co. and Sears Outlet Stores, L.L.C.; |
e. | Trademark License Agreement between Sears, Roebuck and Co. and SHO; |
f. | Merchandising Agreement between Sears, Roebuck and Co., Kmart Corporation and Sears Holdings and SHO, Sears Authorized Hometown Stores, LLC and Sears Outlet Stores, L.L.C.; |
g. | Services Agreement between Sears Holdings Management Corporation and SHO; |
h. | Retail Establishment Agreement between Sears Holdings Management Corporation and SHO; and |
i. | Tax Sharing Agreement between Sears Holdings and SHO. |
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Numerous discussions of the information referred to above and the background and other elements of the separation with Sears Holdings and SHO Management; |
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Discussions with Sears Holdings and SHO Management regarding its plans and intentions with respect to the operation of the business following the separation; |
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Analysis of publicly available financial information on selected publicly traded companies and the financial markets; |
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Review of the current conditions in, and the economic outlook for, SHOs industry; |
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Certain valuation and comparative financial analyses using generally accepted valuation and analytical techniques, including a discounted cash flow analysis, an analysis of selected public companies, and a leveraged buyout analysis; and |
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Such other analyses and consideration of such other factors as Duff & Phelps deemed appropriate. |
Certain Assumptions made by Duff & Phelps
In its review and analysis, and in arriving at its opinion, Duff & Phelps made certain assumptions and relied on certain information that Duff & Phelps obtained from Sears Holdings and SHO Management. In addition, Duff & Phelps also relied on certain representations made by Sears Holdings and SHO Management. In each case, Sears Holdings and SHO has given its consent to Duff & Phelps that it was appropriate to make such assumptions and rely on such information and representations. In particular, Duff & Phelps, with Sears Holdings and SHOs consent:
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Relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including Sears Holdings and SHO Management, and did not independently verify such information; |
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Relied upon the fact that Sears Holdings and SHO have been advised by counsel as to all legal matters with respect to the separation; |
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Assumed that any estimates, evaluations, forecasts and projections, including without limitation, the Management Projections, furnished to Duff & Phelps were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same; |
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Assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conform in all material respects to the drafts reviewed; |
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Assumed that there has been no material change in the assets, financial condition, business, or prospects of SHO since the date of the most recent financial statements and other information made available to Duff & Phelps; and |
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Assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the separation will be obtained without any material adverse effect on SHO. |
Duff & Phelps advised Sears Holdings that to the extent that any of the foregoing assumptions or any of the facts on which the Duff & Phelps opinion is based proves to be untrue in any material respect, the Duff & Phelps opinion should not be relied upon. Furthermore, in its analysis and in connection with the preparation of its opinion, Duff & Phelps noted that it made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the separation. Duff & Phelps also noted that neither Sears Holdings management nor SHOs management placed any limitation upon Duff & Phelps with respect to the procedures followed or factors considered by Duff & Phelps in rendering its opinion.
Summary of Financial Analyses by Duff & Phelps
The following is a summary of the material financial analyses used by Duff & Phelps in connection with its opinion as to the fair market value of the equity of SHO. Duff & Phelps used generally accepted valuation analyses to estimate the enterprise value of SHO, which is equal to the value of the entire business enterprise on a going-concern basis, and then subtracted pro forma debt, capital lease obligations and the present value of certain one-time items (net of cash and cash equivalents, the present value of franchise sale proceeds and franchise receivables) to arrive at the aggregate value of the equity of SHO.
The financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses used by Duff & Phelps, the tables must be read together with the text of each
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summary. The tables alone do not constitute a complete description of the financial analyses. Rather, the analyses listed in the tables and described below must be considered as a whole; considering any portion of such analyses and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Duff & Phelps opinion.
Discounted Cash Flow Analysis
A discounted cash flow analysis is a valuation methodology used to derive a valuation of a business enterprise by calculating the present value of estimated future cash flows. Present value refers to the current value of future cash flows, and is obtained by discounting projected future cash flows by a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors. Duff & Phelps performed a discounted cash flow analysis by adding (1) the present value of projected free cash flows for SHO for the fiscal years ending on or around January 31, 2013 through 2022 (based on the Management Projections) to (2) the present value of the terminal value as of January 31, 2022. Free cash flow is defined as cash that is available to either reinvest or to distribute to all security holders and terminal value refers to the value of all future cash flows at a particular point in time.
Duff & Phelps used the Management Projections for the years ending on or around January 31, 2013 to 2015 and, with SHOs consent, extrapolated the Management Projections for another seven years. Duff & Phelps estimated the terminal value as of January 31, 2022 using a perpetuity growth formula. Duff & Phelps discounted the resulting free cash flows and terminal value using a weighted average cost of capital range of 11.5% to 13.5%, derived from the Capital Asset Pricing Model, a model commonly use in discounted cash flow analysis, and other factors.
The discounted cash flow analysis indicated a range of enterprise values for SHO of $405.0 million to $500.0 million.
Selected Public Companies Analysis
The Selected Public Companies Analysis compares a subject company to a group of publicly traded companies that investors may consider similar to the subject company, and applies valuation multiples to the subject companys financial performance metrics based on the qualitative and quantitative comparison. Comparative factors include, but are not limited to, historical and projected growth and volatility in earnings and factors that affect the riskiness of future cash flows. Duff & Phelps compared SHO to 12 publicly traded companies, divided into two groups:
Home Appliance, Hardware |
Discount Retail |
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Conns Inc. |
Appliance Recycling Centers of America, Inc. | |
The Home Depot, Inc. |
Big Lots Inc. | |
Lowes Companies, Inc. |
Dollar General Corporation | |
Dollar Tree, Inc. | ||
Dollarama Inc. | ||
Family Dollar Stores, Inc. | ||
Freds, Inc. | ||
Ross Stores, Inc. | ||
The TJX Companies, Inc. |
Duff & Phelps noted that none of the public companies utilized in its analysis are identical to SHO. Accordingly, a complete valuation analysis cannot be limited to a quantitative review of the selected companies and involves complex considerations and judgments concerning differences in financial and operating characteristics of such companies, as well as other factors that could affect their value relative to that of SHO.
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Duff & Phelps used publicly available historical financial data and equity research estimates as compiled by Capital IQ to calculate certain valuation ratios for the public companies listed in the table above. Duff & Phelps analyzed historical and projected earnings before interest, taxes, depreciation, and amortization (EBITDA), and EBITDA before rent expense (EBITDAR) for each of the publicly traded companies. Duff & Phelps then analyzed the peer groups trading multiples of enterprise value to their respective reported and forecasted (as available) EBITDA, and adjusted enterprise value to reported and forecasted (as available) EBITDAR and revenue. The table below summarizes such analysis.
Adj EV / LTM
EBITDAR |
Adj EV / 2012P
EBITDAR |
Adj EV / LTM
Revenue |
EV / LTM
EBITDA |
EV / 2012P
EBITDA |
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Home Appliance, Hardware |
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Low |
6.9x | 7.0x | 0.79x | 6.8x | 7.0x | |||||||||||||||
Median |
10.0x | 8.2x | 1.28x | 10.2x | 8.3x | |||||||||||||||
High |
12.8x | 9.3x | 1.31x | 14.6x | 9.5x | |||||||||||||||
Discount Retail |
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Low |
6.6x | 6.2x | 0.50x | 5.7x | 5.4x | |||||||||||||||
Median |
9.8x | 9.4x | 1.63x | 10.5x | 10.0x | |||||||||||||||
High |
14.2x | 12.6x | 3.50x | 16.1x | 14.2x |
Source: Bloomberg, Capital IQ, SEC filings; P = Median equity analyst projection
EV = Enterprise Value = Market Capitalization plus Debt, Preferred Stock and Minority Interest, less Cash
Adj EV = Adjusted Enterprise Value = Enterprise Value + Capitalized Rent Expense
Multiples calculated using stock prices as of July 20, 2012
LTM = Latest twelve months ended on or around December 31, 2011 or January 31, 2012
Duff & Phelps selected valuation multiples of various financial metrics for SHO based on the historical and projected financial performance of SHO, as well as other factors, as compared to the selected public companies in order to estimate a range of enterprise values for SHO.
Duff & Phelps selected valuation multiples of 6.0x to 7.0x LTM (April 30, 2012) EBITDAR and 5.5x to 6.5x 2013P (January 31, 2014) EBITDAR. The range of enterprise values for SHO implied by Duff & Phelps selection of valuation multiples was $415.0 million to $545.0 million.
Leveraged Buyout Analysis
A leveraged buyout analysis is a valuation methodology used to derive a valuation of a business enterprise based on certain leverage levels and equity returns required by investors. Duff & Phelps performed a leveraged buyout analysis using the Management Projections for the years ending January 31, 2013 to January 31, 2015.
In performing the leveraged buyout analysis, Duff & Phelps assumed a hypothetical financial buyer purchase price for the enterprise value of SHO in the range of approximately $450.0 million to $500.0 million and debt financing consisting of $200.0 million of first lien term debt with an assumed annual interest rate of the London Interbank Offered Rate (LIBOR) plus 250 basis points and $100.0 million of second lien term debt with an assumed annual interest rate of LIBOR plus 900 basis points. Based on a range of illustrative EBITDA exit multiples of 5.3x to 5.9x for an assumed exit on January 31, 2015, which reflect multiples at which a hypothetical financial buyer might exit its investment, this analysis resulted in internal rate of equity returns to a hypothetical financial buyer ranging from 17.0% to 20.0%.
Summary of Analyses
The concluded range of enterprise values for SHO that Duff & Phelps derived from its valuation analyses was $425.0 million to $515.0 million. After subtracting pro forma debt, capital lease obligations and the present
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value of certain one-time items (net of cash and cash equivalents, the present value of franchise sale proceeds and franchise receivables) of approximately $80.0 million, the concluded range of equity values was $345.0 million to $435.0 million.
Certain Qualifications and Limitations of the Duff & Phelps Opinion
Duff & Phelps prepared its opinion effective as of August 1, 2012. The opinion is necessarily based upon market, economic, financial and other conditions as they existed and can be evaluated as of the date of the opinion, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion which may come or be brought to the attention of Duff & Phelps after the effective date of the opinion.
The Duff & Phelps opinion was furnished for the use and benefit of the board of directors of Sears Holdings in its consideration of the separation and (i) does not address the merits of the underlying business decision to enter into the separation versus any alternative strategy or transaction; (ii) does not address any transaction related to the separation; and (iii) is not a recommendation as to how the board of directors or any holder of subscription rights should act with respect to any matters relating to the separation, including, with respect to the Sears Holdings board of directors, whether to proceed with the separation or any related transaction, or, with respect to holders of subscription rights, whether or not to exercise or sell their subscription rights. The decision as to whether to proceed with the separation or any related transaction or to exercise or sell subscription rights may depend on an assessment of factors unrelated to the financial analysis on which the opinion is based. The opinion should not be construed as creating any fiduciary duty on the part of Duff & Phelps to any party.
Fees and Expenses, Prior Relationships
Sears Holdings engagement letter with Duff & Phelps provides that, for its services, Duff & Phelps is entitled to receive $375,000. In addition, Sears Holdings has agreed to reimburse Duff & Phelps for its out-of-pocket expenses and to indemnify and hold harmless Duff & Phelps and its affiliates and any other person, director, employee or agent of Duff & Phelps or any of its affiliates, or any person controlling Duff & Phelps or its affiliates, for certain losses, claims, damages, expenses and liabilities relating to or arising out of services provided by Duff & Phelps as financial advisor to Sear Holdings board of directors. The terms of the fee arrangement with Duff & Phelps, which Sears Holdings and Duff & Phelps believe are customary in transactions of this nature, were negotiated at arms length between Sears Holdings and Duff & Phelps, and the Sears Holdings board of directors is aware of these fee arrangements. No portion of Duff & Phelps fee was contingent on either the conclusions reached in its opinion or the consummation of the separation or any other transaction. Duff & Phelps has been engaged by Sears Holdings to perform various other financial analyses, primarily for financial reporting and tax planning purposes, and may also act as a financial advisor to Sears Holdings and/or SHO in the future.
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Management Projections
As described above, in connection with the preparation of the opinion of Duff & Phelps, management of Sears Holdings, including certain of those persons expected to become members of management of SHO following the separation, provided Duff & Phelps with financial projections for SHO for the fiscal years ending on or around January 31, 2013 through January 31, 2015, or the Management Projections. A summary of the Management Projections are set forth below:
($ in millions) |
2011 |
Twelve
Months Ended 4/30/12 |
2012P | 2013P | 2014P | |||||||||||||||
Total Revenue |
$ | 2,344.2 | $ | 2,380.6 | $ | 2,478.9 | $ | 2,591.3 | $ | 2,698.3 | ||||||||||
EBITDAR |
124.7 | 143.2 | 137.0 | 137.8 | 142.7 | |||||||||||||||
EBITDA |
63.7 | 84.4 | 85.0 | 95.4 | 100.4 | |||||||||||||||
9 Months(1) | ||||||||||||||||||||
Earnings Before Interest and Taxes |
$ | 43.8 | $ | 86.2 | $ | 91.5 | ||||||||||||||
Pro Forma Taxes @ 39.1% |
(17.1 | ) | (33.7 | ) | (35.8 | ) | ||||||||||||||
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Net Operating Profit After Tax |
$ | 26.7 | $ | 52.5 | $ | 55.7 | ||||||||||||||
Depreciation |
$ | 7.3 | $ | 9.2 | $ | 8.8 | ||||||||||||||
Capital Expenditures |
(11.6 | ) | (10.0 | ) | (25.0 | ) | ||||||||||||||
(Increase) Decrease in Working Capital |
(15.7 | ) | (13.0 | ) | (13.8 | ) | ||||||||||||||
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Free Cash Flow |
$ | 6.7 | $ | 38.7 | $ | 25.7 |
(1) | Reflects projections for the nine month period from April 29, 2012 to February 2, 2013. |
The Management Projections are subjective in many respects. In compiling the Management Projections, Sears Holdings management took into account historical performance, combined with estimates regarding revenues, operating income, EBITDA and capital spending. Although the Management Projections are presented with numerical specificity, these projections reflect numerous assumptions and estimates as to future events made by Sears Holdings management that they believed were reasonable at the time the Management Projections were prepared. However, this information is not fact and should not be relied upon as an accurate prediction of future results. In addition, factors such as industry performance and general business, economic, regulatory, market and financial conditions, all of which are difficult to predict and beyond the control of SHOs management, may cause the Management Projections or the underlying assumptions not to be reflective of actual future results.
Accordingly, there can be no assurance that the Management Projections will be realized, and actual results may be materially greater or less than those contained in the Management Projections. The Management Projections were not prepared with a view toward public disclosure, and are not being provided in this prospectus to influence your decision whether to exercise or sell your subscription rights, and the inclusion of the Management Projections in this prospectus should not be regarded as an indication that Sears Holdings or SHO considered, or now considers, the Management Projections to be necessarily predictive of actual future results, nor should this information be relied on as such.
The Management Projections were not prepared with a view to compliance with published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. Furthermore, BDO USA, LLP has not compiled or examined this information and accordingly does not express an opinion or any other form of assurance on the Management Projections included herein.
We do not intend, and expressly disclaim any responsibility, to update or otherwise revise the Management Projections to reflect circumstances existing after the date when the Management Projections were prepared or to reflect the occurrence of future events even in the event that any of the assumptions underlying the Management Projections are no longer appropriate.
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As of the date of this prospectus, Sears Holdings holds 100% of our common stock. Assuming the subscription rights are exercised in full, Sears Holdings will dispose of all of its SHO common stock pursuant to the rights offering, and Sears Holdings will cease to be a stockholder of SHO. To the extent that the subscription rights are not exercised in full and that shares not purchased through the exercise of basic subscription rights are not purchased pursuant to the over-subscription privilege, Sears Holdings will retain ownership of a portion of our common stock. To the extent that Sears Holdings retains ownership of shares of SHO common stock after the completion of the rights offering, Sears Holdings may dispose of its remaining shares, including through sales into the public market or otherwise.
Following completion of the rights offering, ESL is expected to beneficially own at least approximately 62% of the outstanding shares of SHO common stock, depending upon how many shares are purchased under the rights offering and whether any shares are made available to it pursuant to its exercise of the over-subscription privilege or if it purchases additional rights through open market purchases. However, as further described in The Rights OfferingPrincipal Stockholder, under certain circumstances, ESL may only beneficially own approximately 58% of our common shares assuming the subscription rights are exercised in full by all other holders of rights. Both immediately before and after the completion of the rights offering, ESL is expected to beneficially own approximately 62% of the outstanding shares of common stock of Sears Holdings.
Sears Holdings principal executive office address is:
Sears Holdings Corporation
3333 Beverly Road
Hoffman Estates, Illinois 60176
We may name additional selling securityholders in an amendment to the Registration Statement of which this prospectus forms a part. To the extent we name additional selling securityholders, we will include, among other things, (1) the name of each selling securityholder, (2) the nature of any position, office or other material relationship which each selling securityholder has had within the last three years with us or our affiliates (including Sears Holdings) and (3) the number of subscription rights held by such selling securityholder.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of the material U.S. federal income tax considerations relating to the receipt, sale, exercise, expiration and cancellation of the subscription rights to Stockholders (as defined below). The legal conclusions as to matters of U.S. federal income tax law included in this discussion are, subject to the limitations, qualifications and assumptions set forth below, the opinion of our tax counsel, Debevoise & Plimpton LLP. This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, U.S. Treasury regulations promulgated or proposed thereunder and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect, or to different interpretation. This discussion does not address all of the U.S. federal income tax considerations that may be relevant to specific Stockholders in light of their particular circumstances or to Stockholders subject to special treatment under U.S. federal income tax law (such as banks, insurance companies, dealers in securities or other Stockholders that generally mark their securities to market for U.S. federal income tax purposes, tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts, certain former citizens or residents of the United States, Stockholders that hold Sears Holdings common stock or subscription rights as part of a straddle, hedge, conversion or other integrated transaction, Stockholders that do not hold their Sears Holdings common stock or subscription rights as capital assets, Stockholders that would not (upon exercise the subscription rights) hold the shares of SHO common stock as capital assets, Stockholders that received Sears Holdings common stock in connection with the performance of services, and Stockholders that have a functional currency other than the U.S. dollar). This discussion does not address any U.S. state or local or non-U.S. tax considerations or any U.S. federal estate, gift or alternative minimum tax considerations. Except as noted below, this discussion assumes that the subscription rights will not be cancelled by Sears Holdings.
As used in this discussion, the term U.S. Stockholder means a beneficial owner of Sears Holdings common stock that received subscription rights by reason of holding Sears Holdings common stock and that, for U.S. federal income tax purposes, is (1) an individual who is a citizen or resident of the United States, (2) a corporation created or organized in or under the laws of the United States, any state thereof or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income tax regardless of its source or (4) a trust (x) with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions or (y) that has in effect a valid election under applicable U.S. Treasury regulations to be treated as a United States person. As used in this discussion, the term Non-U.S. Stockholder means a beneficial owner of Sears Holdings common stock that received subscription rights by reason of holding Sears Holdings common stock and that, for U.S. federal income tax purposes, is (1) an individual who is neither a citizen nor a resident of the United States, (2) a corporation that is not created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (3) an estate that is not subject to U.S. federal income tax on income from non-U.S. sources which is not effectively connected with the conduct of a trade or business within the United States or (4) a trust unless (x) it is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all of its substantial decisions or (y) it has in effect a valid election under applicable U.S. Treasury regulations to be treated as a United States person. Stockholder refers to a U.S. Stockholder or a Non-U.S. Stockholder.
The U.S. federal income tax considerations relating to the receipt, sale, exercise, expiration and cancellation of the subscription rights to an entity that is treated as a partnership for U.S. federal income tax purposes will depend in part upon the status and activities of such entity and the particular partner. Any such entity should consult its own tax advisor regarding the U.S. federal income tax considerations applicable to it and its partners relating to the receipt, sale, exercise, expiration and cancellation of the subscription rights.
The treatment of the receipt, sale, exercise, expiration and cancellation of the subscription rights for U.S. federal income tax purposes is not entirely clear. The uncertainty is attributable to a variety of factors, including the limited authorities that address such treatment, the ability of Sears Holdings to withdraw or cancel the rights offering if certain conditions are met, and the possibility that there will not be a market for the subscription
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rights. The discussion below assumes (as we believe should be the case) that, for U.S. federal income tax purposes, the distribution of the subscription rights is treated as a distribution of rights to acquire SHO stock occurring on the distribution date and such rights are property. The discussion below also assumes that if no market develops for the subscription rights, the subscription rights will nevertheless have an ascertainable fair market value for U.S. federal income tax purposes on the date of distribution, but that such value may be nominal. The tax consequences to a Stockholder may differ from the tax consequences discussed below if the U.S. Internal Revenue Service (the IRS) or a court ultimately determines otherwise. To the extent that tax reporting is applicable to us or Sears Holdings, we and Sears Holdings each intend to report the tax consequences in accordance with the tax treatment discussed below.
No ruling on the treatment of the receipt, sale, exercise, expiration and cancellation of the subscription rights for U.S. federal income tax purposes has been or will be sought from the IRS with respect to any of the U.S. federal income tax considerations discussed below, and no assurance can be given that the IRS will not take a position contrary to the discussion below.
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. INCOME, ESTATE AND OTHER TAX CONSIDERATIONS RELATING TO THE RECEIPT, SALE, EXERCISE, EXPIRATION AND CANCELLATION OF THE SUBSCRIPTION RIGHTS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
Tax Consequences to U.S. Stockholders
Receipt of Subscription Rights
A U.S. Stockholder that receives a subscription right in respect of a share of Sears Holdings common stock should generally have taxable dividend income equal to the fair market value (if any) of such right on the date of its distribution from Sears Holdings to the extent it is made from Sears Holdings current or accumulated earnings and profits (as determined under U.S. federal income tax principles). If such fair market value exceeds Sears Holdings current and accumulated earnings and profits, such excess generally should be treated first as a tax-free return of capital to the extent of the U.S. Stockholders tax basis in such share of Sears Holdings common stock, and then as capital gain. We anticipate that Sears Holdings current and accumulated earnings and profits will exceed the aggregate fair market value (if any) of the subscription rights on the date of their distribution.
Dividend income received by individual U.S. Stockholders on or prior to December 31, 2012 generally should qualify for a 15% tax rate on qualified dividend income so long as certain holding period requirements are met. Dividends received by a corporate U.S. Stockholder are eligible for the dividends received deduction if the U.S. Stockholder meets the holding period and other requirements for the dividends received deduction.
If a U.S. Stockholder does not sell subscription rights to fund any tax required to be paid as a result of the distribution of the subscription rights, such U.S. Stockholder will have to pay any such tax from other sources. If a U.S. Stockholder does sell subscription rights to fund any such tax, the proceeds may, depending on the sale price, be greater or less than the amount of such tax, and the U.S. Stockholder will have to pay any shortfall from other sources.
Sale of Subscription Rights
Upon the sale of the subscription rights received in respect of our common stock, a U.S. Stockholder generally should recognize short-term capital gain or loss equal to the difference between the amount realized on such sale and the U.S. Stockholders adjusted tax basis in the subscription rights sold. A U.S. Stockholders adjusted tax basis in a subscription right should generally equal its fair market value (if any) on the date of its distribution.
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Exercise of Subscription Rights
A U.S. Stockholder should generally not recognize any gain or loss upon the exercise of a subscription right. A U.S. Stockholders initial tax basis in each share of SHO common stock acquired upon the exercise of a subscription right should generally equal the sum of (1) the U.S. Stockholders adjusted tax basis in such right and (2) the subscription price paid for such share.
Expiration of Subscription Rights
If a subscription right expires without being exercised by a U.S. Stockholder, the U.S. Stockholder should generally recognize a short-term capital loss in an amount equal to such U.S. Stockholders adjusted tax basis (if any) in such right. Capital losses are generally available to offset only capital gain (except, to the extent of up to $3,000 of capital loss per year, in the case of a non-corporate U.S. Stockholder) and therefore generally cannot be used to offset any dividend income arising from the receipt of a subscription right or other income.
Cancellation of the Rights Offering
There is no authority that specifically addresses the tax treatment of a U.S. Stockholder that receives, sells or exercises a subscription right if Sears Holdings subsequently cancels the rights offering. Certain authorities suggest that a U.S. Stockholder who receives a subscription right and does not sell or otherwise dispose of such right may not be taxed on the receipt or cancellation of such right if the receipt and cancellation occur in the same taxable year. However, the scope of those authorities is unclear and Sears Holdings and applicable withholding agents are likely to take the position, for information reporting and backup withholding purposes, that the treatment described above under Receipt of Subscription Rights and below under Information Reporting and Backup Withholding continue to apply to such a U.S. Stockholder.
If a U.S. Stockholder has taxable dividend income upon the receipt of a subscription right, even though Sears Holdings subsequently cancels the rights offering, the U.S. Stockholder should generally have a short-term capital loss upon the cancellation of the subscription right in an amount equal to such U.S. Stockholders adjusted tax basis (if any) in such right.
Information Reporting and Backup Withholding
Under certain circumstances, information reporting and/or backup withholding may apply to U.S. Stockholders with respect to the distribution of the subscription rights, unless an applicable exemption is satisfied. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a U.S. Stockholders U.S. federal income tax liability if the required information is furnished by the U.S. Stockholder on a timely basis to the IRS. If backup withholding tax applies to the distribution of the subscription rights to a U.S. Stockholder, the Stockholders broker (or other applicable withholding agent) will be required to remit any such backup withholding tax in cash to the IRS. Depending on the circumstances, the broker (or other applicable withholding agent) may obtain the funds necessary to remit any such backup withholding tax by asking the U.S. Stockholder to provide the funds, by using funds in the U.S. Stockholders account with the broker or by selling (on the U.S. Stockholders behalf) all or a portion of the subscription rights or by another means (if any) available.
Tax Consequences to Non-U.S. Stockholders
Receipt of Subscription Rights
A Non-U.S. Stockholder that receives a subscription right in respect of a share of Sears Holdings common stock should generally have taxable dividend income equal to the fair market value (if any) of such right on the date of its distribution from Sears Holdings to the extent it is made from Sears Holdings current or accumulated earnings and profits (as determined under U.S. federal income tax principles). If such fair market value exceeds
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Sears Holdings current and accumulated earnings and profits, such excess generally should be treated first as a tax-free return of capital to the extent of the Non-U.S. Stockholders tax basis in such share of Sears Holdings common stock, and then as capital gain. We anticipate that Sears Holdings current and accumulated earnings and profits will exceed the aggregate fair market value (if any) of the subscription rights on the date of their distribution.
A distribution of subscription rights treated as a dividend on Sears Holdings common stock that is received by or for the account of a Non-U.S. Stockholder generally will be subject to U.S. federal withholding tax at the rate of 30%, or at a lower rate if provided by an applicable tax treaty and the Non-U.S. Stockholder provides the documentation (generally, IRS Form W-8BEN) required to claim benefits under such tax treaty to the applicable withholding agent. If withholding tax applies to the distribution of the subscription rights to a Non-U.S. Stockholder, the Non-U.S. Stockholders broker (or other applicable withholding agent) will be required to remit any such withholding tax in cash to the Internal Revenue Service. Depending on the circumstances, the broker (or other applicable withholding agent) may obtain the funds necessary to remit any such withholding tax by asking the Non-U.S. Stockholder to provide the funds, by using funds in the Non-U.S. Stockholders account with the broker or by selling (on the Non-U.S. Stockholders behalf) all or a portion of the subscription rights or by another means (if any) available.
If, however, a dividend is effectively connected with the conduct of a trade or business in the United States by a Non-U.S. Stockholder, such dividend generally will not be subject to U.S. federal withholding tax if such Non-U.S. Stockholder provides the appropriate documentation (generally, IRS Form W-8ECI) to the applicable withholding agent. Instead, such Non-U.S. Stockholder generally will be subject to U.S. federal income tax on such dividend in substantially the same manner as a U.S. Stockholder (except as provided by an applicable tax treaty). In addition, a Non-U.S. Stockholder that is a corporation may be subject to a branch profits tax at the rate of 30% (or a lower rate if provided by an applicable tax treaty) on its effectively connected income for the taxable year, subject to certain adjustments.
Sale of Subscription Rights
A Non-U.S. Stockholder generally should not be subject to U.S. federal income tax on any gain recognized on the sale of the subscription rights unless:
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SHO is or has been a United States real property holding corporation for U.S. federal income tax purposes at any time during the shorter of (1) the five-year period ending on the date of such sale and (2) such Non-U.S. Holders holding period with respect to the subscription rights, and certain other conditions are met; |
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such gain is effectively connected with the conduct of a trade or business in the United States by such Non-U.S. Stockholder, in which event such Non-U.S. Stockholder generally will be subject to U.S. federal income tax on such gain in substantially the same manner as a U.S. holder (except as provided by an applicable tax treaty) and, if it is a corporation, may also be subject to a branch profits tax at the rate of 30% (or a lower rate if provided by an applicable tax treaty); or |
|
such Non-U.S. Stockholder is an individual who is present in the United States for 183 days or more in the taxable year of such sale and certain other conditions are met (except as provided by an applicable treaty). |
Generally, a corporation is a United States real property holding corporation if the fair market value of its United States real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business (all as determined for U.S. federal income tax purposes). We do not believe that SHO is, and we do not presently anticipate that SHO will become, a United States real property holding corporation.
161
Exercise of Subscription Rights
A Non-U.S. Stockholder generally should not recognize any gain or loss upon the exercise of a subscription right. A Non-U.S. Stockholders initial tax basis in each share of SHO common stock acquired upon exercise of a subscription right generally should equal the sum of (1) the Non-U.S. Stockholders adjusted tax basis in such right and (2) the subscription price paid for such share. A Non-U.S. Stockholders adjusted tax basis in a subscription right should generally equal its fair market value (if any) on the date of its distribution.
Expiration of Subscription Rights
If a subscription right expires without being exercised by a Non-U.S. Stockholder, the Non-U.S. Stockholder should generally recognize a short-term capital loss in an amount equal to such Non-U.S. Stockholders adjusted tax basis (if any) in such right. A Non-U.S. Stockholder generally cannot deduct capital losses, except to the extent effectively connected with a trade or business in the United States.
Cancellation of the Rights Offering
There is no authority that specifically addresses the tax treatment of a Non-U.S. Stockholder that receives, sells or exercises a subscription right if Sears Holdings subsequently cancels the rights offering. However, certain authorities suggest that a Non-U.S. Stockholder who receives a subscription right and does not sell or otherwise dispose of such right may not be taxed on the receipt or cancellation of such right if the receipt and cancellation occur in the same taxable year. However, the scope of those authorities is unclear and Sears Holdings and applicable withholding agents are likely to take the position, for information reporting, backup withholding and withholding tax purposes, that the treatment described above under Receipt of Subscription Rights and below under Information Reporting and Backup Withholding continue to apply to such a Non-U.S. Stockholder. Such a Non-U.S. Stockholder should consult its tax advisor as to whether to seek a refund of any such backup withholding or withholding tax from the U.S. Internal Revenue Service.
If a Non-U.S. Stockholder has taxable dividend income upon the receipt of a subscription right even though Sears Holdings subsequently cancels the rights offering, the Non-U.S. Stockholder should generally have a short term capital loss upon the cancellation of the subscription right in an amount equal to such Non-U.S. Stockholders adjusted tax basis (if any) in such right. A Non-U.S. Stockholder generally cannot deduct capital losses, except to the extent effectively connected with a trade or business in the United States.
Information Reporting and Backup Withholding
To the extent the distribution of subscription rights is treated as a dividend to a Non-U.S. Stockholder, the amount of such dividend, and the amount of any tax withheld from such dividend, must be reported annually to the IRS and to such Non-U.S. Stockholder.
Under certain circumstances, information reporting and/or backup withholding may apply to a Non-U.S. Stockholder with respect to the distribution of the subscription rights, unless such Non-U.S. Stockholder certifies under penalties of perjury that it is not a United States person (generally by providing an IRS Form W-8BEN) or otherwise establishes an exemption. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a Non-U.S. Stockholders U.S. federal income tax liability if the required information is furnished by the Non-U.S. Stockholder on a timely basis to the IRS. If backup withholding tax applies to the distribution of the subscription to a Non-U.S. Stockholder, the Stockholders broker (or other applicable withholding agent) will be required to remit any such backup withholding tax in cash to the IRS. Depending on the circumstances, the broker (or other applicable withholding agent) may obtain the funds necessary to remit any such backup withholding tax by asking the Non-U.S. Stockholder to provide the funds, by using funds in the Non-U.S. Stockholders account with the broker or by selling (on the Non-U.S. Stockholders behalf) all or a portion of the subscription rights or by another means (if any) available.
162
Consequences of Holding and Selling SHO Common Stock
If SHO makes a distribution of cash or other property (other than certain pro rata distributions of SHO common stock or rights to acquire such stock) in respect of a share of SHO common stock, the distribution will be treated as a dividend to the extent it is made from SHOs current or accumulated earnings and profits (as determined under U.S. federal income tax principles). If the amount of a distribution exceeds SHOs current and accumulated earnings and profits, such excess generally will be treated first as a tax-free return of capital to the extent of the Non-U.S. Stockholders tax basis in such share of SHO common stock, and then as capital gain. Distributions treated as dividends on SHOs common stock that are received by or for the account of a Non-U.S. Stockholder generally will be subject to U.S. federal withholding tax at the rate of 30%, or at a lower rate if provided by an applicable tax treaty and the Non-U.S. Stockholder provides the documentation (generally, IRS Form W-8BEN) required to claim benefits under such tax treaty to the applicable withholding agent.
If, however, a dividend is effectively connected with the conduct of a trade or business in the United States by a Non-U.S. Stockholder, such dividend generally will not be subject to U.S. federal withholding tax if such Non-U.S. Stockholder provides the appropriate documentation (generally, IRS Form W-8ECI) to the applicable withholding agent. Instead, such Non-U.S. Stockholder generally will be subject to U.S. federal income tax on such dividend in substantially the same manner as a U.S. holder (except as provided by an applicable tax treaty). In addition, a Non-U.S. Stockholder that is a corporation may be subject to a branch profits tax at the rate of 30% (or a lower rate if provided by an applicable tax treaty) on its effectively connected income for the taxable year, subject to certain adjustments.
In general, the U.S. federal income tax consequences of the gain on the sale of SHO common stock will be the same as discussed above under Tax Consequences to Non-U.S. StockholdersSale of Subscription Rights.
Amounts treated as distributions of dividends on SHO common stock made to a Non-U.S. Stockholder and the amount of any tax withheld from such distributions must be reported annually to the IRS and to such Non-U.S. Stockholder.
The information reporting and backup withholding rules that apply to distributions of dividends to certain U.S. persons generally will not apply to distributions of dividends on SHO common stock to a Non-U.S. Stockholder if such Non-U.S. Stockholder certifies under penalties of perjury that it is not a United States person (generally by providing an IRS Form W-8BEN) or otherwise establishes an exemption.
Proceeds from the sale of SHO common stock by a Non-U.S. Stockholder effected through a non-U.S. office of a U.S. broker or of a non-U.S. broker with certain specified U.S. connections generally will be subject to information reporting (but not backup withholding) unless such Non-U.S. Stockholder certifies under penalties of perjury that it is not a United States person (generally by providing an IRS Form W-8BEN) or otherwise establishes an exemption. Proceeds from the sale of SHO common stock by a Non-U.S. Stockholder effected through a U.S. office of a broker generally will be subject to information reporting and backup withholding unless such Non-U.S. Stockholder certifies under penalties of perjury that it is not a United States person (generally by providing an IRS Form W-8BEN) or otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules generally will be allowed as a refund or a credit against a Non-U.S. Stockholders U.S. federal income tax liability if the required information is furnished by such Non-U.S. Stockholder on a timely basis to the IRS.
163
SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our common stock. Sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices of our common stock. Some shares of our common stock will not be available for sale for a certain period of time after this offering because they are subject to legal restrictions on resale, some of which are described below. Sales of substantial amounts of common stock in the public market after these restrictions lapse, or the perception that these sales could occur, could adversely affect the prevailing market price of our common stock and our ability to raise equity capital in the future.
Sales of Restricted Securities
After the rights offering, 23,100,000 shares of our common stock will be outstanding. Assuming that the subscription rights are exercised in full by all stockholders of Sears Holdings as of the record date, we expect that approximately shares of our common stock outstanding immediately following the rights offering will be freely tradable without restriction in the public markets and that approximately shares of our common stock which are held by affiliates, as that term is defined in Rule 144 under the Securities Act, may only be sold in compliance with the limitations described below. Restricted securities as defined in Rule 144 under the Securities Act and other shares of our common stock purchased by our affiliates in the rights offering may be sold in the public market only pursuant to an effective registration statement under the Securities Act or if the sale qualifies for an exemption from registration such as the exemptions afforded by Section 4(1) of the Securities Act or Rule 144 thereunder, which rule is summarized below.
Rule 144
In general, under Rule 144 of the Securities Act as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell within any three-month period beginning 90 days after the date of this prospectus, a number of shares of our common stock purchased in the rights offering that does not exceed the greater of:
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1% of the number of shares of common stock then outstanding; or |
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the average weekly trading volume of the common stock on the NASDAQ Capital Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
Rule 144 also provides that a person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has for at least six months beneficially owned shares of our common stock that are restricted securities, will be entitled to freely sell such shares of our common stock subject only to the availability of current public information regarding us. A person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned for at least one year shares of our common stock that are restricted securities, will be entitled to freely sell such shares of our common stock under Rule 144 without regard to the current public information requirements of Rule 144.
164
The Combined Financial Statements as of January 28, 2012 and January 29, 2011 and for each of the three years in the period ended January 28, 2012 included in this prospectus and in the Registration Statement have been so included in reliance on the report of BDO USA, LLP, an independent registered public accounting firm, appearing elsewhere herein and in the Registration Statement, given on the authority of said firm as experts in auditing and accounting.
165
The validity of the securities being offered hereby will be passed upon for us by Debevoise & Plimpton LLP, New York, New York.
166
WHERE YOU CAN FIND MORE INFORMATION
We have filed a Registration Statement on Form S-1 with the SEC with respect to the shares of our common stock being distributed by Sears Holdings as contemplated by this prospectus. This prospectus is a part of, and does not contain all of the information set forth in, the Registration Statement and the exhibits and schedules to the Registration Statement. For further information with respect to SHO and our common stock, please refer to the Registration Statement, including its exhibits and schedules. Statements made in this prospectus relating to any contract or other document are not necessarily complete, and you should refer to the exhibits attached to the Registration Statement for copies of the actual contract or document. You may read and copy all materials that we file with the SEC, including the Registration Statement and its exhibits and schedules, at the SECs public reference room, located at 100 F Street, N.E., Washington, D.C. 20549, as well as on the Internet website maintained by the SEC at www.sec.gov. Please call the SEC at 1-800-SEC-0330 for more information on the public reference room. Information contained on any website referenced in this prospectus does not and will not constitute a part of this prospectus or the Registration Statement on Form S-1 of which this prospectus is a part.
As a result of the rights offering and separation, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, we will file periodic reports, proxy statements and other information with the SEC.
You may request a copy of any of our filings with the SEC at no cost, by writing or telephoning us at the following address:
Sears Hometown and Outlet Stores, Inc.
3333 Beverly Road
Hoffman Estates, Illinois 60179
(847) 286-2500
We intend to furnish holders of our common stock with annual reports containing consolidated financial statements prepared in accordance with United States generally accepted accounting principles and audited and reported on, with an opinion expressed thereto, by an independent registered public accounting firm.
You should rely only on the information contained in this prospectus or to which we have referred you. We have not authorized any person to provide you with different information or to make any representation not contained in this prospectus.
167
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F-2 | ||||
F-3 | ||||
Combined Balance Sheets at January 29, 2011 and January 28, 2012 |
F-4 | |||
F-5 | ||||
F-6 | ||||
F-7 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Sears Holdings Corporation
Chicago, Illinois
We have audited the accompanying combined balance sheets of Sears Hometown and Outlet Stores (combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings Corporation, or the Company) as of January 28, 2012 and January 29, 2011, and the related combined statements of income, cash flows and divisional equity for each of the three years in the period ended January 28, 2012. These combined financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 28, 2012 and January 29, 2011, and the results of its operations and its cash flows for each of the three years in the period ended January 28, 2012, in conformity with accounting principles generally accepted in the United States of America.
The Company operates as part of Sears Holdings Corporation (Sears Holdings). The accompanying combined financial statements have been prepared from accounting records maintained by Sears Holdings and the Company and may not be indicative of what the financial position, results of operations, and cash flows would have been if the Company had been a stand-alone entity. As more fully described in Notes 1 and 6, certain costs included in the accompanying combined financial statements represent allocations from Sears Holdings applicable to the combined group.
/s/ BDO USA, LLP
Chicago, Illinois
April 30, 2012
F-2
SEARS HOMETOWN AND OUTLET STORES
(combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings)
COMBINED STATEMENTS OF INCOME
Fiscal Year Ended | ||||||||||||
thousands |
January 30,
2010 |
January 29,
2011 |
January 28,
2012 |
|||||||||
NET SALES |
$ | 2,329,925 | $ | 2,347,387 | $ | 2,344,199 | ||||||
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|
|
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COSTS AND EXPENSES |
||||||||||||
Cost of sales and occupancy |
1,794,453 | 1,811,227 | 1,820,516 | |||||||||
Selling and administrative |
426,749 | 442,296 | 458,635 | |||||||||
Depreciation |
8,992 | 11,402 | 9,774 | |||||||||
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|
|
|
|
|
|||||||
Total costs and expenses |
2,230,194 | 2,264,925 | 2,288,925 | |||||||||
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|
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Operating income |
99,731 | 82,462 | 55,274 | |||||||||
Interest expense |
(588 | ) | (421 | ) | (913 | ) | ||||||
Other income |
9 | 207 | 422 | |||||||||
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|
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Income before income taxes |
99,152 | 82,248 | 54,783 | |||||||||
Income tax expense |
(39,037 | ) | (32,492 | ) | (21,727 | ) | ||||||
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NET INCOME |
$ | 60,115 | $ | 49,756 | $ | 33,056 | ||||||
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See Notes to Combined Financial Statements.
F-3
SEARS HOMETOWN AND OUTLET STORES
(combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings)
COMBINED BALANCE SHEETS
thousands |
January 29,
2011 |
January 28,
2012 |
||||||
ASSETS |
||||||||
CURRENT ASSETS |
||||||||
Cash and cash equivalents |
$ | 814 | $ | 694 | ||||
Accounts receivable |
5,537 | 9,006 | ||||||
Merchandise inventories |
394,606 | 393,658 | ||||||
Prepaid expenses and other current assets |
2,767 | 2,163 | ||||||
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|
|
|
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Total current assets |
403,724 | 405,521 | ||||||
PROPERTY AND EQUIPMENT, net |
57,520 | 59,996 | ||||||
GOODWILL |
167,000 | 167,000 | ||||||
OTHER ASSETS |
13,197 | 19,321 | ||||||
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|
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TOTAL ASSETS |
$ | 641,441 | $ | 651,838 | ||||
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LIABILITIES AND DIVISIONAL EQUITY |
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CURRENT LIABILITIES |
||||||||
Merchandise payables |
$ | 16,534 | $ | 17,156 | ||||
Accrued expenses |
69,675 | 75,235 | ||||||
Current portion of capital lease obligations |
2,211 | 2,061 | ||||||
Deferred income taxes |
14,278 | 13,733 | ||||||
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Total current liabilities |
102,698 | 108,185 | ||||||
CAPITAL LEASE OBLIGATIONS |
3,998 | 1,937 | ||||||
OTHER LONG-TERM LIABILITIES |
3,162 | 3,610 | ||||||
COMMITMENTS AND CONTINGENCIES (Note 9) |
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TOTAL LIABILITIES |
109,858 | 113,732 | ||||||
DIVISIONAL EQUITY |
531,583 | 538,106 | ||||||
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|
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TOTAL LIABILITIES AND DIVISIONAL EQUITY |
$ | 641,441 | $ | 651,838 | ||||
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See Notes to Combined Financial Statements.
F-4
SEARS HOMETOWN AND OUTLET STORES
(combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings)
COMBINED STATEMENTS OF CASH FLOWS
Fiscal Year Ended | ||||||||||||
thousands |
January 30,
2010 |
January 29,
2011 |
January 28,
2012 |
|||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
Net income |
$ | 60,115 | $ | 49,756 | $ | 33,056 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation |
8,992 | 11,402 | 9,774 | |||||||||
Change in operating assets and liabilities: |
||||||||||||
Accounts receivable |
(1,492 | ) | (2,212 | ) | (11,042 | ) | ||||||
Merchandise inventories |
(21,523 | ) | (15,089 | ) | 947 | |||||||
Merchandise payables |
4,091 | 1,583 | 623 | |||||||||
Store closing accruals |
| | 2,201 | |||||||||
Customer deposits |
(21,052 | ) | 3,482 | 4,903 | ||||||||
Deferred income taxes |
(1,641 | ) | 4,067 | 904 | ||||||||
Other operating assets |
(3,699 | ) | 1,352 | (1,654 | ) | |||||||
Other operating liabilities |
(9,696 | ) | (5,387 | ) | (1,247 | ) | ||||||
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|
|
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|
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Net cash provided by operating activities |
14,095 | 48,954 | 38,465 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||
Purchases of property and equipment |
(6,107 | ) | (5,819 | ) | (9,991 | ) | ||||||
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Net cash used in investing activities |
(6,107 | ) | (5,819 | ) | (9,991 | ) | ||||||
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|
|
|
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CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||||||
Transfers to Sears Holdings Corporation |
(5,892 | ) | (40,807 | ) | (26,533 | ) | ||||||
Payments of capital lease obligations |
(2,009 | ) | (2,211 | ) | (2,061 | ) | ||||||
|
|
|
|
|
|
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Net cash used in financing activities |
(7,901 | ) | (43,018 | ) | (28,594 | ) | ||||||
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|
|
|
|
|
|||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
87 | 117 | (120 | ) | ||||||||
CASH AND CASH EQUIVALENTSBeginning of period |
610 | 697 | 814 | |||||||||
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|
|
|
|
|
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CASH AND CASH EQUIVALENTSEnd of period |
$ | 697 | $ | 814 | $ | 694 | ||||||
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|
|
|
|
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
||||||||||||
Cash paid for interest |
$ | 588 | $ | 421 | $ | 913 | ||||||
|
|
|
|
|
|
See Notes to Combined Financial Statements.
F-5
SEARS HOMETOWN AND OUTLET STORES
(combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings)
COMBINED STATEMENTS OF DIVISIONAL EQUITY
thousands |
Divisional
Equity |
|||
Balance at January 31, 2009 |
$ | 468,411 | ||
Net income |
60,115 | |||
Net transfer to Sears Holdings Corporation |
(5,892 | ) | ||
|
|
|||
Balance at January 30, 2010 |
522,634 | |||
Net income |
49,756 | |||
Net transfer to Sears Holdings Corporation |
(40,807 | ) | ||
|
|
|||
Balance at January 29, 2011 |
531,583 | |||
Net income |
33,056 | |||
Net transfer to Sears Holdings Corporation |
(26,533 | ) | ||
|
|
|||
Balance at January 28, 2012 |
$ | 538,106 | ||
|
|
See Notes to Combined Financial Statements.
F-6
SEARS HOMETOWN AND OUTLET STORES
(combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings)
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1BACKGROUND AND BASIS OF PRESENTATION
Background
Sears Hometown and Outlet Stores or the Company, is a national retailer primarily focused on selling home appliances, hardware, tools and lawn and garden equipment. The Company operates approximately 1,240 stores across the United States.
Description of the Business and the Separation
On February 23, 2012, Sears Holdings Corporation (Sears Holdings) announced its intention to separate its Sears Hometown and Hardware and Sears Outlet businesses (the Separation) through a rights offering which is expected to be completed in the second half of 2012. In connection with the Separation, Sears Holdings will contribute certain assets, liabilities, businesses and employees currently related to its Sears Hometown and Hardware and Sears Outlet businesses to Sears Hometown and Outlet Stores, Inc. (SHO). SHO was formed on April 23, 2012 as a wholly owned subsidiary of Sears Holdings, has not conducted business as a separate company and has no material assets or liabilities.
Additionally, intercompany balances due to/from Sears Holdings, which includes amounts from merchandise purchases, are expected to be contributed to equity for all periods presented. No interest was charged by Sears Holdings on the intercompany balances during 2009, 2010 or 2011.
Basis of Presentation
The combined financial statements represent the Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings and have been derived from the consolidated financial statements and accounting records of Sears Holdings, principally representing the historical results of operations and the historical basis of assets and liabilities of the Companys business. As business operations of Sears Holdings, we do not maintain our own legal, tax, and certain other corporate support functions. In connection with the separation, Sears Holdings and SHO will enter into a shared services agreement to provide SHO with certain support services under the terms described in Note 6. The costs and allocations charged to the Company by Sears Holdings do not necessarily reflect the costs of obtaining the services from unaffiliated third parties or of the Company providing the applicable services ourselves. The Company believes that the methods by which Sears Holdings allocated its costs are reasonable and are based on prorated estimate of costs expected to be incurred by Sears Holdings. The Company further believes that the existing arrangements, as reflected in these financial statements, are not materially different from the arrangements that will be entered into as part of the separation. The combined financial statements contained herein may not be indicative of the Companys financial position, operating results and cash flows in the future, or what they would have been if it had been a stand-alone company during all periods presented.
NOTE 2SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
Our fiscal year ends on the Saturday closest to January 31 each year. Unless otherwise stated, references to years in this prospectus relate to fiscal years rather than to calendar years. The following fiscal periods are presented herein.
Fiscal year |
Ended | Weeks | ||||||
2009 |
January 30, 2010 | 52 | ||||||
2010 |
January 29, 2011 | 52 | ||||||
2011 |
January 28, 2012 | 52 |
F-7
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about future events. The estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenues and expenses during the reporting period. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances. Adjustments to estimates and assumptions are made when facts and circumstances dictate. As future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in preparing the accompanying combined financial statements. Significant estimates and assumptions are required as part of determining inventory and accounts receivable valuation, estimating depreciation and recoverability of long-lived assets, establishing self-insurance, warranty, legal and other reserves, performing goodwill and long-lived asset impairment analysis, and establishing valuation allowances on deferred income tax assets and reserves for tax examination exposures.
Cash and Cash Equivalents
Cash equivalents include all highly liquid investments with original maturities of three months or less at the date of purchase. We also include deposits in-transit from banks for payments related to third-party credit card and debit card transactions within cash equivalents.
Allowance for Doubtful Accounts
We provide an allowance for doubtful accounts based on both historical experience and a specific identification basis. Allowances for doubtful accounts on accounts receivable balances were $0 at January 29, 2011 and January 28, 2012. Our accounts receivable balance is comprised of various vendor-related and customer-related accounts receivable.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market. Merchandise inventories are valued under the retail inventory method, or RIM, using primarily a last-in, first-out, or LIFO, cost flow assumption.
Inherent in the RIM calculation are certain significant management judgments and estimates including, among others, merchandise markons, markups, markdowns and shrinkage, which significantly impact the ending inventory valuation at cost, as well as resulting gross margins. The methodologies utilized by us in our application of the RIM are consistent for all periods presented. Such methodologies include the development of the cost-to-retail ratios, the groupings of homogenous classes of merchandise, the development of shrinkage and obsolescence reserves, the accounting for price changes and the computations inherent in the LIFO adjustment (where applicable). Management believes that the RIM provides an inventory valuation that reasonably approximates cost and results in carrying inventory at the lower of cost or market. The inventory allowances for shrinkage and obsolescence were $6 million and $12 million at January 29, 2011 and January 28, 2012, respectively.
To estimate the effects of inflation on inventories, we utilize external price indices determined by an outside source, the Bureau of Labor Statistics. If the FIFO method of inventory valuation had been used instead of the LIFO method, merchandise inventories would have been $0.9 million higher at January 29, 2011 and $1.0 million higher at January 28, 2012.
As of the date of this prospectus, Sears Holdings domestic credit facility is (1) secured, in part, by a first lien on the inventory and credit card receivables directly or indirectly owned by SHO and the subsidiaries of Sears Holdings that will become wholly owned subsidiaries of SHO prior to the completion of the separation and (2) guaranteed by SHO and the entities that will become wholly owned subsidiaries of SHO prior to the separation. Prior to the completion of the separation, this lien and these guarantee obligations will be released.
F-8
Vendor Rebates and Allowances
Sears Holdings receives rebates and allowances from certain vendors through a variety of programs and arrangements intended to offset the costs of promoting and selling certain vendor products. Sears Holdings allocates a portion of the rebates and allowances to us based on shipments to or sales of the related products to the Company. These vendor payments are recognized and recorded as a reduction to the cost of merchandise inventories when earned and, thereafter, as a reduction of cost of sales and occupancy as the merchandise is sold. Up-front consideration received from vendors linked to purchases or other commitments is initially deferred and amortized ratably to cost of sales and occupancy over the life of the contract or as performance of the activities specified by the vendor to earn the fee is completed.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Additions and substantial improvements are capitalized and include expenditures that materially extend the useful lives of existing facilities and equipment. Maintenance and repairs that do not materially improve or extend the lives of the respective assets are expensed as incurred.
Property and equipment consists of the following:
thousands |
January 29,
2011 |
January 28,
2012 |
||||||
Land |
$ | 9,816 | $ | 10,370 | ||||
Buildings and improvements |
50,918 | 55,408 | ||||||
Furniture, fixtures and equipment |
25,338 | 24,208 | ||||||
Capitalized leases |
15,365 | 15,365 | ||||||
|
|
|
|
|||||
Total property and equipment |
101,437 | 105,351 | ||||||
Less: accumulated depreciation |
(43,917 | ) | (45,355 | ) | ||||
|
|
|
|
|||||
Total property and equipment, net |
$ | 57,520 | $ | 59,996 | ||||
|
|
|
|
Depreciation expense, which includes depreciation on assets under capital leases, is recorded over the estimated useful lives of the respective assets using the straight-line method for financial statement purposes, and accelerated methods for tax purposes. The range of lives are generally 15 to 25 years for buildings, 3 to 10 years for furniture, fixtures and equipment, and 3 to 5 years for computer systems and equipment. Leasehold improvements are depreciated over the shorter of the associated lease term or the estimated useful life of the asset.
Impairment of Long-Lived Assets and Costs Associated with Exit Activities
In accordance with accounting standards governing the impairment or disposal of long-lived assets, the carrying value of long-lived assets, including property and equipment, is evaluated whenever events or changes in circumstances indicate that a potential impairment has occurred relative to a given asset or assets. Factors that could result in an impairment review include, but are not limited to, a current period cash flow loss combined with a history of cash flow losses, current cash flows that may be insufficient to recover the investment in the property over the remaining useful life, or a projection that demonstrates continuing losses associated with the use of a long-lived asset, significant changes in the manner of use of the assets or significant changes in business strategies. An impairment loss is recognized when the estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset (if any) are less than the carrying value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value as determined based on quoted market prices or through the use of other valuation techniques. There were no impairment charges recorded during 2009, 2010 or 2011.
F-9
We account for costs associated with location closings in accordance with accounting standards pertaining to accounting for costs associated with exit or disposal activities and compensation. As such, we record a liability for costs associated with location closings, which includes employee severance, inventory markdowns and other liquidation fees when management makes the decision to exit a location, which is the date the liability is incurred. We record a liability for future lease costs (net of estimated sublease income) when we cease to use the location. See Note 7.
Goodwill Impairment Assessments
As required by accounting standards, we perform annual goodwill impairment tests in the fourth quarter and update the tests between annual tests if events or circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying amount. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others: a significant decline in our expected future cash flows; a significant adverse change in legal factors or in the business climate; unanticipated competition; and the testing for recoverability of a significant asset group within a reporting unit. Any adverse change in these factors could have a significant impact on the recoverability of these assets and could have a material impact on our Combined Financial Statements.
Our goodwill resides in the Sears Hometown reporting unit within the Sears Hometown and Hardware segment. The goodwill impairment test involves a two-step process. The first step is a comparison of each reporting units fair value to its carrying value. We estimate fair value using the best information available, using both a market participant approach, as well as a discounted cash flow model, commonly referred to as the income approach. The market participant approach determines the value of a reporting unit by deriving market multiples for reporting units based on assumptions potential market participants would use in establishing a bid price for the unit. This approach therefore assumes strategic initiatives will result in improvements in operational performance in the event of purchase, and includes the application of a discount rate based on market participant assumptions with respect to capital structure and access to capital markets. The income approach uses a reporting units projection of estimated operating results and cash flows that is discounted using a weighted-average cost of capital that reflects current market conditions appropriate for the reporting unit. The projection uses managements best estimates of economic and market conditions over the projected period, including growth rates in sales, costs, estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions include terminal value growth rates, future estimates of capital expenditures and changes in future working capital requirements. Our final estimate of fair value of reporting units is developed by equally weighting the fair values determined through both the market participant and income approaches.
If the carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist and the second step must be performed to measure the amount of impairment loss. The amount of impairment is determined by comparing the implied fair value of reporting unit goodwill to the carrying value of the goodwill in the same manner as if the reporting unit was being acquired in a business combination. There were no impairment charges recorded during 2009, 2010 or 2011.
Leases
We lease certain stores, office facilities, computers and transportation equipment. The determination of operating and capital lease obligations is based on the expected terms of the lease and contractual minimum lease payments as defined within the lease agreements. For certain stores, amounts in excess of these minimum lease payments are payable based upon a specified percentage of sales. Contingent rent is accrued during the period it becomes probable that a particular store will achieve a specified sales level thereby triggering a contingent rental obligation. Certain leases also include an escalation clause or clauses and renewal option clauses calling for increased rents. Where the lease contains an escalation clause or concession such as a rent holiday, rent expense is recognized using the straight line method over the term of the lease.
F-10
Warranty Reserves
We are responsible for providing warranty coverage on certain Kenmore, Craftsman and DieHard products that we sell. We are self-insured for certain costs related to these claims. Our liability reflected on the Combined Balance Sheet, classified within accrued expenses and other long-term liabilities, represents an estimate of the ultimate cost of claims incurred at the balance sheet date. In estimating this liability, we utilize loss development factors based on Company-specific data to project the future development of incurred losses. Loss estimates are adjusted based upon actual claims settlements and reported claims. Expected payments as of January 28, 2012 were as follows:
thousands | ||||
At January 28, 2012 |
||||
2012 |
$ | 9,869 | ||
2013 |
947 | |||
2014 |
233 | |||
2015 |
171 | |||
2016 |
123 | |||
Later years |
422 | |||
|
|
|||
Net obligation |
$ | 11,765 | ||
|
|
The following table presents changes in the Companys warranty reserves:
thousands |
January 29,
2011 |
January 28,
2012 |
||||||
Warranty reserve, beginning of period |
$ | 22,603 | $ | 16,854 | ||||
Accruals during the period |
10,666 | 8,674 | ||||||
Charges / payments made under warranties |
(16,415 | ) | (13,763 | ) | ||||
|
|
|
|
|||||
Warranty reserve, end of period |
$ | 16,854 | $ | 11,765 | ||||
|
|
|
|
After the separation, the Company will purchase inventory from Sears Holdings with warranty. The Company expects the incrementally higher product costs to be similar to the warranty costs incurred to service products that were purchased without warranty.
Insurance Programs
The Company has historically participated in Sears Holdings insurance programs, which has provided us with comprehensive insurance coverage. We expect to enter into our own insurance contracts for exposures incurred after the separation with third-party insurance companies for a number of risks including workers compensation and general liability claims. Insurance expense of $5 million, $7 million and $6 million was recorded during the years ended January 30, 2010, January 29, 2011 and January 28, 2012, respectively. The Company further believes that the existing arrangements, as reflected in these financial statements, are not materially different from the arrangements that will be entered into as part of the separation.
Loss Contingencies
We account for contingent losses in accordance with accounting standards pertaining to loss contingencies. Under accounting standards, loss contingency provisions are recorded for probable losses at managements best estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount is recorded. These estimates are often initially developed substantially earlier than the ultimate loss is known, and the estimates are refined each accounting period, as additional information is known.
F-11
Revenue Recognition
Revenues include sales of merchandise, commissions on merchandise sales made through www.sears.com, services and extended service contracts, delivery and handling revenues related to merchandise sold. We recognize revenues from retail operations at the later of the point of sale or the delivery of goods to the end user. Net sales are presented net of any taxes collected from customers and remitted to governmental authorities. We recognize revenues from commissions on services and extended service contracts, delivery and handling revenues related to merchandise sold at the point of sale as we are not the primary obligor with respect to such services and have no future obligations for future performance.
The Company accepts Sears Holdings gift cards as tender for purchases and is reimbursed by Sears Holdings for gift cards tendered.
Reserve for Sales Returns and Allowances
Revenues from merchandise sales and services are reported net of estimated returns and allowances and exclude sales taxes. The reserve for returns and allowances is calculated as a percentage of sales based on historical return percentages. Estimated returns are recorded as a reduction of sales and cost of sales. The reserves for returns and allowances were $1 million at January 29, 2011 and January 28, 2012.
Cost of Sales and Occupancy Costs
Cost of sales and occupancy are comprised principally of the costs of merchandise, warehousing and distribution (including receiving and store delivery) costs, retail store occupancy costs, home services and installation costs, warranty, royalties related to the sale of Kenmore, Craftsman and DieHard products, customer shipping and handling costs, vendor allowances, markdowns and physical inventory losses.
Dealer and Franchise Commissions
Based on the terms of our dealer and franchise agreements, we pay commissions to our dealers and franchises on the net sales of merchandise and extended service contracts. In addition, each dealer/franchisee can earn commissions for third-party gift cards sold, marketing support, home improvement referrals, rent support and a variety of other activities. Commission costs are expensed as incurred and reflected within selling and administrative expenses. Commission costs were $177.1 million, $185.5 million and $187.5 million in 2009, 2010 and 2011, respectively.
Selling and Administrative Expenses
Selling and administrative expenses are comprised principally of dealer and franchise commissions, payroll and benefits costs for retail and support employees, advertising, pre-opening costs and other administrative expenses.
Pre-Opening Costs
Pre-opening and start-up activity costs are expensed in the period in which they occur.
Advertising Costs
Advertising costs are expensed as incurred, generally the first time the advertising occurs, and were $61 million, $62 million and $65 million for 2009, 2010 and 2011, respectively. These costs are included within selling and administrative expenses in the accompanying Combined Statements of Income.
F-12
Income Taxes
We account for income taxes in accordance with accounting standards pertaining to such taxes. Accordingly, we provide deferred income tax assets and liabilities based on the estimated future tax effects of differences between the financial and tax basis of assets and liabilities based on currently enacted tax laws. The tax balances and income tax expense recognized by us are based on managements interpretation of the tax laws of multiple jurisdictions. Income tax expense also reflects our best estimates and assumptions regarding, among other things, the level of future taxable income, tax planning, and any valuation allowance. Future changes in tax laws, changes in projected levels of taxable income, tax planning, and adoption and implementation of new accounting standards could impact the effective tax rate and tax balances recorded by us. In evaluating our ability to recover our deferred tax assets within the jurisdiction from which they arise, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and results of recent operations. In projecting future taxable income, we begin with historical results and incorporate assumptions including the amount of future state, federal and foreign pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income.
Tax positions are recognized when they are more likely than not to be sustained upon examination. The amount recognized is measured as the largest amount of benefit that is more likely than not of being recognized upon settlement. We will be subject to periodic audits by the Internal Revenue Service and other state and local taxing authorities. Theses audits may challenge certain of the Companys tax positions such as the timing and amount of income and deductions and the allocation of taxable income to various tax jurisdictions. We evaluate our tax positions and establish liabilities in accordance with the applicable guidance on uncertainty in income taxes. These tax uncertainties are reviewed as facts and circumstances change and are adjusted accordingly. This requires significant management judgment in estimating final outcomes. Actual results could materially differ from these estimates and could significantly affect the effective tax rate and cash flows in future years. Interest and penalties are classified as income tax expense in the combined statement of income.
Prior to the separation, our taxable income was included in the federal consolidated, state and foreign income tax returns of Sears Holdings or its affiliates. Income taxes in this prospectus have been recognized on a separate return basis. Under the Tax Sharing Agreement, Sears Holdings will be responsible for any federal, state or foreign income tax liability relating to tax periods ending on or before the separation. For all periods after the separation, the Company will be responsible for any federal, state or foreign tax liability.
Fair Value of Financial Instruments
We determine the fair value of financial instruments in accordance with standards pertaining to fair value measurements. Such standards define fair value and establish a framework for measuring fair value in GAAP. Under fair value measurement accounting standards, fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the measurement date. We report the fair value of financial assets and liabilities based on the fair value hierarchy prescribed by accounting standards for fair value measurements, which prioritizes the inputs to valuation techniques used to measure fair value into three levels, as follows:
Level 1 inputs unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. An active market for the asset or liability is one in which transactions for the asset or liability occurs with sufficient frequency and volume to provide ongoing pricing information.
Level 2 inputs inputs other than quoted market prices included in Level 1 that are observable, either directly or indirectly, for the asset or liability. Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates.
F-13
Level 3 inputs unobservable inputs for the asset or liability.
Cash and cash equivalents, accounts receivable, merchandise payables and accrued expenses are reflected in the Combined Balance Sheet at cost, which approximates fair value due to the short-term nature of these instruments.
We measure certain non-financial assets and liabilities, including long-lived assets at fair value on a non-recurring basis.
The Company was not required to measure any other significant non-financial assets and liabilities at fair value as of January 29, 2011 and January 28, 2012.
New Accounting Pronouncements
Testing Goodwill for Impairment
In September 2011, the Financial Accounting Standards Board, or FASB, issued an accounting standards update which provides, subject to certain conditions, the option to perform a qualitative, rather than quantitative, assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The update will be effective for us in the first quarter of 2012, but early adoption is permitted. The update may reduce the complexity and costs of testing goodwill for impairment, but otherwise is not expected to have a material impact on our combined financial position, annual results of operations or cash flows.
Disclosures about Fair Value Measurements
In May 2011, the FASB issued an accounting standards update which amends the definition of fair value measurement principles and disclosure requirements to eliminate differences between U.S. GAAP and International Financial Reporting Standards. The update requires new quantitative and qualitative disclosures about the sensitivity of recurring Level 3 measurement disclosures, as well as disclosures of transfers between Level 1 and Level 2 of the fair value hierarchy. The update will be effective for us in the first quarter of 2012 and will primarily impact our disclosures, but otherwise is not expected to have a material impact on our combined financial position, annual results of operations or cash flows.
NOTE 3ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES
Accrued expenses and other long-term liabilities consist of the following:
thousands |
January 29,
2011 |
January 28,
2012 |
||||||
Customer deposits |
$ | 26,965 | $ | 31,868 | ||||
Sales and other taxes |
13,207 | 14,229 | ||||||
Accrued expenses |
10,695 | 12,376 | ||||||
Warranty accrual |
16,854 | 11,765 | ||||||
Payroll and related items |
5,116 | 6,406 | ||||||
Store closing cost accrual |
| 2,201 | ||||||
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|
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Total accrued expenses and other long-term liabilities |
$ | 72,837 | $ | 78,845 | ||||
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F-14
NOTE 4LEASES
We lease certain stores, computers and transportation equipment. Operating and capital lease obligations are based upon contractual minimum rents and, for certain stores, amounts in excess of these minimum rents are payable based upon specified percentages of sales. Contingent rent is accrued over the lease term, provided that the achievement of the specified percentages of sales level that triggers the contingent rent is probable. Certain leases include renewal or purchase options. Rent expense was $62,832, $62,937 and $60,932 in 2009, 2010 and 2011, respectively. Percentage rents and sublease income were not significant in any of the periods presented.
Minimum lease obligations excluding taxes, insurance and other expenses were as follows:
Fiscal Year |
Capital Leases |
Operating
Leases |
||||||
thousands | ||||||||
2012 |
$ | 2,189 | $ | 52,653 | ||||
2013 |
1,325 | 39,444 | ||||||
2014 |
568 | 27,190 | ||||||
2015 |
| 20,260 | ||||||
2016 |
| 13,662 | ||||||
Thereafter |
| 49,453 | ||||||
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|
|||||
Total minimum lease payments |
4,082 | 202,662 | ||||||
Less: sublease income |
| (11,074 | ) | |||||
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Net minimum lease payments |
4,082 | $ | 191,588 | |||||
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Less: imputed interest |
(84 | ) | ||||||
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Capital lease obligations |
3,998 | |||||||
Less: current portion of capital lease obligations |
(2,061 | ) | ||||||
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Long-term capital lease obligations |
$ | 1,937 | ||||||
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NOTE 5INCOME TAXES
We account for income taxes in accordance with accounting standards for such taxes, which require that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the financial reporting and tax bases of recorded assets and liabilities. Accounting standards also require that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion of or all of the deferred tax asset will not be realized. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets.
Prior to the separation, our taxable income was included in the consolidated federal, state and foreign income tax returns of Sears Holdings or its affiliates. For purposes of these financial statements, income taxes have been recognized on a separate return basis. After the separation, we will file our own federal consolidated and certain state income tax returns separately from Sears Holdings. We will continue to file state income tax returns as part of a combined or consolidated group with Sears Holdings or its affiliates, or the State Group, where required by law. The Company will be allocated a share of the State Groups annual state tax liability for states in which such combined or consolidated reporting is required.
In connection with the separation, we will enter into a Tax Sharing Agreement with Sears Holdings which will govern the rights and obligations of the parties with respect to pre-separation and post-separation tax matters. Under the Tax Sharing Agreement, Sears Holdings will be responsible for any federal, state or foreign income tax liability relating to tax periods ending on or before the separation. For all periods after the separation, the Company will be responsible for any federal, state or foreign tax liability. Current income taxes payable for
F-15
any federal, state or foreign income tax returns is reported in the period incurred. As of January 29, 2011 and January 28, 2012, $28.4 million and $20.8 million, respectively, of federal, state and foreign income taxes payable are recorded as intercompany, due to Sears Holdings, and reflected in Divisional Equity in the combined balance sheet.
The provision for income tax expense for fiscal 2009, 2010 and 2011, consists of the following:
thousands | 2009 | 2010 | 2011 | |||||||||
Current: |
||||||||||||
Federal |
$ | 32,849 | $ | 22,905 | $ | 16,329 | ||||||
State |
6,885 | 4,971 | 3,808 | |||||||||
Foreign |
944 | 549 | 686 | |||||||||
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|
|
|||||||
Total |
40,678 | 28,425 | 20,823 | |||||||||
|
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|
|
|
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Deferred |
||||||||||||
Federal |
(1,386 | ) | 3,399 | 787 | ||||||||
State |
(255 | ) | 668 | 117 | ||||||||
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Total |
(1,641 | ) | 4,067 | 904 | ||||||||
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|
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Income tax provision |
$ | 39,037 | $ | 32,492 | $ | 21,727 | ||||||
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The provision for income taxes for financial reporting purposes is different from the tax provision computed by applying the statutory federal income tax rate. The reconciliation of the tax rate follows:
2009 | 2010 | 2011 | ||||||||||
Federal tax rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income tax (net of federal benefit) |
4.3 | 4.5 | 4.7 | |||||||||
Other |
0.1 | | | |||||||||
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Effective tax rate |
39.4 | % | 39.5 | % | 39.7 | % | ||||||
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The major components of deferred tax assets and liabilities as of January 29, 2011 and January 28, 2012 are as follows:
thousands |
January 29,
2011 |
January 28,
2012 |
||||||
Deferred tax assets |
||||||||
Property and equipment |
$ | 7,345 | $ | 6,117 | ||||
Store closing accruals |
| 4,207 | ||||||
Warranty |
6,592 | 4,594 | ||||||
Deferred rent |
1,237 | 1,410 | ||||||
Deferred compensation |
779 | 1,342 | ||||||
Capital leases |
1,235 | 841 | ||||||
Other |
1,757 | 1,103 | ||||||
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|
|
|||||
Total deferred tax assets |
18,945 | 19,614 | ||||||
|
|
|
|
|||||
Deferred tax liabilities |
||||||||
Inventory |
23,406 | 24,963 | ||||||
Other |
| 16 | ||||||
|
|
|
|
|||||
Total deferred tax liabilities |
23,406 | 24,979 | ||||||
|
|
|
|
|||||
Net deferred tax liabilities |
$ | 4,461 | $ | 5,365 | ||||
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F-16
We account for uncertainties in income taxes according to accounting standards for uncertain tax positions. The Company is present in a large number of taxable jurisdictions, and at any point in time, can have audits underway at various stages of completion in any of these jurisdictions. We evaluate our tax positions and establish liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite the belief that the underlying tax positions are fully supportable. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law, and closing of statute of limitations. Such adjustments are reflected in the tax provision as appropriate. Pursuant to the Tax Sharing Agreement, Sears Holdings will be responsible for any unrecognized tax benefits through the date of the separation. For fiscal years 2009, 2010 and 2011, no unrecognized tax benefits have been identified and reflected in the financial statements.
We classify interest expense and penalties related to unrecognized tax benefits and interest income on tax overpayments as components of income tax expense. As no unrecognized tax benefits have been identified and reflected in the financial statements, no interest or penalties related to unrecognized tax benefits are reflected in the combined balance sheet or combined statements of income.
NOTE 6RELATED PARTY AGREEMENTS
ESL Investments, Inc. and its affiliates, including Edward S. Lampert, or ESL, which beneficially owns approximately 62% of the common stock of Sears Holdings as of the date hereof, has advised Sears Holdings that it intends to exercise its subscription rights in full, subject to the successful completion of the separation transactions. Assuming that the subscription rights are exercised in full by all holders of subscription rights following the completion of the rights offering, ESL will beneficially own at least 62% of the common shares of the Company.
In connection with the separation, we will enter into various agreements with Sears Holdings which, among other things, (1) govern the principal transactions relating to this offering and certain aspects of our relationship with Sears Holdings following the separation, (2) establish terms under which subsidiaries of Sears Holdings will provide us with services, and (3) establish terms pursuant to which subsidiaries of Sears Holdings will obtain merchandise for us. The terms of these agreements were agreed to in the context of a parent-subsidiary relationship and in the overall context of our separation from Sears Holdings. The Company believes that the methods by which Sears Holdings allocated its costs are reasonable and are based on prorated estimates of costs expected to be incurred by Sears Holdings. The Company further believes that the existing arrangements, as reflected in these combined financial statements, are not materially different from the arrangements that will be entered into as part of the separation.
A summary of the nature of related party transactions is as follows:
|
We obtain a significant amount of our merchandise inventories from Sears Holdings, leveraging the benefit of the Sears Holdings purchasing organization. We have also entered into certain agreements with Sears Holdings for logistics, handling, warehouse and transportation services, the charges for which are based on inventory units. We pay a royalty related to the sale of Kenmore, Craftsman and DieHard products and fees for participation in the Shop Your Way Rewards program. |
|
Sears Hometown and Outlet Stores receive commissions from Sears Holdings for the sale of merchandise made through www.sears.com, extended service contracts, delivery and handling services and credit revenues. |
|
Sears Holdings provides the Company with shared corporate services. These shared services include accounting and finance, human resources, information technology and real estate. Expenses for these shared corporate services are allocated to the Company based on actual usage or a pro rata charge based upon sales, head count or square footage. The Company was allocated shared corporate expense of $19.6 million in 2011, $18.6 million in 2010 and $18.7 million in 2009. |
F-17
The following table summarizes the transactions with Sears Holdings included in the Companys Combined Financial Statements:
thousands | 2009 | 2010 | 2011 | |||||||||
Combined Statement of Income |
||||||||||||
Net sales |
$ | 177,995 | $ | 189,490 | $ | 214,860 | ||||||
Purchase of inventory |
1,631,526 | 1,601,957 | 1,570,611 | |||||||||
Services and occupancy |
133,356 | 134,913 | 135,822 |
NOTE 7STORE CLOSING CHARGES AND SEVERANCE COSTS
The Company made the decision to close 84 stores in our Sears Hometown and Hardware segment. Store closing costs recorded during 2011 and the remaining store closing cost accruals at January 28, 2012 were as follows:
Markdowns (1) |
Severance
Costs (2) |
Lease
Termination Costs (2) |
Other
Costs (2) |
Accelerated
Depreciation (3) |
Total | |||||||||||||||||||
thousands | ||||||||||||||||||||||||
Balance at January 29, 2011 |
| | | | | | ||||||||||||||||||
Store closing costs |
12,071 | 330 | 215 | 3,255 | 272 | 16,143 | ||||||||||||||||||
Payments/utilizations |
(3,924 | ) | (180 | ) | (159 | ) | (1,260 | ) | (272 | ) | (5,795 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at January 28, 2012 |
$ | 8,147 | $ | 150 | $ | 56 | $ | 1,995 | $ | | $ | 10,348 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Recorded within Cost of sales and occupancy on the Combined Statements of Income. |
(2) | Recorded within Selling and administrative on the Combined Statements of Income. |
(3) | Recorded within Depreciation in the Combined Statements of Income. |
In accordance with accounting standards governing costs associated with exit or disposal activities, expenses related to future rent payments for which the Company no longer intends to receive any economic benefit are accrued for when we cease to use the leased space and have been reduced for any income that the Company believes can be realized through sub-leasing the leased space. The Company expects to record an additional charge of approximately $1 million for future lease costs during the first half of 2012 related to stores we made the decision to close in 2011.
F-18
NOTE 8SUMMARY OF SEGMENT DATA
These reportable segment classifications are based on our business formats as described in Note 1. The Sears Hometown and Hardware reportable segment consists of the aggregation of the Sears Hometown and Sears Hardware business formats. The Sears Outlet format represents both an operating and reportable segment. These segments are evaluated by our Chief Operating Decision Maker to make decisions about resource allocation and to assess performance. Each of these segments derives its revenues from the sale of merchandise and related services to customers, primarily in the United States. The merchandise categories include appliances, lawn and garden, tools and paint and other.
2009 | ||||||||||||
thousands |
Sears Hometown and
Hardware |
Sears Outlet | Total | |||||||||
Net sales |
||||||||||||
Appliances |
$ | 1,069,368 | $ | 349,829 | $ | 1,419,197 | ||||||
Lawn and garden |
381,911 | 13,072 | 394,983 | |||||||||
Tools and paint |
255,017 | 5,557 | 260,574 | |||||||||
Other |
228,541 | 26,630 | 255,171 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,934,837 | 395,088 | 2,329,925 | |||||||||
|
|
|
|
|
|
|||||||
Costs and expenses |
||||||||||||
Cost of sales and occupancy |
1,513,484 | 280,969 | 1,794,453 | |||||||||
Selling and administrative |
351,415 | 75,334 | 426,749 | |||||||||
Depreciation |
4,673 | 4,319 | 8,992 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,869,572 | 360,622 | 2,230,194 | |||||||||
|
|
|
|
|
|
|||||||
Operating income |
$ | 65,265 | $ | 34,466 | $ | 99,731 | ||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 519,161 | $ | 110,254 | $ | 629,415 | ||||||
|
|
|
|
|
|
|||||||
Capital expenditures |
$ | 1,864 | $ | 4,243 | $ | 6,107 | ||||||
|
|
|
|
|
|
2010 | ||||||||||||
Sears Hometown and
Hardware |
Sears Outlet | Total | ||||||||||
thousands | ||||||||||||
Net sales |
||||||||||||
Appliances |
$ | 1,091,629 | $ | 378,841 | $ | 1,470,470 | ||||||
Lawn and garden |
387,527 | 13,894 | 401,421 | |||||||||
Tools and paint |
238,797 | 5,279 | 244,076 | |||||||||
Other |
197,263 | 34,157 | 231,420 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,915,216 | 432,171 | 2,347,387 | |||||||||
|
|
|
|
|
|
|||||||
Costs and expenses |
||||||||||||
Cost of sales and occupancy |
1,508,840 | 302,387 | 1,811,227 | |||||||||
Selling and administrative |
358,241 | 84,055 | 442,296 | |||||||||
Depreciation |
4,766 | 6,636 | 11,402 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,871,847 | 393,078 | 2,264,925 | |||||||||
|
|
|
|
|
|
|||||||
Operating income |
$ | 43,369 | $ | 39,093 | $ | 82,462 | ||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 529,957 | $ | 111,484 | $ | 641,441 | ||||||
|
|
|
|
|
|
|||||||
Capital expenditures |
$ | 1,146 | $ | 4,673 | $ | 5,819 | ||||||
|
|
|
|
|
|
F-19
2011 | ||||||||||||
Sears Hometown and
Hardware |
Sears Outlet | Total | ||||||||||
thousands | ||||||||||||
Net sales |
||||||||||||
Appliances |
$ | 1,041,447 | $ | 418,245 | $ | 1,459,692 | ||||||
Lawn and garden |
357,661 | 21,805 | 379,466 | |||||||||
Tools and paint |
244,192 | 7,984 | 252,176 | |||||||||
Other |
195,497 | 57,368 | 252,865 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,838,797 | 505,402 | 2,344,199 | |||||||||
|
|
|
|
|
|
|||||||
Costs and expenses |
||||||||||||
Cost of sales and occupancy |
1,463,636 | 356,880 | 1,820,516 | |||||||||
Selling and administrative |
356,351 | 102,284 | 458,635 | |||||||||
Depreciation |
4,083 | 5,691 | 9,774 | |||||||||
|
|
|
|
|
|
|||||||
Total |
1,824,070 | 464,855 | 2,288,925 | |||||||||
|
|
|
|
|
|
|||||||
Operating income |
$ | 14,727 | $ | 40,547 | $ | 55,274 | ||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 525,826 | $ | 126,012 | $ | 651,838 | ||||||
|
|
|
|
|
|
|||||||
Capital expenditures |
$ | 3,604 | $ | 6,387 | $ | 9,991 | ||||||
|
|
|
|
|
|
NOTE 9COMMITMENTS AND CONTINGENCIES
We are subject to various legal and governmental proceedings out of the ordinary course of business, the outcome of which, individually or in the aggregate, in the opinion of management, would not have a material adverse effect on our business, financial position, or results of operations.
F-20
Index to Unaudited Interim Condensed Combined Financial Statements
Page | ||||
F-22 | ||||
Condensed Combined Balance Sheets (Unaudited) at April 30, 2011, April 28, 2012 and January 28, 2012 |
F-23 | |||
F-24 | ||||
F-25 | ||||
Notes to Condensed Combined Financial Statements (Unaudited) |
F-26 |
F-21
SEARS HOMETOWN AND OUTLET STORES
(combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings)
CONDENSED COMBINED STATEMENTS OF INCOME (Unaudited)
13 Weeks Ended | ||||||||
thousands |
April 30,
2011 |
April 28,
2012 |
||||||
NET SALES |
$ | 584,632 | $ | 621,078 | ||||
|
|
|
|
|||||
COSTS AND EXPENSES |
||||||||
Cost of sales and occupancy |
459,262 | 462,379 | ||||||
Selling and administrative |
110,298 | 121,904 | ||||||
Depreciation |
2,354 | 2,305 | ||||||
|
|
|
|
|||||
Total costs and expenses |
571,914 | 586,588 | ||||||
|
|
|
|
|||||
Operating income |
12,718 | 34,490 | ||||||
Interest expense |
(439 | ) | (669 | ) | ||||
Other income |
63 | 226 | ||||||
|
|
|
|
|||||
Income before income taxes |
12,342 | 34,047 | ||||||
Income tax expense |
(4,927 | ) | (13,454 | ) | ||||
|
|
|
|
|||||
NET INCOME |
$ | 7,415 | $ | 20,593 | ||||
|
|
|
|
See Notes to Condensed Combined Financial Statements.
F-22
SEARS HOMETOWN AND OUTLET STORES
(combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings)
CONDENSED COMBINED BALANCE SHEETS
See Notes to Condensed Combined Financial Statements.
F-23
SEARS HOMETOWN AND OUTLET STORES
(combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings)
CONDENSED COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
13 Weeks Ended | ||||||||
thousands |
April 30,
2011 |
April 28,
2012 |
||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net income |
$ | 7,415 | $ | 20,593 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
||||||||
Depreciation |
2,354 | 2,305 | ||||||
Change in operating assets and liabilities: |
||||||||
Accounts receivable |
(1,221 | ) | (7,427 | ) | ||||
Merchandise inventories |
(23,770 | ) | (12,243 | ) | ||||
Merchandise payables |
3,139 | 3,460 | ||||||
Store closing accruals |
| (158 | ) | |||||
Customer deposits |
5,615 | 12,180 | ||||||
Deferred income taxes |
3,216 | 4,043 | ||||||
Other operating assets |
(3,982 | ) | 738 | |||||
Other operating liabilities |
(2,694 | ) | (2,937 | ) | ||||
|
|
|
|
|||||
Net cash (used in) provided by operating activities |
(9,928 | ) | 20,554 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Purchases of property and equipment |
(1,530 | ) | (1,929 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(1,530 | ) | (1,929 | ) | ||||
|
|
|
|
|||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Transfers from (to) Sears Holdings Corporation |
11,934 | (18,160 | ) | |||||
Payments of capital lease obligations |
(534 | ) | (480 | ) | ||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
11,400 | (18,640 | ) | |||||
|
|
|
|
|||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
(58 | ) | (15 | ) | ||||
CASH AND CASH EQUIVALENTSBeginning of period |
814 | 694 | ||||||
|
|
|
|
|||||
CASH AND CASH EQUIVALENTSEnd of period |
$ | 756 | $ | 679 | ||||
|
|
|
|
|||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
||||||||
Cash paid for interest |
$ | 439 | $ | 669 | ||||
|
|
|
|
See Notes to Condensed Combined Financial Statements.
F-24
SEARS HOMETOWN AND OUTLET STORES
(combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings)
CONDENSED COMBINED STATEMENTS OF DIVISIONAL EQUITY (Unaudited)
thousands |
Divisional
Equity |
|||
Balance at January 29, 2011 |
531,583 | |||
Net income |
7,415 | |||
Net transfer from Sears Holdings Corporation |
11,934 | |||
|
|
|||
Balance at April 30, 2011 |
$ | 550,932 | ||
|
|
|||
Balance at January 28, 2012 |
538,106 | |||
Net income |
20,593 | |||
Net transfer to Sears Holdings Corporation |
(18,160 | ) | ||
|
|
|||
Balance at April 28, 2012 |
$ | 540,539 | ||
|
|
See Notes to Condensed Combined Financial Statements.
F-25
SEARS HOMETOWN AND OUTLET STORES
(combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings)
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS FOR THE 13 WEEKS ENDED APRIL 30, 2011 AND APRIL 30, 2012 (UNAUDITED)
NOTE 1BACKGROUND AND BASIS OF PRESENTATION
Background
Sears Hometown and Outlet Stores or the Company, is a national retailer primarily focused on selling home appliances, hardware, tools and lawn and garden equipment. The Company operates approximately 1,240 stores across the United States.
Description of the Business and the Separation
On February 23, 2012, Sears Holdings Corporation (Sears Holdings) announced its intention to separate its Sears Hometown and Hardware and Sears Outlet businesses (the Separation) through a rights offering which is expected to be completed in the second half of 2012. In connection with the Separation, Sears Holdings will contribute certain assets, liabilities, businesses and employees currently related to its Sears Hometown and Hardware and Sears Outlet businesses to Sears Hometown and Outlet Stores, Inc, (SHO). SHO was formed on April 23, 2012 as a wholly-owned subsidiary of Sears Holdings, has not conducted business as a separate company and has no material assets or liabilities.
Additionally, intercompany balances due to/from Sears Holdings, which includes amounts from merchandise purchases, are expected to be contributed to equity for all periods presented. No interest was charged by Sears Holdings on the intercompany balances during the 13 weeks ended April 30, 2011 or April 28, 2012.
Basis of Presentation
These interim unaudited condensed combined financial statements represent the Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings and have been derived from the consolidated financial statements and accounting records of Sears Holdings, principally representing the historical results of operations and the historical basis of assets and liabilities of the Companys business. As business operations of Sears Holdings, we do not maintain our own legal, tax, and certain other corporate support functions. In connection with the separation, Sears Holdings and SHO will enter into a shared services agreement to provide SHO with certain support services under the terms described in Note 4. The costs and allocations charged to the Company by Sears Holdings do not necessarily reflect the costs of obtaining the services from unaffiliated third parties or of the Company providing the applicable services ourselves. The Company believes that the methods by which Sears Holdings allocated its costs are reasonable and are based on prorated estimate of costs expected to be incurred by Sears Holdings. The Company further believes that the existing arrangements, as reflected in these financial statements, are not materially different from the arrangements that will be entered into as part of the separation. The condensed combined financial statements contained herein may not be indicative of the Companys financial position, operating results and cash flows in the future, or what they would have been if it had been a stand-alone company during all periods presented.
These interim unaudited condensed combined financials statements do not include all of the information and footnotes required in annual combined financial statements prepared in accordance with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (which include normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full fiscal year. These interim financial statements and related notes should be read in conjunction with the audited combined financial statements included elsewhere in this prospectus.
F-26
The accompanying unaudited pro forma condensed combined balance sheet as of April 28, 2012 is presented to give effect to a dividend to Sears Holdings totaling $100 million. Additionally, in order to fund on a pro forma basis such subsequent distribution, the unaudited pro forma balance sheet also reflects pro forma incremental borrowing as of April 28, 2012 of $100 million, pursuant to our expected $250 million revolving credit facility.
NOTE 2ACCRUED EXPENSES AND OTHER LONG-TERM LIABILITIES
Accrued expenses and other long-term liabilities consist of the following:
thousands |
April 30,
2011 |
April 28,
2012 |
January 28,
2012 |
|||||||||
Customer deposits |
$ | 32,580 | $ | 44,048 | $ | 31,868 | ||||||
Sales and other taxes |
13,057 | 13,078 | 14,229 | |||||||||
Accrued expenses |
10,568 | 12,353 | 12,376 | |||||||||
Warranty accrual |
16,854 | 11,765 | 11,765 | |||||||||
Payroll and related items |
2,700 | 4,720 | 6,406 | |||||||||
Store closing cost accrual |
| 2,043 | 2,201 | |||||||||
|
|
|
|
|
|
|||||||
Total accrued expenses and other long-term liabilities |
$ | 75,759 | $ | 88,007 | $ | 78,845 | ||||||
|
|
|
|
|
|
NOTE 3INCOME TAXES
In connection with the separation, we will enter into a Tax Sharing Agreement with Sears Holdings which will govern the rights and obligations of the parties with respect to pre-separation and post-separation tax matters. Under the Tax Sharing Agreement, Sears Holdings will be responsible for any federal, state or foreign income tax liability relating to tax periods ending on or before the separation. For all periods after the separation, the Company will be responsible for any federal, state or foreign tax liability. Current income taxes payable for any federal, state or foreign income tax returns is reported in the period incurred.
We account for uncertainties in income taxes according to accounting standards for uncertain tax positions. The Company is present in a large number of taxable jurisdictions, and at any point in time, can have audits underway at various stages of completion in any of these jurisdictions. We evaluate our tax positions and establish liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite the belief that the underlying tax positions are fully supportable. Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, developments in case law, and closing of statute of limitations. Such adjustments are reflected in the tax provision as appropriate. Pursuant to the Tax Sharing Agreement, Sears Holdings will be responsible for any unrecognized tax benefits through the date of the separation. For the 13 weeks ended April 30, 2011 and April 28, 2012, no unrecognized tax benefits have been identified and reflected in the financial statements.
We classify interest expense and penalties related to unrecognized tax benefits and interest income on tax overpayments as components of income tax expense. As no unrecognized tax benefits have been identified and reflected in the condensed combined financial statements, no interest or penalties related to unrecognized tax benefits are reflected in the condensed combined balance sheets or statements of income.
NOTE 4RELATED PARTY AGREEMENTS
ESL Investments, Inc. and its affiliates, including Edward S. Lampert, or ESL, which beneficially owns approximately 62% of the common stock of Sears Holdings as of the date hereof, has advised Sears Holdings that it intends to exercise its subscription rights in full, subject to the successful completion of the separation transactions. Assuming that the subscription rights are exercised in full by all holders of subscription rights following the completion of the rights offering, ESL will beneficially own at least 62% of the common shares of the Company.
F-27
In connection with the separation, we will enter into various agreements with Sears Holdings which, among other things, (1) govern the principal transactions relating to this offering and certain aspects of our relationship with Sears Holdings following the separation, (2) establish terms under which subsidiaries of Sears Holdings will provide us with services, and (3) establish terms pursuant to which subsidiaries of Sears Holdings will obtain merchandise for us. The terms of these agreements were agreed to in the context of a parent-subsidiary relationship and in the overall context of our separation from Sears Holdings. The Company believes that the methods by which Sears Holdings allocated its costs are reasonable and are based on prorated estimates of costs expected to be incurred by Sears Holdings. The Company further believes that the existing arrangements, as reflected in these condensed combined financial statements, are not materially different from the arrangements that will be entered into as part of the separation.
A summary of the nature of related party transactions is as follows:
|
We obtain a significant amount of our merchandise inventories from Sears Holdings, leveraging the benefit of the Sears Holdings purchasing organization. We have also entered into certain agreements with Sears Holdings for logistics, handling, warehouse and transportation services, the charges for which are based on inventory units. We pay a royalty related to the sale of Kenmore, Craftsman and DieHard products and fees for participation in the Shop Your Way Rewards program. |
|
Sears Hometown and Outlet Stores receive commissions from Sears Holdings for the sale of merchandise made through www.sears.com, extended service contracts, delivery and handling services and credit revenues. |
|
Sears Holdings provides the Company with shared corporate services. These shared services include accounting and finance, human resources, information technology and real estate. Expenses for these shared corporate services are allocated to the Company based on actual usage or a pro rata charge based upon sales, head count or square footage. the Company was allocated shared corporate expense of $5.3 million in the first quarter of 2011 and $3.9 million in the first quarter of 2012. |
The following table summarizes the transactions with Sears Holdings included in the Companys Condensed Combined Financial Statements:
thousands |
April 30,
2011 |
April 28,
2012 |
||||||
Combined Statement of Income |
||||||||
Net sales |
$ | 47,581 | $ | 61,884 | ||||
Purchase of inventory |
397,717 | 402,159 | ||||||
Services and occupancy |
34,249 | 29,789 |
NOTE 5STORE CLOSING CHARGES AND SEVERANCE COSTS
The Company made the decision to close 84 stores in our Sears Hometown and Hardware segment in the fourth quarter of 2011. Store closing activity recorded during the first quarter of 2012 and the remaining store closing cost accruals at April 28, 2012 were as follows:
Markdowns (1) |
Severance
Costs (2) |
Lease
Termination Costs (2) |
Other
Costs (2) |
Accelerated
Depreciation (3) |
Total | |||||||||||||||||||
thousands | ||||||||||||||||||||||||
Balance at January 28, 2012 |
$ | 8,147 | $ | 150 | $ | 56 | $ | 1,995 | $ | | $ | 10,348 | ||||||||||||
Store closing costs |
| | | | | | ||||||||||||||||||
Payments/utilizations |
(5,789 | ) | (15 | ) | (38 | ) | (105 | ) | | (5,947 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance at April 28, 2012 |
$ | 2,358 | $ | 135 | $ | 18 | $ | 1,890 | $ | | $ | 4,401 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Recorded within Cost of sales and occupancy on the Condensed Combined Statements of Income. |
(2) | Recorded within Selling and administrative on the Condensed Combined Statements of Income. |
(3) | Recorded within Depreciation in the Condensed Combined Statements of Income. |
F-28
In accordance with accounting standards governing costs associated with exit or disposal activities, expenses related to future rent payments for which the Company no longer intends to receive any economic benefit are accrued for when we cease to use the leased space and have been reduced for any income that the Company believes can be realized through sub-leasing the leased space. The Company expects to record an additional charge of approximately $1 million for future lease costs during the second quarter of 2012 related to stores we made the decision to close in 2011.
NOTE 6SUMMARY OF SEGMENT DATA
These reportable segment classifications are based on our business formats as described in Note 1. The Sears Hometown and Hardware reportable segment consists of the aggregation of the Sears Hometown and Sears Hardware business formats. The Sears Outlet format represents both an operating and reportable segment. These segments are evaluated by our Chief Operating Decision Maker to make decisions about resource allocation and to assess performance. Each of these segments derives its revenues from the sale of merchandise and related services to customers, primarily in the United States. The merchandise categories include appliances, lawn and garden, tools and paint and other.
13 Weeks Ended April 30, 2011 | ||||||||||||
thousands |
Sears Hometown and
Hardware |
Sears Outlet | Total | |||||||||
Net sales |
||||||||||||
Appliances |
$ | 253,594 | $ | 106,301 | $ | 359,895 | ||||||
Lawn and garden |
114,940 | 3,445 | 118,385 | |||||||||
Tools and paint |
52,649 | 1,854 | 54,503 | |||||||||
Other |
41,668 | 10,181 | 51,849 | |||||||||
|
|
|
|
|
|
|||||||
Total |
462,851 | 121,781 | 584,632 | |||||||||
|
|
|
|
|
|
|||||||
Costs and expenses |
||||||||||||
Cost of sales and occupancy |
373,954 | 85,308 | 459,262 | |||||||||
Selling and administrative |
87,785 | 22,513 | 110,298 | |||||||||
Depreciation |
1,006 | 1,348 | 2,354 | |||||||||
|
|
|
|
|
|
|||||||
Total |
462,745 | 109,169 | 571,914 | |||||||||
|
|
|
|
|
|
|||||||
Operating income |
$ | 106 | $ | 12,612 | $ | 12,718 | ||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 559,627 | $ | 108,976 | $ | 668,603 | ||||||
|
|
|
|
|
|
|||||||
Capital expenditures |
$ | 432 | $ | 1,098 | $ | 1,530 | ||||||
|
|
|
|
|
|
F-29
13 Weeks Ended April 28, 2012 | ||||||||||||
Sears Hometown and
Hardware |
Sears Outlet | Total | ||||||||||
thousands | ||||||||||||
Net sales |
||||||||||||
Appliances |
$ | 268,198 | $ | 118,766 | $ | 386,964 | ||||||
Lawn and garden |
115,366 | 3,449 | 118,815 | |||||||||
Tools and paint |
51,885 | 2,544 | 54,429 | |||||||||
Other |
44,408 | 16,462 | 60,870 | |||||||||
|
|
|
|
|
|
|||||||
Total |
479,857 | 141,221 | 621,078 | |||||||||
|
|
|
|
|
|
|||||||
Costs and expenses |
||||||||||||
Cost of sales and occupancy |
362,586 | 99,793 | 462,379 | |||||||||
Selling and administrative |
96,414 | 25,490 | 121,904 | |||||||||
Depreciation |
835 | 1,470 | 2,305 | |||||||||
|
|
|
|
|
|
|||||||
Total |
459,835 | 126,753 | 586,588 | |||||||||
|
|
|
|
|
|
|||||||
Operating income |
$ | 20,022 | $ | 14,468 | $ | 34,490 | ||||||
|
|
|
|
|
|
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Total assets |
$ | 555,496 | $ | 114,715 | $ | 670,211 | ||||||
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Capital expenditures |
$ | 354 | $ | 1,575 | $ | 1,929 | ||||||
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NOTE 7COMMITMENTS AND CONTINGENCIES
We are subject to various legal and governmental proceedings out of the ordinary course of business, the outcome of which, individually or in the aggregate, in the opinion of management, would not have a material adverse effect on our business, financial position, or results of operations.
NOTE 8RECENT ACCOUNTING PRONOUNCEMENTS
Testing Goodwill for Impairment
In September 2011, the Financial Accounting Standards Board (FASB) issued an accounting standards update which provides, subject to certain conditions, the option to perform a qualitative, rather than quantitative, assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. This update was effective and adopted by the Company in the first quarter of 2012 and did not have a material impact on the Companys condensed combined financial position, results of operations or cash flows.
Disclosures about Fair Value Measurements
In May 2011, the FASB issued an accounting standards update which amends the definition of fair value measurement principles and disclosure requirements to eliminate differences between U.S. GAAP and International Financial Reporting Standards. The update requires new quantitative and qualitative disclosures about the sensitivity of recurring Level 3 measurement disclosures, as well as disclosures of transfers between Level 1 and Level 2 of the fair value hierarchy. This update was effective and adopted by the Company in the first quarter of 2012 and did not have a material impact on the Companys condensed combined financial position, results of operations or cash flows.
F-30
Until , 2012, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Sears Hometown and Outlet Stores, Inc.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 8. | Exhibits and Financial Statement Schedules. |
Exhibits
Number |
Document Description | |
3.1# | Form of Amended and Restated Certificate of Incorporation of Sears Hometown and Outlet Stores, Inc. | |
3.2# | Form of Bylaws of Sears Hometown and Outlet Stores, Inc. | |
4.1* | Form of Common Stock Certificate | |
4.2# | Form of Rights Certificate | |
5.1# | Form of Opinion of Debevoise & Plimpton LLP | |
8.1# | Form of Opinion of Debevoise & Plimpton LLP regarding certain tax matters | |
10.1* | Separation Agreement between Sears Holdings and Sears Hometown and Outlet Stores, Inc., dated as of August 8, 2012 | |
10.2# | Form of Store License Agreement between Sears, Roebuck and Co. and Sears Authorized Hometown Stores, LLC | |
10.3# | Form of Store License Agreement between Sears, Roebuck and Co. and Sears Home Appliance Showrooms, LLC | |
10.4# | Form of Store License Agreement between Sears, Roebuck and Co. and Sears Outlet Stores, LLC | |
10.5* | Form of Trademark License Agreement between Sears, Roebuck and Co. and Sears Hometown and Outlet Stores, Inc. | |
10.6# | Form of Merchandising Agreement between Sears, Roebuck and Co., Kmart Corporation and Sears Holdings Corporation and Sears Hometown and Outlet Stores, Inc., Sears Authorized Hometown Stores, LLC and Sears Outlet Stores, L.L.C. | |
10.7* | Form of Services Agreement between Sears Holdings Management Corporation and Sears Hometown and Outlet Stores, Inc. | |
10.8# | Form of Retail Establishment Agreement between Sears Holdings Management Corporation and Sears Hometown and Outlet Stores, Inc. | |
10.9* | Form of Tax Sharing Agreement between Sears Holdings and Sears Hometown and Outlet Stores, Inc. | |
10.10* | Form of Employee Transition and Administrative Services Agreement between Sears, Roebuck and Co., Sears Hometown and Outlet Stores, Inc., Sears Authorized Hometown Stores, LLC and Sears Outlet Stores, L.L.C. | |
10.11* | Sears Hometown and Outlet Stores, Inc. Umbrella Incentive Program | |
10.12* |
Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan |
|
10.13* | Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program | |
10.14* | Sears Hometown and Outlet Stores, Inc. 2012 Stock Plan | |
10.15 | Form of Executive Severance Agreement (incorporated by reference to Exhibit 10.26 to Sears Holdings Corporations Annual Report on Form 10-K for the fiscal year ended January 28, 2012 (File No. 000-51217)) |
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Exhibits
Number |
Document Description | |
10.16 | Form of Executive Severance/Non-Compete Agreement (incorporated by reference to Exhibit 10.5 to Sears Holdings Corporations Quarterly Report on Form 10-Q for the fiscal quarter ended October 29, 2005 (File No. 000-51217)) | |
10.17* | Executive Severance Agreement dated and effective as of August 6, 2012 between Sears Holdings Corporation and its affiliates and subsidiaries and Steven D. Barnhart | |
10.18* | Offer letter between Sears Hometown and Outlet Stores, Inc. and W. Bruce Johnson dated August 28, 2012 | |
10.19* | Offer letter between Sears Hometown and Outlet Stores, Inc. and William A. Powell dated August 28, 2012 | |
10.20* | Offer letter between Sears Hometown and Outlet Stores, Inc. and John E. Ethridge dated August 28, 2012 | |
10.21* | Offer letter between Sears Hometown and Outlet Stores, Inc. and Charles J. Hansen, dated August 28, 2012 | |
10.22* | Offer letter between Sears Hometown and Outlet Stores, Inc. and Steven D. Barnhart, dated August 28, 2012 | |
10.23* | Offer letter between Sears Hometown and Outlet Stores, Inc. and Becky Iliff, dated August 28, 2012 | |
10.24* | Director Compensation Policy of Sears Hometown and Outlet Stores, Inc. | |
21.1# | Subsidiaries of Sears Hometown and Outlet Stores, Inc. | |
23.1# | Consent of Debevoise & Plimpton LLP (included in Exhibits 5.1 and 8.1) | |
23.2* | Consent of BDO USA, LLP | |
23.3# | Consent of Duff & Phelps, LLC | |
99.1# | Form of Instruction for Use of Sears Hometown and Outlet Stores, Inc. Subscription Rights Certificates | |
99.2# | Form of Letter to Stockholders Who Are Record Holders | |
99.3# | Form of Letter to Nominee Holders Whose Clients Are Beneficial Holders | |
99.4# | Form of Letter to Clients of Nominee Holders | |
99.5# | Form of Nominee Holder Certification | |
99.6# | Form of Beneficial Owner Election | |
99.7# | Opinion of Duff & Phelps, LLC | |
99.8# | Consent of E.J. Bird | |
99.9# | Consent of Elizabeth Darst Leykum | |
99.10# | Consent of Jeffrey Flug | |
99.11# | Consent of Josephine Linden |
* | Filed herewith. |
# | Previously filed. |
| Certain provisions of this exhibit have been omitted and separately filed with the Securities and Exchange Commission pursuant to a request for confidential treatment. |
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Item 13. Other Expenses of Issuance and Distribution.
SEC registration fee (1) |
$ | 45,840 | ||
Accounting and advisory fees and expenses (1) |
2,175,000 | |||
Legal fees and expenses (1) |
2,000,000 | |||
Printing and engraving expenses (1) |
200,000 | |||
Subscription agent, information agent and registrar fees and expenses (1) |
150,000 | |||
Miscellaneous (1) |
429,160 | |||
|
|
|||
Total (1) |
$ | 5,000,000 |
(1) | Sears Holdings Corporation is bearing all expenses incurred in connection with the issuance and distribution of the securities registered under this Registration Statement. All amounts are estimates other than the SEC registration fee. |
Item 14. Indemnification of Directors and Officers .
Indemnification Under the Delaware General Corporation Law
Section 145 of the DGCL authorizes a corporation to indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding, if the person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the persons conduct was unlawful. In addition, the DGCL does not permit indemnification in any threatened, pending or completed action or suit by or in the right of the corporation in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses, which such court shall deem proper. To the extent that a present or former director or officer of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to above, or in defense of any claim, issue or matter, such person shall be indemnified against expenses, including attorneys fees, actually and reasonably incurred by such person. Indemnity is mandatory to the extent a claim, issue or matter has been successfully defended. The DGCL also allows a corporation to provide for the elimination or limit of the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director:
(1) for any breach of the directors duty of loyalty to the corporation or its stockholders,
(2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law,
(3) for unlawful payments of dividends or unlawful stock purchases or redemptions, or
(4) for any transaction from which the director derived an improper personal benefit.
These provisions will not limit the liability of directors or officers under the federal securities laws of the United States.
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Indemnification Under Our Certificate of Incorporation and Bylaws
Our proposed Certificate of Incorporation requires us to indemnify and hold harmless any current or former director or officer of SHO to the fullest extent permitted by Delaware law. Such indemnification rights include the right to be paid by SHO the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition. However, except for proceedings to enforce indemnification or advancement rights, we will indemnify such a director or officer who initiates an action, suit or proceeding (or part thereof) only if such action, suit or proceeding (or part thereof) was authorized by the board of directors of SHO.
The proposed Certificate of Incorporation also contains certain procedures and presumptions that will govern any action brought by a person granted advancement or indemnification rights in SHOs Certificate of Incorporation to enforce those rights.
The indemnification and advancement rights conferred by SHO are not exclusive of any other right to which persons seeking indemnification or advancement may be entitled under any statute, our Certificate of Incorporation or Bylaws, any agreement, vote of stockholders or disinterested directors or otherwise.
Our proposed Certificate of Incorporation also exculpates any director from being personally liable to SHO or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption is prohibited by Delaware law.
Indemnification Under Indemnification Agreements With Certain of SHOs Directors and Executive Officers
We may enter into indemnification agreements with certain of our officers and directors. These indemnification agreements may provide contractual indemnification to officers and directors in addition to the indemnification provided in our proposed Certificate of Incorporation and Bylaws. We also expect to maintain directors and officers insurance to insure such persons against certain liabilities.
Item 15. Recent Sales of Unregistered Securities .
None.
Item 16. Exhibits and Financial Statement Schedules .
A list of exhibits filed with this registration statement on Form S-1 is set forth on the Exhibit Index and is incorporated herein by reference.
Item 17. Undertakings .
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
II-4
volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the Calculation of Registration Fee table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(6) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Hoffman Estates, State of Illinois, on August 31, 2012.
SEARS HOMETOWN AND OUTLET STORES, INC. | ||
By: | /s/ W. Bruce Johnson | |
W. Bruce Johnson | ||
Chief Executive Officer | ||
(Title) |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ W. Bruce Johnson W. Bruce Johnson |
Chief Executive Officer, President and Director (Principal Executive Officer) | August 31, 2012 | ||
/s/ Steven D. Barnhart Steven D. Barnhart |
Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | August 31, 2012 | ||
/s/ William R. Harker William R. Harker |
Chairman of the Board and Director |
August 31, 2012 |
II-6
Exhibit 4.1
Exhibit 10.1
SEPARATION AGREEMENT
by and between
SEARS HOLDINGS CORPORATION
and
SEARS HOMETOWN AND OUTLET STORES, INC.
Dated as of August 8, 2012
TABLE OF CONTENTS
Page | ||||||
ARTICLE I | ||||||
DEFINITIONS AND INTERPRETATION | ||||||
Section 1.1 |
Certain Defined Terms | 1 | ||||
ARTICLE II | ||||||
THE BUSINESS SEPARATION | ||||||
Section 2.1 |
Business Separation | 16 | ||||
ARTICLE III | ||||||
DISTRIBUTION OF THE RIGHTS | ||||||
Section 3.1 |
Distribution of Rights | 18 | ||||
ARTICLE IV | ||||||
CLOSING OF RIGHTS OFFERING | ||||||
Section 4.1 |
Rights Closing | 18 | ||||
Section 4.2 |
Intercompany Agreements. | 18 | ||||
Section 4.3 |
Resignation | 19 | ||||
ARTICLE V | ||||||
GENERAL PROVISONS | ||||||
Section 5.1 |
Implementation Documents | 19 | ||||
Section 5.2 |
Unreleased Liabilities | 19 | ||||
Section 5.3 |
Deferred Transfers. | 20 | ||||
Section 5.4 |
Transfers of Assets or Liabilities Following the Business Separation | 21 | ||||
Section 5.5 |
Corporate Names; Trademarks | 22 | ||||
Section 5.6 |
Certain Matters Governed Exclusively by Ancillary Agreements. | 22 | ||||
Section 5.7 |
Disclaimer of Representations and Warranties. | 22 |
i
ARTICLE VI | ||||||
CONFIDENTIALITY; EXCHANGE OF INFORMATION | ||||||
Section 6.1 |
Agreement for Exchange of Information; Archives. | 23 | ||||
Section 6.2 |
Ownership of Information | 24 | ||||
Section 6.3 |
Record Retention. | 25 | ||||
Section 6.4 |
Production of Witnesses; Records; Cooperation. | 25 | ||||
Section 6.5 |
Confidential Information. | 26 | ||||
Section 6.6 |
Protective Arrangement | 27 | ||||
Section 6.7 |
Other Agreements Providing for Exchange of Information | 27 | ||||
Section 6.8 |
Privileged Matters | 28 | ||||
ARTICLE VII | ||||||
FINANCIAL AND OTHER INFORMATION | ||||||
Section 7.1 |
Financial and Other Information. | 30 | ||||
Section 7.2 |
Sarbanes-Oxley Section 404 Compliance | 33 | ||||
ARTICLE VIII | ||||||
INSURANCE | ||||||
Section 8.1 |
Insurance Matters. | 33 | ||||
Section 8.2 |
Miscellaneous. | 35 | ||||
ARTICLE IX | ||||||
LEGAL MATTERS | ||||||
Section 9.1 |
Control of Legal Matters. | 35 | ||||
Section 9.2 |
Notice to Third Parties; Service of Process; Cooperation. | 36 | ||||
ARTICLE X | ||||||
INDEMNIFICATION | ||||||
Section 10.1 |
Release of Pre-Separation Claims. | 37 | ||||
Section 10.2 |
Indemnification by SHO | 39 | ||||
Section 10.3 |
Indemnification by SHLD | 40 | ||||
Section 10.4 |
Indemnification with respect to Unreleased Liabilities | 40 | ||||
Section 10.5 |
Adjustments to Indemnification Obligations. | 41 | ||||
Section 10.6 |
Contribution | 42 |
ii
Section 10.7 |
Procedures for Indemnification of Direct Claims | 42 | ||||
Section 10.8 |
Procedures for Indemnification of Third Party Claims. | 43 | ||||
Section 10.9 |
Remedies Cumulative | 44 | ||||
Section 10.10 |
Survival of Indemnities | 44 | ||||
ARTICLE XI |
||||||
DISPUTE RESOLUTION |
||||||
Section 11.1 |
Disputes | 44 | ||||
Section 11.2 |
Dispute Resolution. | 45 | ||||
Section 11.3 |
Mediation of Unresolved Disputes | 45 | ||||
Section 11.4 |
Continuity of Service and Performance | 45 | ||||
ARTICLE XII | ||||||
FURTHER ASSURANCES | ||||||
Section 12.1 |
Further Assurances. | 46 | ||||
ARTICLE XIII | ||||||
Amendment and TERMINATION | ||||||
Section 13.1 |
Sole Discretion of SHLD | 46 | ||||
Section 13.2 |
Amendment and Termination | 47 | ||||
ARTICLE XIV | ||||||
MISCELLANEOUS | ||||||
Section 14.1 |
Limitation of Liability. | 47 | ||||
Section 14.2 |
Expenses | 48 | ||||
Section 14.3 |
Counterparts | 48 | ||||
Section 14.4 |
Notices | 48 | ||||
Section 14.5 |
Public Announcements | 48 | ||||
Section 14.6 |
Severability | 49 | ||||
Section 14.7 |
Entire Agreement | 49 | ||||
Section 14.8 |
Assignment | 49 | ||||
Section 14.9 |
Third-Party Beneficiaries | 49 | ||||
Section 14.10 |
Governing Law; Jurisdiction. | 50 | ||||
Section 14.11 |
Waiver of Jury Trial | 50 | ||||
Section 14.12 |
Headings | 51 | ||||
Section 14.13 |
Interpretation | 51 |
iii
Section 14.14 |
Specific Performance | 51 | ||||
Section 14.15 |
Payment Terms. | 51 | ||||
Section 14.16 |
Survival of Covenants | 52 | ||||
Section 14.17 |
Waiver | 52 | ||||
Section 14.18 |
Condition Precedent to the Effectiveness of this Agreement | 52 | ||||
Section 14.19 |
Counterparts; Facsimile Signatures | 52 | ||||
Schedule 1.1(a) |
Hometown Locations | |||||
Schedule 1.1(b) |
Outlet Stores Locations | |||||
Schedule 1.1(c) |
PR Dealer Locations | |||||
Schedule 1.1(d) |
PR Outlet Locations | |||||
Schedule 1.1(e) |
Certain Real Estate |
iv
SEPARATION AGREEMENT
This SEPARATION AGREEMENT, is made as of August 8, 2012, by and between Sears Holdings Corporation, a Delaware corporation ( SHLD ), and Sears Hometown and Outlet Stores, Inc., a Delaware corporation ( SHO ).
WHEREAS, SHLD, through certain of its Subsidiaries, is currently engaged in the SHO Business;
WHEREAS, the board of directors of SHLD has determined that it is in the best interests of SHLD and its stockholders to create a new publicly traded company that shall operate the SHO Business;
WHEREAS, in furtherance of the foregoing, the board of directors of SHLD has determined that it is in the best interests of SHLD and its stockholders;
(i) for SHLD and certain of its Subsidiaries to enter into a series of transactions in the manner provided in this Agreement and the Ancillary Agreements whereby ( x ) SHLD will, directly or indirectly through its Subsidiaries, own all of the SHLD Assets and assume (or retain) all of the SHLD Liabilities, and ( y ) SHO will, directly or indirectly through its Subsidiaries, own all of the SHO Assets and assume (or retain) all of the SHO Liabilities; and
(ii) for SHLD to ( x ) distribute subscription rights (the Rights ) to purchase from SHLD shares of common stock of SHO, par value $0.01 per share ( SHO Common Stock ) and ( y ) sell shares of SHO Common Stock pursuant to the Rights, in each case as described in the SHO Registration Statement (collectively, the Rights Offering ).
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, SHLD and SHO hereby agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Certain Defined Terms . For purposes of this Agreement:
Action means any demand, claim, counterclaim, action, suit, arbitration, inquiry, proceeding or investigation, in each case brought by or pending before any Governmental Authority or any federal, state, local, foreign or international arbitration or mediation tribunal.
Affiliate means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such specified Person; provided , however , that except where the context indicates otherwise, for purposes of this Agreement, ( i ) no member of the SHLD Group shall be deemed to be an Affiliate of any member of the SHO Group, and ( ii ) no member of the SHO Group shall be deemed to be an Affiliate of any member of the SHLD Group.
Agreement means this Separation Agreement.
Ancillary Agreements means
(i) the Tax Sharing Agreement;
(ii) the Employee Transition and Administrative Services Agreement;
(iii) the License Agreements;
(iv) the Services Agreement;
(v) the Real Estate Agreements;
(vi) the Merchandising Agreement; and
(vii) the Retail Establishment Agreement.
Assets means, with respect to any Person, the assets, properties and rights (including, goodwill) of such Person, wherever located (including in the possession of vendors or other Persons or elsewhere), whether tangible or intangible, real, personal or mixed, or accrued or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of such Person, including, the following:
(i) all accounting and other Records, whether in paper, microfilm, microfiche, computer tape or disk, magnetic tape or any other form;
(ii) all apparatus, computers and other electronic data processing equipment, fixtures, machinery, equipment, furniture, office equipment, automobiles, trucks, motor vehicles and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property;
(iii) all inventories of materials, parts, supplies, work-in-process and finished goods and products;
(iv) all Real Property Assets;
2
(v) all interests in any capital stock or other equity interests of any Subsidiary or any other Person, all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person, all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person and all other investments in securities of any Person, and all rights as a partner, joint venturer or participant;
(vi) all licenses and leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other contracts, agreements or commitments and all rights arising thereunder;
(vii) all deposits, letters of credit and performance and surety bonds;
(viii) all written technical information, data, specifications, research and development information, engineering drawings, operating and maintenance manuals, and materials and analyses prepared by consultants and other third parties;
(ix) all Intellectual Property Assets;
(x) Software;
(xi) all Information;
(xii) all prepaid expenses, trade accounts and other accounts and notes receivables;
(xiii) all rights under Contracts, all claims or rights against any Person, choses in action or similar rights, whether accrued or contingent, whether in tort, contract or otherwise and whether arising by way of counterclaim or otherwise;
(xiv) subject to Section 8.1(b), all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution;
(xv) all licenses, permits, approvals and authorizations which have been issued by any Governmental Authority and all pending applications therefor;
(xvi) all cash or cash equivalents, bank accounts, lock boxes and other deposit arrangements; and
(xvii) all interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements; and
(xviii) all goodwill as a going concern and other intangible properties.
Assets Contribution has the meaning set forth in Section 2.1(a).
3
Business means either the SHO Business or the SHLD Business, as the context requires.
Business Day means any day that is not a Saturday, a Sunday or any other day on which banks are required or authorized by Law to be closed in The City of New York.
Business Separation has the meaning set forth in Section 2.1.
Confidential Information has the meaning set forth in Section 6.5(a).
Consents means any consents, waivers or approvals from, or notification requirements to, any Person other than a Governmental Authority or a member of either Group.
Contract means each contract, agreement, lease, commitment, license, consensual obligation, promise or undertaking (whether written or oral and whether express or implied) that is legally binding on any Person or any part of its property under applicable Law, including all claims or rights against any Person, choses in action and similar rights, whether accrued or contingent with respect to any such contract, agreement, lease, purchase and/or commitment, license, consensual obligation, promise or undertaking.
Control (including the terms controlled by and under common control with ), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly or as trustee, personal representative or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee, personal representative or executor, by contract or credit arrangement or otherwise.
Customer Information means with respect to any business, all information relating to customers of such business, including, names, addresses and transaction data (including merchandise or service purchased; purchase price paid, purchase location (such as particular store or online), date and time of day of purchase, associated returns, exchanges, adjustments, and related information; and means of payment).
Deferred Transfer Asset has the meaning set forth in Section 5.3(a).
Deferred Transfer Liability has the meaning set forth in Section 5.3(a).
Dispute has the meaning set forth in Section 11.1.
Dispute Meeting has the meaning set forth in Section 11.2(b).
4
Employee Transition and Administrative Services Agreement means the Employee Transition and Administrative Services Agreement, dated as of August 31, 2012, by and between SHLD and SHO.
Encumbrance means any security interest, pledge, hypothecation, mortgage, lien or encumbrance, whether or not filed, recorded or otherwise perfected under applicable Law.
Exchange Act means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.
Executive Committee has the meaning set forth in Section 11.2(a).
Excluded Assets means (i) Real Property Assets and (ii) Pre-Separation Litigation Assets.
Governmental Approvals means any notices or reports to be submitted to, or other filings to be made with, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Authority.
Governmental Authority means any U.S. or non-U.S. federal, national, supranational, state, provincial, local or other government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal or judicial or arbitral body.
Group means the SHLD Group or the SHO Group, as the context requires.
Historic SHO Balance Sheet means the audited combined balance sheet of the Sears Hometown and Hardware and Sears Outlet Businesses of Sears Holdings, including the notes thereto, as of January 28, 2012, included in the SHO Registration Statement.
Hometown Assumed Liabilities means any and all Liabilities of SRC as and to the extent relating to, arising out of, or resulting from the Hometown Transferred Assets or the Hometown Businesses.
Hometown Business means the businesses and operations of selling merchandise and services at retail through stores at the locations set forth on Schedule 1.1(a), including the businesses and operations of the Sears Hometown and Hardware Segment described in the SHO Registration Statement.
Hometown Transferred Assets means the following Assets of SRC (other than Excluded Assets):
(i) | all tangible personal property used in the Hometown Business located at the locations set forth in Schedule 1.1(a); |
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(ii) all Intellectual Property Assets used solely by SAHS within the last twelve (12) months in connection with the Hometown Business;
(iii) a joint ownership interest (with SRC) in all Customer Information of the Hometown Business, other than Transaction Information (as defined in the Retail Establishment Agreement);
(iv) all Contracts necessary to operate and manage the Hometown Business and used primarily by SAHS in the operation of the Hometown Business;
(v) all Records relating primarily to the Hometown Business; and
(vi) all other Assets (i) reflected on the Historic SHO Balance Sheet, or (ii) if acquired by SRC after the date of the Historic SHO Balance Sheet, would have been reflected on the combined balance sheet of the Company (as such term is used in the Historic SHO Balance Sheet) if such balance sheet were prepared as of the time of the Assets Contribution using the same principles and accounting policies under which the Historic SHO Balance Sheet was prepared, to the extent used primarily by SAHS in the operation of the Hometown Business.
Implementation Documents has the meaning set forth in Section 5.1.
Indemnified Party has the meaning set forth in Section 10.5(a).
Indemnifying Party has the meaning set forth in Section 10.5(a).
Indemnity Payment has the meaning set forth in Section 10.5(a).
Information means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including, studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, artwork, design, research and development files, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, Customer Information, cost information, sales and pricing data, customer prospect lists, supplier records and vendor data, correspondence and lists, product literature, communications by or to attorneys (including attorney-client privileged communications), memoranda and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data.
Insurance Proceeds means those monies ( i ) received by an insured or reinsured from an insurer or reinsurer, ( ii ) paid by an insurer or reinsurer on behalf of the insured or reinsured or ( iii ) received (including by way of set-off) from any Third Party in the nature
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of insurance, contribution or indemnification in respect of any Liability; in any such case net of any applicable premium adjustments (including, retrospectively rated premium adjustments) and net of any self-insured retention, deductible or other form of self-insurance and net of any third party costs or expenses incurred in the collection thereof.
Intellectual Property means all right, title and interest in or relating to intellectual property or industrial property, whether arising under the Law of the United States or any other country or any political subdivision thereof or multinational Laws or any other Law, including, ( i ) patents, patent applications, and all divisionals, continuations and continuations-in-part thereof, together with all reissues, reexaminations, renewals and extensions thereof and all rights to obtain such divisionals, continuations and continuations-in-part, reissues, reexaminations, renewals and extensions, and all utility models and statutory invention registrations, ( ii ) trademarks, service marks, Internet domain names, trade dress, trade styles, logos, trade names, services names, brand names, corporate names, assumed business names and general intangibles and other source identifiers of a like nature, together with the goodwill associated with any of the foregoing, and all registrations and applications for registrations thereof, together with all renewals and extensions thereof and all rights to obtain such renewals and extensions, ( iii ) copyrights, mask work rights, database and design rights, moral rights and rights in Internet websites, whether registered or unregistered and whether published or unpublished, all registrations and recordings thereof and all applications in connection therewith, together with all renewals, continuations, reversions and extensions thereof and all rights to obtain such renewals, continuations, reversions and extensions and ( iv ) confidential and proprietary information, including, trade secrets and know-how.
Intellectual Property Assets means all Intellectual Property (together with all goodwill associated therewith and the right to sue and recover at law or in equity for past, present and future infringement, misappropriation, dilution, violation or other impairment of such Intellectual Property) and all license agreements (including, licenses from or to third parties in respect of Intellectual Property).
Intercompany Accounts means all accounts receivable and accounts payable between one or more members of the SHO Group, on the one hand, and one or more members of the SHLD Group, on the other hand.
Intercompany Agreements means the Ancillary Agreements and the other agreements, arrangements, commitments or understandings, whether or not in writing, between one or more members of the SHO Group, on the one hand, and one or more members of the SHLD Group, on the other hand.
Internal Control Audit and Management Assessments has the meaning set forth in Section 7.2.
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Joint Litigation Matter means each Action (1) that is either an SHLD Assumed Transaction Liability or an SHO Assumed Transaction Liability, and (2) in which both SHO and SHLD are named as defendants or in which one or more officers or directors of any member of the SHO Group and one or more officers or directors of any member of the SHLD Group are named as defendants.
Law means any U.S. or non-U.S. federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, order, license, permit, authorization, approval, consent, decree, injunction, binding judicial or administrative interpretation or other requirement (including, common law), in each case, enacted, promulgated, issued or entered by a Governmental Authority.
Liabilities or Liability means with respect to any Person, any and all claims, debts, demands, actions, causes of action, suits, damages, costs, obligations, accruals, accounts payable, reckonings, bonds, indemnities and similar obligations, agreements, promises, guarantees, make whole agreements and similar obligations, and other liabilities and requirements of such Person, including all contractual obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, liquidated or unliquidated, reserved or unreserved, known or unknown, or determined or determinable, whenever arising and including those arising under any law, rule, regulation, Action, threatened or contemplated Action, order or consent decree of any Governmental Authority or any award of any arbitrator or mediator of any kind, and those arising under any Contract, including those arising under this Agreement, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person. For the avoidance of doubt, Liabilities shall include attorneys fees, the costs and expenses of all demands, assessments, judgments, settlements and compromises, and any and all other costs and expenses whatsoever reasonably incurred in connection with anything contemplated by the preceding sentence.
License Agreements means ( i ) the Store License Agreement, by and between SRC and SAHS, ( ii ) the Store License Agreement, by and between SRC and Outlet Stores, ( iii ) the Store License Agreement, by and between SRC and Sears Home Appliance Showrooms, LLC and ( iv ) the Trademark License Agreement, by and between SRC and SHO, in each case, dated August 8, 2012.
LLC Distribution has the meaning set forth in Section 2.1(d)
Marks has the meaning set forth in Section 5.5.
Merchandising Agreement means the Merchandising Agreement, dated August 8, 2012, by and between SRC, Kmart Corporation, SHLD, on the one hand, and SHO and the Transferred Entities, on the other hand.
Outlet Assumed Liabilities means all Liabilities of SRC as and to the extent relating to, arising out of, or resulting from the Outlet Transferred Assets or the Outlet Businesses.
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Outlet Business means the businesses and operations of selling overstock and/or distressed merchandise at a discount at the locations set forth on Schedule 1.1(b), including the businesses and operations of the Sears Outlet Segment described in the SHO Registration Statement.
Outlet Stores means Sears Outlet Stores, L.L.C.
Outlet Transferred Assets means the following Assets of SRC (other than Excluded Assets):
(i) | all tangible personal property used in the Outlet Business located at the locations set forth in Schedule 1.1(b); |
(ii) all Intellectual Property Assets used solely by Outlet Stores within the last twelve (12) months in connection with the Outlet Business;
(iii) a joint ownership interest (with SRC) in all Customer Information of the Outlet Business, other than Transaction Information (as defined in the Retail Establishment Agreement);
(iv) all Contracts necessary to operate and manage the Outlet Business and used primarily by Outlet Stores in the operation of the Outlet Business;
(v) all Records relating primarily to the Outlet Business;
(vi) all of the membership interest in Troy Coolidge No. 6, LLC, a Michigan limited liability company; and
(vii) to the extent not included as Hometown Transferred Assets, all other Assets (i) reflected on the Historic SHO Balance Sheet, or (ii) if acquired by SRC after the date of the Historic SHO Balance Sheet, would have been reflected on the combined balance sheet of the Company (as such term is used in the Historic SHO Balance Sheet) if such balance sheet were prepared as of the time of the Assets Contribution using the same principles and accounting policies under which the Historic SHO Balance Sheet was prepared.
Person means any individual, partnership, firm, corporation, limited liability company, association, trust, joint venture, unincorporated organization, other entity or Governmental Authority, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act.
PR Dealer Liabilities means all Liabilities of SPR as and to the extent relating to, arising out of, or resulting from the PR Dealer Assets or the PR Dealer Businesses, including trade payables and accrued expenses of SPR incurred in the ordinary course of the PR Dealer Business.
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PR Outlet Liabilities means all Liabilities of SPR as and to the extent relating to, arising out of, or resulting from the PR Outlet Assets or the PR Outlet Businesses, including trade payables and accrued expenses of SPR incurred in the ordinary course of the PR Outlet Business.
PR Dealer Assets means the following Assets of SPR (other than the Excluded Assets):
(i) | all trade accounts receivables, notes receivables, negotiable instruments and chattel paper attributable to the PR Dealer Business; |
(ii) | all tangible personal property used in the PR Dealer Business located at the locations set forth in Schedule 1.1(c); |
(iii) | all Intellectual Property Assets used solely by the PR Dealer Business within the last twelve (12) months in connection with the PR Dealer Business; |
(iv) | a joint ownership interest (with SRC) in all Customer Information of the PR Dealer Business, other than Transaction Information (as defined in the Retail Establishment Agreement); |
(v) | all Contracts necessary to operate and manage the PR Dealer Business and used primarily in the operation of the PR Dealer Business; |
(vi) | all Records relating primarily to the PR Dealer Business; and |
(vii) | all other Assets used primarily by the PR Dealer Business. |
PR Dealer Business means the business of selling merchandise and services at retail through stores at the locations set forth on Schedule 1.1(c) .
PR Outlet Assets means the following Assets of SPR (other than the Excluded Assets):
(i) | all trade accounts receivables, notes receivables, negotiable instruments and chattel paper attributable to the PR Outlet Business; |
(ii) | all tangible personal property used in the PR Outlet Business located at the locations set forth in Schedule 1.1(d); |
(iii) | all Intellectual Property Assets used solely by the PR Outlet Business within the last twelve (12) months in connection with the PR Outlet Business; |
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(iv) | a joint ownership interest (with SRC) in all Customer Information of the PR Outlet Business, other than Transaction Information (as defined in the Retail Establishment Agreement); |
(v) | all Contracts necessary to operate and manage the PR Outlet Business and used primarily in the operation of the PR Outlet Business; |
(vi) | all Records relating primarily to the PR Outlet Business; and |
(vii) | all other Assets used primarily by the PR Outlet Business. |
PR Outlet Business means the business of selling distressed, refurbished and marked-out-of-stock merchandise at retail through stores at the locations set forth on Schedule 1.1(d) .
Pre-Separation Litigation Assets means any and all Assets with respect to, arising out of, or resulting from the Pre-Separation Litigation Matters, including, any and all rights to damage awards, settlement payments, reimbursements or indemnities.
Pre-Separation Litigation Matters means any and all (i) Actions in which any member of the SHLD Group or the SHO Group is a defendant, plaintiff or member of a class of plaintiffs that have been commenced on or before the Rights Closing Effective Time and (ii) Actions in which any member of the SHLD Group is a plaintiff that are filed after the Rights Closing Effective Time and relate to the subject matter of an Action in which any member of the SHLD Group or the SHO Group is a plaintiff or member of a class of plaintiffs that has been commenced on or prior to the Rights Closing Effective Time (for example, an Action commenced by any member for the SHLD Group after such member has opted out of a class action and determined to prosecute a claim outside of the class).
Public Filings has the meaning set forth in Section 7.1(c).
Real Property Assets means all interests in real property of whatever nature, including, easements, whether as owner, mortgagee or holder of an Encumbrance in real property, lessor, sublessor, lessee, sublessee, licensor, licensee, sublicensor, sublicensee or otherwise.
Real Estate Agreements means the deeds, leases, subleases, assignments of leases, license agreements, and other agreements and instruments in which a member of the SHLD Group conveys to a member of the SHO Group ownership of, or a leasehold or other interest in, real property owned or leased by a member of the SHLD Group and set forth in Schedule 1.1(e) .
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Records means documents, files and other books and records, including, books and records relating to financial reporting, internal audit, employee benefits, past acquisition or disposition transactions, Actions, and email files and backup tapes regarding any of the foregoing.
Representatives means directors, officers, employees, agents, consultants, accountants, attorneys and any other advisors, including, representatives of the foregoing.
Resolution Failure Date has the meaning set forth in Section 11.2(b).
Retail Establishment Agreement means the Shop Your Way Rewards Retail Establishment Agreement, dated August 8, 2012, by and between Sears Holdings Management Corporation and SHO.
Rights has the meaning set forth in the Recitals.
Rights Closing Date has the meaning set forth in Section 4.1.
Rights Closing Effective Time means, 5:00 P.M., New York City Time, on the Rights Closing Date.
Rights Distribution Date has the meaning set forth in Section 3.1.
Rights Offering has the meaning set forth in the Recitals.
SAHS means Sears Authorized Hometown Stores, LLC, a Delaware Limited Liability Company.
SEC means the Securities and Exchange Commission.
Securities Act means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder.
Services Agreement means the Services Agreement by and between Sears Holdings Management Corporation and SHO, dated August 8, 2012.
Shared Privileges has the meaning set forth in Section 6.8(d).
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SHLD has the meaning set forth in the Preamble.
SHLD Assets means, without duplication, any and all Assets owned by members of the SHLD Group after giving effect to the Ancillary Agreements and the transactions contemplated by Section 2.1 and for the avoidance of doubt, excluding any SHO Assets.
SHLD Assumed Liabilities means, without duplication,
(i) | any and all Liabilities of members of the SHO Group as and to the extent relating to, arising out of, or resulting from ( A ) the SHLD Business or ( B ) any SHLD Assets and any former Assets of any member of the SHLD Group or any of its predecessors (other than Liabilities expressly allocated to the SHO Group pursuant to the Ancillary Agreements); |
(ii) | any and all Liabilities arising out of the Pre-Separation Litigation Matters, other than SHO Retained Wage Law Liabilities; |
(iii) | SHLD Assumed Wage Law Liabilities; and |
(iv) | SHLD Assumed Transaction Liabilities. |
SHLD Assumed Transaction Liabilities means
(i) | 100% of Transaction Liabilities arising from, relating to, or derivative of allegations of breach of fiduciary duty, which breaches are alleged to have occurred on or before the Rights Closing Effective Time; |
(ii) | 100% of Transaction Liabilities arising from, relating to, or derivative of allegations of breach of fiduciary duty by one or more of the members of SHLDs Board of Directors, which breaches are alleged to have occurred after the Rights Closing Effective Time; and |
(iii) | 100% of Transaction Liabilities arising from, relating to, or derivative of allegations that one or more statements made in, or one or more omissions from, the SHO Registration Statement violated one or more federal or state securities laws. |
SHLD Assumed Wage Law Liabilities means any and all Liabilities, directly or indirectly arising out of, relating to or based upon all Wage Law Actions, to the extent such Wage Law Actions commenced on or prior to the Rights Closing Effective Time and only to the extent such Liabilities are attributable to facts and circumstances occurring prior to the Rights Closing Effective Time; provided that for the avoidance of doubt, SHLD Assumed Wage Law Liabilities shall not include any Liabilities attributable to the conduct of the SHO Business (including its wage and hour practices, classifications and policies) from and after the Rights Closing Effective Time, which Liabilities shall be SHO Retained Wage Law Liabilities.
SHLD Business means ( A ) the businesses and operations of the SHLD Group and ( B ) any terminated, divested or discontinued businesses and operations of any member of the SHLD Group or any of its predecessors; provided, however, that the SHLD Business shall not include the SHO Business.
SHLD Group means, collectively, SHLD and all of its Subsidiaries other than members of the SHO Group.
SHLD Indemnified Party has the meaning set forth in Section 10.2.
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SHLD Liabilities means, without duplication, all and all Liabilities of members of the SHLD Group after giving effect to the Ancillary Agreements and the transactions contemplated by Section 2.1, and for the avoidance of doubt, including the SHLD Assumed Liabilities and excluding any SHO Liabilities.
SHLD Litigation Matters means (i) any and all Actions that are primarily related to the SHLD Assets, the SHLD Liabilities or the SHLD Business and (ii) any and all Pre-Separation Litigation Matters but excluding any Joint Litigation Matters.
SHO has the meaning set forth in the Preamble.
SHO Annual Report has the meaning set forth in Section 7.1(b).
SHO Assets means, without duplication, all of the right, title and interest in and to any and all Assets owned by members of the SHO Group after giving effect to the Ancillary Agreements and the transactions contemplated by Section 2.1, and for the avoidance of doubt, including (i) all issued and outstanding equity interests in all members of the SHO Group other than SHO, (ii) the Hometown Transferred Assets, (iii) the Outlet Transferred Assets, (iv) the PR Dealer Assets and (v) the PR Outlet Assets, but excluding any Pre-Separation Litigation Assets.
SHO Assumed Liabilities means, without duplication,
(i) any and all Liabilities of members of the SHLD Group as and to the extent relating to, arising out of, or resulting from ( A ) the SHO Business, or ( B ) any SHO Assets and any former Assets of any member of the SHO Group or any of its predecessors (other than SHLD Assumed Transaction Liabilities, SHLD Assumed Wage Law Liabilities and Liabilities expressly allocated to the SHLD Group pursuant to the Ancillary Agreements);
(ii) any and all SHO Retained Wage Law Liabilities; and
(iii) SHO Assumed Transaction Liabilities.
SHO Assumed Transaction Liabilities means 100% of Transaction Liabilities arising from, relating to, or derivative of allegations of breach of fiduciary duty by one or more of the members of SHOs Board of Directors, which breaches are alleged to have occurred after the Rights Closing Effective Time.
SHO Business means ( A ) the businesses and operations of the SHO Group, including the business of SHO as described in the SHO Registration Statement and ( B ) any terminated, divested or discontinued businesses and operations of any member of the SHO Group or any of its predecessors.
SHO Common Stock has the meaning set forth in the Recitals.
SHO Contribution has the meaning set forth in Section 2.1(e)(i).
SHO Group means, collectively, SHO, the Transferred Entities and all other Persons that hereafter become a Subsidiary of SHO.
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SHO Indemnified Party has the meaning set forth in Section 10.3.
SHO Liabilities means, without duplication, any and all Liabilities of members of the SHO Group after giving effect to the Ancillary Agreements and the transactions contemplated by Section 2.1 and for the avoidance of doubt, including (i) the SHO Assumed Liabilities, (ii) the Hometown Assumed Liabilities, (iii) the Outlet Assumed Liabilities, (iv) the PR Dealer Liabilities and (v) the PR Outlet Liabilities, but excluding (i) the SHLD Assumed Liabilities and (ii) any Liabilities for which members of the SHO Group are entitled to indemnification from the SHLD Group pursuant to the Tax Sharing Agreement.
SHO Litigation Matters means any and all Actions primarily related to the SHO Assets, the SHO Liabilities or the SHO Business, but excluding any Pre-Separation Litigation Matters and any Joint Litigation Matters.
SHO Quarterly Report has the meaning set forth in Section 7.1(a).
SHO Registration Statement means the registration statement on Form S-1 (Registration No. 333-181051), as amended, filed with the SEC, pursuant to which the Rights to be distributed and the SHO Common Stock to be offered and sold through the Rights Offering have been registered under the Securities Act.
SHO Retained Wage Law Liabilities means any and all Liabilities, directly or indirectly arising out of, relating to or based upon all (i) Wage Law Actions, commenced after the Rights Closing Effective Time and (ii) any Liabilities described in the proviso in the definition of SHLD Assumed Wage Law Liabilities.
Software means computer software, programs, databases and applications, whether in source code, object code or other form, including, operating software, network software, Internet websites, web content and links, all versions, updates, corrections, enhancements, replacements and modifications thereof, and all documentation related thereto.
SPR means Sears, Roebuck de Puerto Rico, Inc., a Delaware corporation.
SRC means Sears, Roebuck and Co., a New York corporation.
Subsidiaries means any and all corporations, partnerships, limited liability companies, joint ventures, associations and other entities controlled by a Person directly or indirectly through one or more intermediaries.
Tax or Taxes has the meaning set forth in the Tax Sharing Agreement.
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Tax Sharing Agreement means the Tax Sharing Agreement by and between SHLD, on the one hand, and SHO and its subsidiaries, on the other hand, dated August 8, 2012.
Third Party means any Person that is not a party hereto or an Affiliate of any party hereto.
Third Party Claim has the meaning set forth in Section 10.8(a).
Third Party Proceeds has the meaning set forth in Section 10.5(a).
Transaction Liabilities means any and all Liabilities arising from, relating to, or derivative of any Action, whether commenced prior to, on or subsequent to the Rights Closing Effective Time, with respect to the Business Separation and the Rights Offering made or brought by any Person against SHLD, SHO or any member of their respective Groups, including, any and all Liabilities under applicable Laws (including, federal and state securities Laws) arising from, relating to, or derivative of any Action relating to any public disclosure (or absence of public disclosure) at or prior to the Rights Closing Effective Time by SHLD, SHO or any member of their respective Groups in connection the Business Separation and the Rights Offering.
Transfer Impediment has the meaning set forth in Section 5.3(a).
Transferred Entity means each of SAHS, Outlet Stores, and Sears Home Appliance Showrooms, LLC.
Unreleased Liability has the meaning set forth in Section 5.2.
Unreleased Person has the meaning set forth in Section 5.2.
Unresolved Disputes has the meaning set forth in Section 11.2(b).
Wage Law Action means any Action with respect to violations by the SHO Business of the Fair Labor Standards Act, any amendments thereto or any rules or regulations promulgated thereunder as each apply to the regulation of employee wages and hours, or any similar provisions of any federal, state, or local law.
ARTICLE II
THE BUSINESS SEPARATION
Section 2.1 Business Separation . On the terms and subject to the conditions set forth in this Agreement, prior to the effectiveness of SHO Registration Statement (but subject to Section 5.2 with respect to Unreleased Liabilities and Section 5.3 with respect to Deferred Transfer Assets and Deferred Transferred Liabilities), the transactions set forth in this Section 2.1 (collectively, the Business Separation ) shall take place in the order provided below:
(a) US Assets Contribution and Liabilities Assumption .
(i) SRC shall convey, assign and transfer as a capital contribution by way of contribution to surplus ( x ) to SAHS, all of SRCs right, title and interest in and to the Hometown Transferred Assets and cash in an amount equal to $3,399,206 and ( y ) to Outlet Stores, all of SRCs right, title and interest in and to the Outlet Transferred Assets and cash in an amount equal to $340,820 (collectively, the Assets Contribution ).
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(ii) ( x ) SAHS shall accept and assume all Hometown Assumed Liabilities and ( y ) Outlet Stores shall accept and assume all Outlet Assumed Liabilities.
(b) Puerto Rico Assets Transfer and Liabilities Assumption .
(i) SPR shall sell, and SAHS shall purchase, all of SPRs right, title and interest in and to the PR Dealer Assets; and SAHS shall pay, or cause to be paid, to SPR, a purchase price in an amount equal to $3,399,206 and shall accept and assume all PR Dealer Liabilities.
(ii) SPR shall sell, and Outlet Stores shall purchase, all of SPRs right, title and interest in and to the PR Outlet Assets; and Outlet Stores shall pay, or cause to be paid, to SPR, a purchase price in an amount equal to $340,820 and shall accept and assume all PR Outlet Liabilities.
(c) Distribution of Litigation Assets . Concurrently with the transactions set forth in Sections 2.1(a) and (b), each of the Transferred Entities shall distribute to SRC, all of such Transferred Entitys right, title and interest, if any, in and to the Pre-Separation Litigation Assets.
(d) LLC Distribution . Immediately following the transactions set forth in Sections 2.1 (a), (b) and (c), SRC shall distribute to SHLD all of SRCs right, title and interest in and to all the issued and outstanding equity interests of the Transferred Entities (the LLC Distribution ).
(e) SHO Contribution .
(i) Immediately following the LLC Distribution, SHLD shall contribute all of its right, title and interest in and to all the issued and outstanding equity interests of the Transferred Entities to SHO (the SHO Contribution ) by way of contribution to surplus.
(ii) Concurrently with the SHO Contribution, ( x ) SHLD shall accept and assume all the SHLD Assumed Liabilities and ( y ) SHO shall accept and assume all the SHO Assumed Liabilities.
Each Person required pursuant to this Section 2.1 to assume any Liability shall accept, assume, perform, discharge and fulfill such Liability in accordance with its terms, regardless of ( i ) when or where such Liabilities arose or arise, ( ii ) whether the facts upon which they are based occurred prior to, on or subsequent to the Rights Closing Effective
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Time, ( iii ) where or against whom such Liabilities are asserted or determined and ( iv ) whether arising from or alleged to arise from negligence, recklessness, violation of Law, fraud or misrepresentation by any member of the SHLD Group or the SHO Group, as the case may be, or any of their past or present respective directors, officers, employees, agents, Subsidiaries or Affiliates.
ARTICLE III
DISTRIBUTION OF THE RIGHTS
Section 3.1 Distribution of Rights . Following the Business Separation and subject to SHLDs rights pursuant to Article XIII, SHLD may, in its sole and absolute discretion, distribute the Rights in the manner described in the SHO Registration Statement. The date on which the distribution of the Rights occurs shall be the Rights Distribution Date . Prior to such Rights distribution, SHLD may, in its sole and absolute discretion, as the sole shareholder of SHO, cause the certificate of incorporation of SHO to be amended, such that, upon the filing of such amended certificate with the Secretary of State of the State of Delaware, each share of the SHO Common Stock then issued and outstanding, shall be converted into that number of fully paid and non-assessable shares of SHO Common Stock issued and outstanding equal to such number as the board of directors of SHLD shall determine is required in order to complete the sale of SHO Common Stock as contemplated by the Rights Offering.
ARTICLE IV
CLOSING OF RIGHTS OFFERING
Section 4.1 Rights Closing . Subject to SHLDs rights pursuant to Article XIII, the closing of the sale of SHO Common Stock pursuant to the Rights shall take place in the manner described in The Rights Offering section of the SHO Registration Statement. The date on which the closing of the sale of SHO Common Stock occurs shall be the Rights Closing Date .
Section 4.2 Intercompany Agreements .
(a) Except as set forth in Section 4.2(b), in furtherance of the releases and other provisions of Section 10.1, SHO, on behalf of itself and each other member of the SHO Group, on the one hand, and SHLD, on behalf of itself and each other member of the SHLD Group, on the other hand, shall terminate, effective as of the Rights Closing Effective Time, any and all Intercompany Agreements in effect as of the Rights Closing Date and shall settle, or cause to be settled, all Intercompany Accounts on or prior to the Rights Closing Effective Time. No such terminated Intercompany Agreements (including any provision thereof that purports to survive termination) shall be of any further force or effect after the Rights Closing Effective Time. Each party hereto shall, at the reasonable request of the other party hereto, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.
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(b) The provisions of Section 4.2(a) shall not apply to any of the following Intercompany Agreements (or to any of the provisions thereof) or Intercompany Accounts: ( i ) this Agreement and the Ancillary Agreements (and each other Intercompany Agreement or Intercompany Account expressly contemplated hereby or thereby, including the Implementation Documents) and ( ii ) any outstanding intercompany trade receivables or payables incurred in the ordinary course of business that are reflected in the books and records of the parties or otherwise documented in writing in accordance with past practices.
Section 4.3 Resignation . On or before the Rights Closing Effective Time:
(a) SHLD shall deliver to SHO the resignation, effective as of the Rights Closing Effective Time, of each Person who is an officer or a director of any member of the SHO Group immediately prior to the Rights Closing Effective Time and who will be an employee or officer of any member of the SHLD Group immediately after the Rights Closing Effective Time.
(b) SHO shall deliver to SHLD the resignation, effective as of the Rights Closing Effective Time, of each Person who is an officer or a director of any member of the SHLD Group immediately prior to the Rights Closing Effective Time and who will be an employee or officer of any member of the SHO Group immediately after the Rights Closing Effective Time.
ARTICLE V
GENERAL PROVISONS
Section 5.1 Implementation Documents . In order to effectuate the transactions contemplated in this Agreement, each of SHLD and SHO shall execute and deliver, or cause to be executed and delivered, such deeds, bills of sale, instruments of assumption, instruments of assignment, stock powers, certificates of title and other instruments of assignment, transfer, contribution, assumption, license and conveyance (collectively, the Implementation Documents ) as and to the extent necessary to effect such transactions.
Section 5.2 Unreleased Liabilities . If at any time after the Rights Closing Effective Time, any member of the SHLD Group shall remain obligated to any Third Party in respect of any SHO Liability or any member of the SHO Group shall remain obligated to any Third Party in respect of any SHLD Liability, in each case, as guarantor, assignor, original tenant, primary obligor or otherwise, the following provisions shall apply. Any Liability referred to in this Section 5.2 is hereinafter referred to as an Unreleased Liability and any Person remaining obligated for such Liability is hereinafter referred to as an Unreleased Person.
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(a) Nothing in this Agreement shall release any Unreleased Person with respect to any obligation to any applicable Third Party for such Unreleased Liability as provided in the relevant Contract, applicable Law or other source of such Unreleased Liability, provided that such Unreleased Person shall be entitled to indemnification pursuant to Section 10.4.
(b) The parties hereto shall continue on and after the Rights Closing Effective Time to use reasonable efforts to cause each Unreleased Person to be released from each of its Unreleased Liabilities.
(c) If, as and when it becomes possible to delegate, novate or extinguish any Unreleased Liability in favor of an Unreleased Person, the relevant party shall, promptly execute and deliver, or cause to be promptly executed and delivered, all such documents and perform all such other acts, as may be necessary or desirable to give effect to such delegation, novation, extinction or other release without payment of any further consideration by the Unreleased Person.
Section 5.3 Deferred Transfers .
(a) If and to the extent that the transfer, assignment or novation to the SHO Group of any SHO Assets or SHO Liabilities, or to the SHLD Group of any SHLD Assets or SHLD Liabilities, would be a violation of applicable Law or require any Consent or Governmental Approval or the fulfillment of any condition that cannot be fulfilled by the applicable member of the SHO Group or the SHLD Group (the Transfer Impediments , which for the avoidance of doubt, shall not include purely monetary condition to the extent the necessary funds are advanced, assumed, or agreed in advance to be reimbursed by the applicable transferee), then the transfer, assignment or novation to the transferee or assignee of such SHO Assets or SHO Liabilities or SHLD Assets or SHLD Liabilities shall be automatically deemed deferred and any such purported transfer or assignment shall be null and void until such time as all Transfer Impediments have been removed. Any such Liability shall be deemed a Deferred Transfer Liability and any such Asset shall be deemed a Deferred Transfer Asset .
(b) If the transfer or assignment of any Deferred Transfer Asset or assumption of any Deferred Transfer Liability is not consummated prior to or at the Rights Closing Effective Time, whether as a result of the provisions of Section 5.3(a) or for any other reason, then, insofar as reasonably possible, ( i ) the Person retaining such Deferred Transfer Asset shall thereafter hold such Deferred Transfer Asset for the use and benefit of the Person entitled thereto (at the expense of the Person entitled thereto) and ( ii ) the Person intended to assume such Deferred Transfer Liability shall, or shall cause the applicable member of its Group to, pay or reimburse the Person retaining such Deferred
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Transfer Liability for all amounts paid or incurred in connection with the retention of such Deferred Transfer Liability. In addition, the Person retaining such Deferred Transfer Asset shall, insofar as reasonably possible and to the extent permitted by applicable Law, treat such Asset in the ordinary course of business in accordance with past practice and take such other actions as may be reasonably requested by the Person to which such Deferred Transfer Asset is to be transferred in order to place such Person, insofar as reasonably possible, in the same position as if such Deferred Transfer Asset had been transferred as contemplated hereby and so that all the benefits and burdens relating to such Deferred Transfer Asset, including, possession, use, risk of loss, potential for gain, and dominion, control and command over such Deferred Transfer Asset, are to inure from and after the Rights Closing Effective Time to the member or members of the SHO Group or the SHLD Group entitled to the receipt of such Deferred Transfer Asset.
(c) If and when all Transfer Impediments, which caused the deferral of transfer of any Deferred Transfer Asset or Deferred Transfer Liability pursuant to Section 5.3(a), are removed, the transfer, assignment or novation of the applicable Deferred Transfer Asset or Deferred Transfer Liability shall be effected in accordance with and subject to the terms of this Agreement and any applicable Ancillary Agreement or Implementation Document.
(d) The Person retaining any Deferred Transfer Asset or Deferred Transfer Liability due to the deferral of the transfer or assignment of such Deferred Transfer Asset or the deferral of the assumption of such Deferred Transfer Liability pursuant to Section 5.3(a) or otherwise shall continue on and after the Rights Closing Effective Time to use commercially reasonable efforts to remove all Transfer Impediments; provided , however , that such Person shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced, assumed, or agreed in advance to be reimbursed by the Person entitled to such Deferred Transfer Asset or the Person intended to be subject to such Deferred Transfer Liability.
(e) Any Deferred Transfer Asset shall be deemed to have been contributed, distributed, assigned, transferred, conveyed, licensed or delivered pursuant to this Section 5.3 on the date such transfer should have occurred pursuant to Section 2.1 in the absence of the Transfer Impediments upon its actual contribution, distribution, assignment, transfer, conveyance, license or delivery to the applicable Group as contemplated in Section 5.3. Any Deferred Transfer Liability shall be deemed to have been accepted or assumed pursuant to this Section 5.3 on the date such assumption should have occurred pursuant to Section 2.1 in the absence of the Transfer Impediments upon its actual acceptance or assumption by the applicable Group as contemplated in Section 5.3.
Section 5.4 Transfers of Assets or Liabilities Following the Business Separation . Subject to Section 5.3, if at any time on or after the Business Separation (including after the Rights Closing Effective Time), any member of the SHLD Group or the SHO Group shall receive or otherwise possess any Asset or incur any Liability that is
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allocated to a member of the other Group pursuant to this Agreement or an Ancillary Agreement, such Person shall, in accordance with the terms hereof, promptly transfer, or cause to be transferred, such Asset or Liability to the Person so entitled thereto or responsible therefor, and such other Person shall accept or assume, or cause to be accepted or assumed, such Asset or Liability. Prior to such transfer, such Person shall hold such Asset or Liability in trust for such other Person so entitled thereto or responsible therefor.
Section 5.5 Corporate Names; Trademarks . Except as specifically provided in the License Agreements or other Ancillary Agreements, after the Rights Closing Effective Time, no member of one Group may use any trademark, service mark, trade dress, Internet domain name, logo or other source identifier (collectively, the Marks ) owned by any member of the other Group, except as permitted under applicable Law or subsequent agreement in writing between the parties. Notwithstanding the foregoing or anything in the Ancillary Agreements to the contrary, no member of one Group shall be required to take any action to remove any reference to any Mark of a member of the other Group from materials already in the rightful possession of customers or other Third Parties as of the Rights Closing Effective Time.
Section 5.6 Certain Matters Governed Exclusively by Ancillary Agreements .
(a) Effective on the Rights Closing Date, the parties hereto shall, and shall cause applicable members of their respective Groups to, execute and deliver the Ancillary Agreements.
(b) Each of SHLD and SHO agrees on behalf of itself and members of its Group that, except as otherwise expressly provided for in this Agreement or any Ancillary Agreement, ( i ) the Tax Sharing Agreement shall exclusively govern all matters relating to Taxes between such parties, ( ii ) the Employee Transition and Administrative Services Agreement shall exclusively govern all matters relating to the separation of employees and other employee-related matters identified therein between such parties and ( iii ) the other Ancillary Agreements shall exclusively govern those matters subject to such agreements.
Section 5.7 Disclaimer of Representations and Warranties .
(a) SHO (on behalf of itself and each member of the SHO Group) understands and agrees that, except as expressly set forth in any Ancillary Agreement, no party to this Agreement, any Ancillary Agreement or any other agreement or document contemplated by this Agreement, any Ancillary Agreement or otherwise, is representing or warranting in any way as to the SHO Assets or SHO Liabilities transferred, assumed or retained as contemplated hereby or thereby, as to any Consents or Governmental Approvals required in connection therewith, as to the value or freedom from any Encumbrances of, or any other matter concerning, any SHO Asset or SHO Liability, or as to the absence of any
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defense or right of setoff or freedom from counterclaim with respect to any claim or other SHO Asset, including, any accounts receivable of any party, or as to the legal sufficiency of any assignment, document or instrument delivered hereunder or thereunder to convey title to any SHO Asset or thing of value upon the execution, delivery and filing hereof or thereof.
(b) SHLD (on behalf of itself and each member of the SHLD Group) understands and agrees that, except as expressly set forth in any Ancillary Agreement, no party to this Agreement, any Ancillary Agreement or any other agreement or document contemplated by this Agreement, any Ancillary Agreement or otherwise, is representing or warranting in any way as to the SHLD Assets or SHLD Liabilities transferred, assumed or retained as contemplated hereby or thereby, as to any Consents or Governmental Approvals required in connection therewith, as to the value or freedom from any Encumbrances of, or any other matter concerning, any SHLD Asset or SHLD Liability, or as to the absence of any defense or right of setoff or freedom from counterclaim with respect to any claim or other SHLD Asset, including, any accounts receivable of any party, or as to the legal sufficiency of any assignment, document or instrument delivered hereunder to convey title to any SHLD Asset or thing of value upon the execution, delivery and filing hereof or thereof.
(c) Except as may expressly be set forth in any Ancillary Agreement, all SHO Assets and SHLD Assets are being transferred on an as is, where is basis (and, in the case of transfer of any real property, by means of a special or limited warranty deed or similar form of deed, instrument of assignment or conveyance) and the respective transferees shall bear the economic and legal risks that ( i ) any conveyance shall prove to be insufficient to vest in the transferee good and marketable title (or leasehold, as applicable), free and clear of any Encumbrance, and ( ii ) any necessary Consents or Governmental Approvals are not obtained or any requirements of Law are not complied with.
ARTICLE VI
CONFIDENTIALITY; EXCHANGE OF INFORMATION
Section 6.1 Agreement for Exchange of Information; Archives .
(a) Except in the case of an Action or threatened Action by either party hereto or any Person in such partys Group against the other party hereto or any Person in its Group, and subject to Section 6.1(b), each party hereto shall provide, or cause to be provided, to the other party or any member of its Group, at any time before or after the Business Separation, as soon as reasonably practicable after written request therefor, all Information in the possession or under the control of its Group (and access to employees of its Group during normal business hours and upon reasonable notice in connection with the discussion and explanation of such Information), which any member of the other
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partys Group reasonably requests and is necessary ( i ) to comply with reporting, disclosure, filing or other requirements under applicable Law or imposed by any national securities exchange or any Governmental Authority having jurisdiction over such Person, ( ii ) for use in any other judicial, regulatory, administrative or other proceeding or in order to satisfy audit, accounting, regulatory, litigation or other similar requirements or ( iii ) to comply with its obligations under this Agreement or any Ancillary Agreement. The receiving party shall use any Information received pursuant to this Section 6.1(a) solely to the extent reasonably necessary to satisfy the applicable obligations or requirements described in clause (i), (ii) or (iii) of the immediately preceding sentence.
(b) Subject to the last sentence of this Section 6.1(b), in the event that either SHLD or SHO, as applicable, reasonably determines that the exchange of any Information pursuant to Section 6.1(a) could be commercially detrimental, violate any Law or agreement or waive or jeopardize any attorney-client privilege or attorney work product protection, such party shall not be required to provide access to or furnish such Information to the other party; provided , however , that the parties shall take all commercially reasonable measures to permit the compliance with Section 6.1(a) in a manner that avoids any such harm or consequence. Both SHLD and SHO intend that any provision of access to or the furnishing of Information pursuant to this Section 6.1 that would otherwise be within the ambit of any legal privilege shall not operate as waiver of such privilege.
(c) Except as otherwise provided in the Ancillary Agreements, a member of one Group will only process Information about individual customers and/or employees, including, names, addresses, telephone numbers, account numbers, customer lists, and demographic, financial and transaction information, in each case provided by the other Group pursuant to this Section 6.1, in accordance with the privacy policies of SHLD existing as of the Rights Closing Effective Time and all applicable privacy and data protection law obligations and will implement and maintain at all times appropriate technical and organizational measures to protect such personal data against unauthorized or unlawful processing and accidental loss, destruction, damage, alteration and disclosure. In addition, each party hereto agrees to provide reasonable assistance to the other partys Group in respect of any obligations under privacy and data protection Law affecting the disclosure of such personal data to the other partys Group and will not knowingly process such personal data in such a way to cause the other partys Group to violate any of its obligations under any applicable Law.
(d) The party requesting Information shall reimburse the other party for the reasonable out of pocket costs and expenses, if any, in complying with a request for Information pursuant to this Article VI.
Section 6.2 Ownership of Information . Except as otherwise provided in the Ancillary Agreements, all Information owned by one Group that is provided to the other Group hereunder shall be deemed to remain the property of the providing party and nothing herein shall be construed as granting or conferring rights of license or otherwise in any such Information.
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Section 6.3 Record Retention .
(a) To facilitate the possible exchange of Information pursuant to this Article VI and other provisions of this Agreement, except as otherwise expressly provided in any Ancillary Agreement, ( i ) each party hereto shall, and shall cause members of its Group to, use reasonable best efforts to retain all Information in accordance with their respective record retention policies and procedures as in effect as of the Rights Closing Effective Time and ( ii ) no party hereto shall destroy, or permit any member of its Group to destroy, any Information which any member of the other Group may have the right to obtain pursuant to this Agreement prior to the later of the period in the applicable retention policy or the fifth (5th) anniversary of the Rights Closing Date without first notifying the other party hereto of the proposed destruction and giving the other party hereto the opportunity to take possession of such Information prior to such destruction.
(b) Each of the parties hereto shall, and shall cause members of its respective Group to, use reasonable efforts to deliver to the other party ( i ) on or prior to the Rights Closing Effective Time, any and all original corporate organizational books that such party or any member of its Group has in its possession primarily relating to the other partys Business, ( ii ) on or prior to the Rights Closing Effective Time, originals of any and all Records that any member of its Group knowingly has in its possession or control, whether in paper or electronic format, in each case relating primarily to the other partys Business, and ( iii ) as soon as reasonably practicable following their discovery, originals of any materials described in (i) and (ii) above which it or any member of its Group discovers are in its possession or control following the Rights Closing Effective Time; provided , however , that with respect to clauses (i), (ii) and (iii) of this paragraph (b), the party providing such Records may retain copies of any such Records that relate to its Business, including, corporate minute books and risk management files.
Section 6.4 Production of Witnesses; Records; Cooperation .
(a) After the Rights Closing Effective Time, but only with respect to a Third Party Claim, each of SHLD and SHO shall, and shall cause the other members of its Group to, use commercially reasonable efforts to, make available, upon written request, their former, current and future directors, officers, employees, other personnel and agents (whether as witnesses or otherwise) and any books, records or other documents within their control or that they otherwise have the ability to make available, to the extent that each such Person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action or threatened or contemplated Action (including preparation for such Action) in which SHLD or SHO, as applicable,
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may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder. The requesting party shall bear all out-of-pocket costs and expenses in connection therewith.
(b) SHLD and SHO shall use their commercially reasonable efforts to cooperate and consult to the extent reasonably necessary with respect to any Actions or threatened or contemplated Actions involving each others Group, other than an Action against the other Group.
(c) The obligation of SHLD and SHO to make available former, current and future directors, officers, employees and other personnel and agents or provide witnesses and experts pursuant to this Section 6.4 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to make available employees and other officers without regard to whether such individual or the employer of such individual could assert a possible business conflict (subject to the exception set forth in the first sentence of Section 6.4(a)). Without limiting the foregoing, each of SHLD and SHO agrees that neither it nor any Person or Persons in its respective Group will take any adverse action against any Person of its Group based on such Persons provision of assistance or information to the other Group pursuant to this Section 6.4.
(d) Upon the reasonable request of SHLD or SHO, SHLD and SHO shall, and shall cause all other relevant members of their respective Group to, enter into a mutually acceptable common interest agreement so as to maintain to the extent practicable any applicable attorney-client privilege or work product immunity of any member of either Group.
Section 6.5 Confidential Information .
(a) Subject to Section 6.6, each of SHLD and SHO, on behalf of itself and each Person in its respective Group, shall hold, and cause its respective Representatives to hold, in strict confidence and not release or disclose, with at least the same degree of care, that it applies to its own confidential and proprietary information pursuant to policies in effect as of the Rights Closing Effective Time, all Information concerning the other Group or its business that is either in its possession (including Information in its possession prior to the Business Separation) or furnished by the other Group or its respective Representatives at any time pursuant to this Agreement or any Ancillary Agreement or the transactions contemplated hereby and thereby (any such Information referred to herein as Confidential Information ), and shall not use any such Confidential Information other than for such purposes as shall be expressly permitted hereunder or thereunder. Notwithstanding the foregoing, Confidential Information shall not include Information that is ( i ) in the public domain through no fault of any member of the SHLD Group or the SHO Group, as applicable, or any of its respective Representatives, ( ii ) later lawfully acquired by any member of the SHLD Group or the SHO Group, as applicable, or any of its respective Representatives, from other sources not bound by a confidentiality
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obligation, or ( iii ) independently developed by any member of the SHLD Group or the SHO Group, as applicable, or any of its respective Representatives, without reference to any Confidential Information of the SHLD Group or the SHO Group, as applicable. Notwithstanding the foregoing, each of SHLD and SHO may release or disclose, or permit to be released or disclosed, any such Confidential Information concerning the other Group to their Representatives who need to know such Confidential Information (who shall be advised of the obligations hereunder with respect to such Confidential Information), provided that the parties hereto shall be responsible for any breach of this Article VI by the Representatives of their respective Groups.
(b) Each party hereto shall maintain and develop, and shall cause members of its respective Group to maintain and develop, such policies and procedures, necessary or appropriate, to ensure compliance with Section 6.5(a).
(c) Without limiting the foregoing, when any Confidential Information concerning the other Group or its business is no longer needed for the purposes contemplated by this Agreement or any Ancillary Agreement, each of SHLD and SHO will, promptly after request of the other party, either return all Confidential Information in tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or certify to the other party, that it has destroyed such Confidential Information (other than electronic copies residing in automatic backup systems or one copy retained to the extent required by law, regulation or a bona fide document retention policy).
Section 6.6 Protective Arrangement . If any party hereto or any member of its Group either determines on the advice of its counsel that it is required to disclose any Confidential Information pursuant to applicable Law or receives any demand under lawful process or from any Governmental Authority to disclose or provide Information of any other party (or any member of such partys Group), such party required to disclose such Confidential Information shall give the other party prompt, to the extent legally permitted and reasonably practicable, prior notice of such disclosure and an opportunity to contest such disclosure and shall use commercially reasonable efforts to cooperate, at the expense of the requesting Person, in seeking any reasonable protective arrangements requested by such Person. In the event that such appropriate protective order or other remedy is not obtained, the Person that is required to disclose such Information may furnish, or cause to be furnished, only that portion of such Confidential Information that is legally required to be disclosed and shall take commercially reasonable steps to ensure that confidential treatment is accorded such Information.
Section 6.7 Other Agreements Providing for Exchange of Information . The rights and obligations granted or created under this Article VI are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange, retention or confidential treatment of Information set forth in any Ancillary Agreement.
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Section 6.8 Privileged Matters . To allocate the interests of each party in the Information as to which any party is entitled to assert a privilege in connection with professional services that have been provided prior to the Rights Closing Effective Time for the collective benefit of each of the members of the SHLD Group and the members of the SHO Group, whether or not such a privilege exists or the existence of which is in dispute, the parties hereto agree as follows:
(a) SHLD shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged Information which relates to the SHLD Business and, subject to Section 6.8(c), not to the SHO Business, whether or not the privileged Information is in the possession of or under the control of members of the SHLD Group or the SHO Group. SHLD also shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged Information which relates to any pending or future Action that is, or which SHLD reasonably anticipates may become, an SHLD Liability and that is not also, or that SHLD reasonably anticipates will not become, an SHO Liability, whether or not the privileged Information is in the possession of or under the control of members of the SHLD Group or the SHO Group.
(b) Subject to Section 6.8(c), SHO shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged Information which relates to the SHO Business and not to the SHLD Business, whether or not the privileged Information is in the possession of or under the control of members of the SHLD Group or the SHO Group. SHO also shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged Information which relates to any pending or future Action that is, or which SHO reasonably anticipates may become, an SHO Liability and that is not also, or that SHO reasonably anticipates will not become, an SHLD Liability, whether or not the privileged Information is in the possession of or under the control of members of the SHLD Group or the SHO Group.
(c) SHLD shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged Information which relates to the Business Separation, the Rights Offering or the transactions contemplated thereby, it being understood and agreed that the expectation and intention as between SHLD and SHO with respect to any communications between advisors to SHLD and SHO occurring up to and including the Rights Closing Date in connection with the Business Separation, the Rights Offering and such transactions are that the privilege and the expectation of client confidence belong exclusively to SHLD.
(d) Subject to the restrictions in this Section 6.8, SHLD and SHO agree that they shall have equal right to assert all privileges ( Shared Privileges )
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not allocated pursuant to the terms of Section 6.8(a), (b) or (c) with respect to Information as to which the members of both the SHLD Group and the SHO Group may assert a privilege.
(e) Each party hereto shall ensure that no member of its Group may waive any Shared Privilege, without the written consent of the other party which shall not be unreasonably withheld or delayed.
(f) In the event of an Action between one or more members of the SHO Group, on the one hand, and one or more members of the SHLD Group, on the other hand, each such party shall have the right to use any Information that may be subject to a Shared Privilege, without obtaining the consent of the other party, it being understood and agreed that the use of Information with respect to the Action or other dispute between the members of the SHO Group, on the one hand, and the members of the SHLD Group, on the other hand, shall not operate as or be used by either party as a basis for asserting a waiver of such Shared Privilege with respect to Third Parties.
(g) If a dispute arises between any member of the SHO Group, on the one hand, and any member of the SHLD Group, on the other hand, regarding whether a Shared Privilege should be waived to protect or advance the interest of either party, each party hereto agrees that it shall negotiate in good faith and endeavor to minimize any prejudice to the rights of the other party, and shall not unreasonably withhold consent to any request for waiver by the other party. Each party hereto specifically agrees that it will not withhold consent to waiver for any purpose except to protect its own legitimate interests.
(h) Upon receipt by either party hereto or by any member of its Group of any subpoena, discovery or other request which arguably calls for the production or disclosure of Information subject to a Shared Privilege or as to which the other party or a member of such other partys Group has the sole right hereunder to assert a privilege, or if either party obtains knowledge that any of its Groups current or former directors, officers, agents or employees have received any subpoena, discovery or other requests which arguably call for the production or disclosure of such privileged Information, such party shall promptly notify the other party of the existence of the request and shall provide the other party a reasonable opportunity to review the Information and to assert any rights it or any member of its Group may have under this Section 6.8 or otherwise to prevent the production or disclosure of such privileged Information. Each party shall bear its own expenses in connection with any such request.
(i) The transfer of all Records and other Information and each partys retention of Records and other Information which may include privileged Information of the other pursuant to this Agreement is made in reliance on the
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agreement of SHLD and SHO, as set forth in this Article VI, to maintain the confidentiality of the Information and to assert and maintain all applicable privileges. The access to Information being granted and the agreement to provide witnesses herein, the furnishing of notices and documents and other cooperative efforts contemplated hereby, and the transfer of privileged Information between and among the parties hereto and members of their respective Groups pursuant hereto shall not be deemed a waiver of any privilege that has been or may be asserted under this Agreement or otherwise.
ARTICLE VII
FINANCIAL AND OTHER INFORMATION
Section 7.1 Financial and Other Information .
(a) This Section 7.1(a) shall not apply if the Rights Closing Effective Time occurs in the fourth quarter of SHLDs fiscal year. As soon as practicable, and in any event no later than the earlier of ( A ) 35 days prior to the date SHO publicly files its first quarterly report with the SEC that includes its financial statements for such fiscal quarter (the SHO Quarterly Report ) or otherwise makes the SHO Quarterly Report publicly available or ( B ) 35 days before SHLD is required to file with the SEC its quarterly financial statements following the Rights Closing Effective Time, SHO shall deliver to SHLD a substantially final draft of the SHO Quarterly Report certified by the chief financial officer of SHO as presenting fairly, in all material respects, the financial condition and results of operations of the SHO Group. Following such delivery, ( i ) SHO and SHLD shall actively consult with each other regarding any changes (whether or not substantive) which SHO may consider making to the SHO Quarterly Report and related disclosures prior to the filing with the SEC, with particular focus on any changes which would have any effect upon SHLDs financial statements or related disclosures and ( ii ) SHO shall deliver to SHLD all material revisions to such draft as soon as any such revisions are prepared or made.
(b) As soon as practicable, and in any event no later than the earlier of ( A ) 45 days prior to the date SHO publicly files its first annual report with the SEC that includes its financial statements for the fiscal year in which the Rights Closing Effective Time occurs (the SHO Annual Report ) or otherwise makes the SHO Annual Report publicly available or ( B ) 45 days before SHLD is required to file with the SEC its annual financial statements for such fiscal year, SHO shall deliver to SHLD the substantially final draft of the SHO Annual Report certified by the chief financial officer of SHO as presenting fairly, in all material respects, the financial condition and results of operations of the SHO Group. Following such delivery, ( i ) SHO and SHLD shall actively consult with each other regarding any changes (whether or not substantive) which SHO may consider making to the SHO Annual Report and related disclosures prior to the filing with the SEC, with particular focus on any changes which would have any effect upon SHLDs financial statements or related disclosures and ( ii ) SHO shall deliver all material revisions to such drafts as soon as any such revisions are prepared or made.
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(c) ( i ) With respect to Public Filings by SHLD, until the date on which SHLDs annual report on Form 10-K for the year in which the Rights Closing Effective Time occurs is filed, and ( ii ) with respect to Public Filings by SHO, until the date on which the SHO Annual Report is filed, SHLD and SHO shall cooperate fully, and cause their respective accountants to cooperate fully, to the extent requested by the other party, in the preparation of the other partys public earnings releases, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other proxy, information and registration statements, reports, notices, prospectuses and filings made with the SEC or any national securities exchange or otherwise made publicly available (collectively, the Public Filings ). SHLD and SHO agree to provide to each other all Information that the other party reasonably requests in connection with any Public Filings or that, in either partys judgment, is required to be disclosed or incorporated by reference therein under any Law. Such Information shall be provided by such party in a timely manner to enable the other party to prepare, print and release all Public Filings on such dates as such party shall determine. SHLD and SHO shall use their reasonable best efforts to cause their respective auditors to consent to any reference to them as experts in any Public Filings required under any Law. If and to the extent requested by either party, the other party shall diligently and promptly review all drafts of such Public Filings.
(d) To the extent it relates to a pre-Rights Closing Effective Time period, SHO shall authorize its auditors to make available to SHLDs auditors both the personnel who performed or are performing the annual audit of SHO and work papers related to the annual audit of SHO, in all cases within a reasonable time prior to the opinion date of SHLDs auditors, so that SHLDs auditors are able to perform the procedures they consider necessary to take responsibility for the work of the SHOs auditors as it relates to the SHLDs auditors report on SHLD annual financial statements, all within sufficient time to enable SHLD to meet its timetable for the printing, filing and public dissemination of SHLDs audited annual financial statements.
(e) To the extent it relates to a pre-Rights Closing Effective Time period, SHO shall provide SHLDs auditors and management access to personnel and Records of members of its Group so that SHLD may conduct reasonable audits relating to the financial statements provided by SHO pursuant to the provisions of this Section 7.1.
(f) To the extent it relates to a pre-Rights Closing Effective Time period, ( i ) each of the parties hereto shall give the other party hereto as much prior notice as is reasonably practicable of any changes in, or proposed determination of, its accounting estimates or accounting principles from those in effect as of immediately prior to the Rights Closing Effective Time or of any other action with regard to its accounting estimates or accounting principles or previously reported financial results which may affect the other partys financial results, ( ii ) each of the parties hereto will consult with
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the other and, if requested by the party contemplating such changes, with such partys auditor and ( iii ) unless required by generally accepted accounting principles, Law or a Governmental Authority, SHO shall not make such determination or changes which would affect SHLDs previously reported financial results without SHLDs prior written consent, which shall not be unreasonably withheld. Further, SHO will give SHLD prompt notice of any amendments or restatements of accounting statements with respect to pre-Rights Closing Effective Time period, and will provide SHLD with access as provided in Article VII as promptly as possible such that SHLD will be able to satisfy its financial reporting requirements.
(g) Until the end of the fiscal year of SHLD in which the Rights Closing Date occurs, SHO shall, and shall cause each member of its Group to, maintain a fiscal year that commences and ends on the same calendar days as SHLDs fiscal year commences and ends, and to maintain monthly accounting periods that commence and end on the same calendar days as SHLDs monthly accounting periods commence and end.
(h) If either SHO or SHLD is the subject of any SEC comment, review or investigation (formal or informal) and which in any way relates to the other party or the other partys Public Filings, such party shall provide the other party with a copy of any comment or notice of such review or investigation and shall give the other party a reasonable opportunity to be involved in responding to such comment, review or investigation, and the other party shall cooperate with such party in connection with responding to such comment, review or investigation.
(i) Within 10 days after the end of each quarter following the Rights Closing Effective Time during which SHLD and SHO are Affiliates, each of SHLD and SHO shall ( i ) provide the other party hereto with all related party Information required to be disclosed under the applicable law with respect to such quarter and ( ii ) cooperate to provide consistent disclosure with regard to such Information in any Public Filings.
(j) Subject to Section 6.5(a), Information provided pursuant to this Section 7.1, other than information required to be included in the Public Filings, shall be deemed Confidential Information for purposes of this Agreement. Nothing in this Section 7.1 shall require SHLD or SHO to violate any agreement with any of its customers, suppliers or other third parties regarding the confidentiality of Information relating to such customer, supplier or other third party or its business; provided that in the event that SHLD or SHO is required under this Section 7.1 to disclose any such Information, SHLD or SHO shall use all commercially reasonable efforts to seek to obtain such customers, suppliers or other third parties consent to the disclosure of such Information.
(k) Each party hereto agrees and acknowledges, on behalf of itself and members of its Group, that it is aware and will advise its Representatives who receive information provided hereunder and are otherwise not aware, that (i) the information
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provided hereunder may contain material, non-public information concerning the other party and (ii) that United States securities laws prohibit any person who has material non-public information concerning a publicly traded Person from purchasing or selling securities of such Person, or from communicating such information to any other Person under circumstances in which it is reasonably foreseeable that such Person is likely to purchase or sell such securities.
Section 7.2 Sarbanes-Oxley Section 404 Compliance . Following the Business Separation, each party hereto shall continue to provide access to the other party hereto on a timely basis all Information reasonably required to meet its schedule for managements assessment of the effectiveness of its disclosure controls and procedures and its internal control over financial reporting in accordance with Items 307 and 308, respectively, of Regulation S-K and, to the extent applicable to such party, its auditors audit of its internal control over financial reporting and managements assessment thereof in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the SECs and Public Company Accounting Oversight Boards rules and auditing standards thereunder (such assessments and audit being referred to as the Internal Control Audit and Management Assessments ). Without limiting the generality of the foregoing, each party hereto will provide all required financial and other Information with respect to itself and members of its Group (including access to personnel and Records) to the other partys auditors and management in a sufficient and reasonable time and in sufficient detail to permit such other partys auditors and management to complete the Internal Control Audit and Management Assessments.
ARTICLE VIII
INSURANCE
Section 8.1 Insurance Matters .
(a) SHO does hereby, for itself and each other member of the SHO Group, agree that no member of the SHLD Group or any SHLD Indemnified Party shall have any liability whatsoever as a result of the insurance policies and practices of SHLD and its Affiliates as in effect at any time prior to the Rights Closing Effective Time, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise, any professional or other advice with respect to the initial policies for SHO, any handling of claims for SHO, or any oversight or advice with respect to risk management or other insurance-related issues; provided this Section 8.1(a) shall not negate SHLDs agreement under Section 8.1(b).
(b) SHLD agrees to use its reasonable best efforts to cause the interests and rights of SHO and the other members of the SHO Group as of the Rights Closing
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Effective Time as insureds or beneficiaries or in any other capacity under occurrence-based insurance policies and programs (and under claims-made policies and programs to the extent a claim has been submitted prior to the Rights Closing Effective Time) of SHLD or any other member of the SHLD Group in respect of the period prior to the Rights Closing Effective Time to survive the Rights Closing Effective Time for the period for which such interests and rights would have survived without regard to the transactions contemplated hereby to the extent permitted by such policies; and any proceeds received by SHLD or any other member of the SHLD Group after the Rights Closing Effective Time under such policies and programs in respect of SHO and the other members of the SHO Group shall be for the benefit of SHO and the other members of the SHO Group; provided that the interests and rights of SHO and the other members of the SHO Group shall be subject to the terms and conditions of such insurance policies and programs, including any limits on coverage or scope, any deductibles and other fees and expenses and SHLDs allocation of the cost of claims to its business units, including SHO, according to its allocation program in effect as of the Rights Closing Effective Time, and shall be subject to the following additional conditions:
(i) SHO shall report, on behalf of itself and other members of the SHO Group, as promptly as practicable claims in accordance with SHLDs claim reporting procedures in effect immediately prior to the Rights Closing Effective Time (or in accordance with any modifications to such procedures after the Rights Closing Effective Time communicated by SHLD to SHO in writing);
(ii) SHO and the other members of the SHO Group shall indemnify, hold harmless and reimburse SHLD and the other members of the SHLD Group for any premiums, retrospectively rated premiums, defense costs, indemnity payments, deductibles, retentions, claim expenses and claim handling fees or other charges allocated to members of the SHO Group pursuant to the allocation program maintained by SHLD in effect as of the Rights Closing Effective Time; and
(iii) SHO shall, and shall cause other members of the SHO Group to, cooperate and assist with SHLD and other members of the SHLD Group and share such information as is reasonably necessary in order to permit SHLD and members of the SHLD Group to manage and conduct the insurance matters contemplated by this Article VIII, including, without limitation, the production of witnesses in accordance with Section 6.4.
(c) Subject to Section 8.1(b), SHLD and other members of the SHLD Group shall retain the exclusive right to control their insurance policies and programs, including the right to defense, exhaust, settle, release, commute, buy-back or otherwise resolve disputes with respect to any of their insurance policies and programs and to amend, modify or waive any rights under any such insurance policies and programs, notwithstanding whether any such policies or programs apply to any SHO Liabilities
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and/or claims SHO has made or could make in the future, and no member of the SHO Group shall, without the prior written consent of SHLD, erode, exhaust, settle, release, commute, buy-back or otherwise resolve disputes with insurers of SHLD or other members of the SHLD Group with respect to any of the insurance policies and programs of the SHLD Group, or amend, modify or waive any rights under any such insurance policies and programs. Neither SHLD nor any other members of the SHLD Group shall have any obligation to secure extended reporting for any claims under any of the insurance policies and programs of SHLD or other members of the SHLD Group for any acts or omissions by any member of the SHO Group incurred prior to the Rights Closing Effective Time.
(d) This Agreement is not intended as an attempted assignment of any policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any member of the SHO Group in respect of any insurance policy or any other contract or policy of insurance.
(e) Nothing in this Agreement shall be deemed to restrict any member of the SHO Group from acquiring at its own expense any insurance policy in respect of any Liabilities or covering any period.
Section 8.2 Miscellaneous .
(a) Each of the parties intends by this Agreement that a Third Party, including a third-party insurer or reinsurer, or other Third Party that, in the absence of the Agreement would otherwise be obligated to pay any claim or satisfy any indemnity or other obligation, shall not be relieved of the responsibility with respect thereto and shall not be entitled to a windfall (i.e., avoidance of the obligation that such Person would have in the absence of this Agreement). To the extent that any such Person would receive such a windfall, SHLD and SHO shall negotiate in good faith concerning an amendment of this Agreement to avoid such a windfall.
ARTICLE IX
LEGAL MATTERS
Section 9.1 Control of Legal Matters .
(a) At all times from and after the Rights Closing Effective Time, SHO shall assume (or, as applicable, retain) control of each of the SHO Litigation Matters, and SHO shall use its reasonable best efforts to cause any member of the SHLD Group named as a defendant in any such SHO Litigation Matter to be removed and dismissed from such SHO Litigation Matter; provided , however , that SHO shall not be required to make any such effort if the removal of any member of the SHLD Group would jeopardize insurance coverage or rights to indemnification from Third Parties applicable to such SHO
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Litigation Matter; and provided , further that the resolution of any SHO Retained Wage Law Liability described in the proviso in the definition of SHLD Assumed Wage Law Liabilities shall be controlled by SHLD and SHLD shall not settle any such SHO Retained Wage Law Liability without the prior written consent of SHO, which consent shall not be unreasonably withheld or delayed.
(b) At all times from and after the Rights Closing Effective Time, SHLD shall assume (or, as applicable, retain) control of each of the SHLD Litigation Matters (and the resolution of any Liability described in the proviso in the definition of SHLD Assumed Wage Law Liabilities), and SHLD shall use its reasonable best efforts to cause any member of the SHO Group named as a defendant in any such SHLD Litigation Matters to be removed and dismissed from such SHLD Litigation Matter; provided , however , that SHLD shall not be required to make any such effort if the removal of any member of the SHO Group would jeopardize insurance coverage or rights to indemnification from Third Parties applicable to such SHLD Litigation Matter; and provided , further that SHLD shall not settle any Liability described in the proviso in the definition of SHLD Assumed Wage Law Liabilities without the prior written consent of SHO, which consent shall not be unreasonably withheld or delayed.
(c) To the extent SHO or SHLD is unable to cause a member of the other partys Group to be removed and dismissed pursuant to Section 9.1(a) or (b), the parties hereto agree to cooperate in defending against such Action and, subject to Section 6.8, to provide each other with access to all Information relating to such Action except to the extent that providing such access and such Information would prejudice an indemnification claim available to such party as contemplated in Article X.
(d) At all times from and after the Rights Closing Effective Time, SHLD and SHO shall jointly control any Joint Litigation Matter and shall cooperate in defending against such Action; provided , however , that no member of either Group may settle a Joint Litigation Matter without the prior written consent of the members of the other Group named or involved in such Joint Litigation Matter, which consent shall not be unreasonably withheld or delayed; provided , further , that either party may settle a Joint Litigation matter if such settlement is for monetary relief only and provides a full release from, or indemnity for, any liability under such Joint Litigation Matter for the other party and, as applicable, the members of the other partys Group and their respective Representatives.
Section 9.2 Notice to Third Parties; Service of Process; Cooperation .
(a) SHLD and SHO shall cause the members of the SHLD Group and the members of the SHO Group to promptly notify their respective agents for service of process and all other necessary parties, including plaintiffs and courts, of the Business Separation and shall provide instructions for proper service of legal process and other documents.
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(b) SHO and SHLD shall, and shall cause the members of their respective Groups to, use their reasonable best efforts to deliver to each other any legal process or other documents incorrectly served upon them or their agents as soon as possible following receipt.
(c) If any party hereto or any members of its Group receives notice or otherwise learns of the assertion of a Joint Litigation Matter, such party or member of its Group shall give the other party hereto written notice of such Joint Litigation Matter in reasonable detail. The failure to give notice under this subsection shall not relieve any party hereto (or any member of its Group) its Liability for any Joint Litigation Matter as provided hereunder or under any Ancillary Agreement, except to the extent such party is actually prejudiced by the failure to give such notice. The parties hereto shall be deemed to be on notice of any Joint Litigation Matter pending prior to the Rights Closing Effective Time.
ARTICLE X
INDEMNIFICATION
Section 10.1 Release of Pre-Separation Claims .
(a) Except as provided in Section 10.1(c), effective as of the Rights Closing Effective Time, SHO does hereby, for itself and each other member of the SHO Group, their respective Affiliates, successors and assigns, and all Persons who at any time on or prior to the Rights Closing Effective Time have been stockholders, directors, officers, agents or employees of any member of the SHO Group and their respective heirs, executors, administrators, successors and assigns (in each case, in their respective capacities as such), remise, release and forever discharge SHLD and the other members of the SHLD Group, their respective Affiliates, and all Persons who at any time on or prior to the Rights Closing Effective Time have been stockholders, directors, officers, agents or employees of any member of the SHLD Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Rights Closing Effective Time, including in connection with the transactions and all other activities to implement the Business Separation and the Rights Offering.
(b) Except as provided in Section 10.1(c), effective as of the Rights Closing Effective Time, SHLD does hereby, for itself and each other member of the SHLD Group, their respective Affiliates, and all Persons who at any time on or prior to the Rights Closing Effective Time have been stockholders, directors, officers, agents or
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employees of any member of the SHLD Group and their respective heirs, executors, administrators, successors and assigns (in each case, in their respective capacities as such), remise, release and forever discharge SHO, the other members of the SHO Group, their respective Affiliates, and all Persons who at any time on or prior to the Rights Closing Effective Time have been stockholders, directors, officers, agents or employees of any member of the SHO Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Rights Closing Effective Time, including in connection with the transactions and all other activities to implement the Business Separation and the Rights Offering.
(c) Nothing contained in Section 10.1(a) or (b) shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or any other Intercompany Agreements or Intercompany Accounts that are specified in Section 4.2(b) as not to terminate as of the Rights Closing Effective Time, in each case in accordance with its terms. For the avoidance of doubt, nothing contained in Section 10.1(a) or (b) shall release any Person from:
(i) any Liability provided in or resulting from any agreement among any members of the SHLD Group or the SHO Group that is specified in Section 4.2(b) as not to terminate as of the Rights Closing Effective Time, or any other Liability specified in such Section 4.2(b) as not to terminate as of the Rights Closing Effective Time;
(ii) any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to the Group of which such Person is a member in accordance with, or any other Liability of any member of any Group under, this Agreement or any Ancillary Agreement;
(iii) any Liability provided in or resulting from any other agreement or understanding that is entered into on or after the Rights Closing Date between one party hereto (or a member of such partys Group), on the one hand, and the other party hereto (or a member of such partys Group), on the other hand;
(iv) any Liability that the parties hereto may have with respect to indemnification or contribution pursuant to this Agreement or any Ancillary Agreement;
(v) any Liability the release of which would result in the release of any Person not otherwise intended to be released pursuant to this Section 10.1; or
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(vi) any obligation existing prior to the Rights Closing Effective Time of any member of a Group to indemnify any Person who has been a Representative of any member of the Group at any time on or prior to the Rights Closing Effective Time.
(d) SHO shall not make, and shall not permit any other member of the SHO Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against SHLD or any other member of the SHLD Group, or any other Person released pursuant to Section 10.1(a), with respect to any Liabilities released pursuant to Section 10.1(a). SHLD shall not make, and shall not permit any other member of the SHLD Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification against SHO or any other member of the SHO Group, or any other Person released pursuant to Section 10.1(b), with respect to any Liabilities released pursuant to Section 10.1(b).
(e) It is the intent of each of SHLD and SHO, by virtue of the provisions of this Section 10.1, to provide for a full and complete release and discharge of all Liabilities existing or arising from all acts and events occurring or failing to occur or alleged to have occurred or to have failed to occur and all conditions existing or alleged to have existed on or before the Rights Closing Effective Time, between or among SHO or any other member of the SHO Group, on the one hand, and SHLD or any other member of the SHLD Group, on the other hand (including any contractual agreements or arrangements existing or alleged to exist between or among any such members on or before the Rights Closing Effective Time), except as otherwise set forth in Section 10.1(c). At any time, at the request of the other party hereto, each party hereto shall, no later than the fifth day following the receipt of such request, cause each member of its respective Group to execute and deliver releases reflecting the provisions hereof.
Section 10.2 Indemnification by SHO . Following the Rights Closing Effective Time and subject to Section 14.1, SHO shall, and shall cause the members of the SHO Group to, indemnify, defend and hold harmless each member of the SHLD Group and its Affiliates, and each of their respective current or former directors, officers, employees, agents, and each of the heirs, executors, administrators, successors and assigns of any of the foregoing (each, a SHLD Indemnified Party ), from and against all Liabilities actually incurred or suffered by the SHLD Indemnified Parties relating to, arising out of or resulting from one or more of the following:
(a) each SHO Liability, including arising out of the failure of any member of the SHO Group or any other Person to pay, perform or otherwise promptly discharge any such SHO Liability;
(b) the SHO Business;
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(c) each SHO Asset;
(d) each breach by SHO or any member of the SHO Group of this Agreement; and
(e) each breach by SHO or any member of the SHO Group of an Ancillary Agreement, subject to any specific limitation on liability contained in the Ancillary Agreement and without duplication taking into account the performance by each member of the SHO Group of its indemnification obligations in the Ancillary Agreement.
Section 10.3 Indemnification by SHLD . Following the Rights Closing Effective Time and subject to Section 14.1, SHLD shall, and shall cause the members of the SHLD Group to, indemnify, defend and hold harmless each member of the SHO Group and its Affiliates, and each of their respective current or former directors, officers, employees, agents, and each of the heirs, executors, administrators, successors and assigns of any of the foregoing (each, a SHO Indemnified Party ), from and against any and all Liabilities arising out of or resulting from any of the following items:
(a) each SHLD Liability, including arising out of the failure of any member of the SHLD Group or any other Person to pay, perform or otherwise promptly discharge any such SHLD Liability;
(b) the SHLD Business;
(c) each SHLD Asset;
(d) each breach by SHLD or any member of the SHLD Group of this Agreement; and
(e) each breach by SHLD or any member of the SHLD Group of an Ancillary Agreement, subject to any specific limitation on liability contained in the Ancillary Agreement and without duplication taking into account the performance by each member of the SHLD Group of its indemnification obligations in the Ancillary Agreement.
Section 10.4 Indemnification with respect to Unreleased Liabilities . Without limiting the generality of Sections 10.2 and 10.3, SHLD shall indemnify, defend and hold harmless each SHO Indemnified Party that is an Unreleased Person against any Liabilities arising in respect of each Unreleased Liability of such Person and SHO shall indemnify, defend and hold harmless each SHLD Indemnified Party that is an Unreleased Person against any Liabilities arising in respect of each Unreleased Liability of such Person. SHLD and SHO shall take, and shall cause the members of their respective Groups to take, such other actions as may be reasonably requested by the other party in
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accordance with the provisions of this Agreement in order to place SHLD and SHO (and any relevant member of their respective Groups), insofar as reasonably possible, in the same position as they would be in if such Unreleased Liability had been fully contributed, assigned, transferred, conveyed, and delivered to, and accepted and assumed or retained, as applicable, by the other party (or any relevant member of its Group) with effect as of the Rights Closing Effective Time and so that all the benefits and burdens relating to such Unreleased Liability, including possession, use, risk of loss, potential for gain, and dominion, control and command over such Unreleased Liability, are to inure from and after the Rights Closing Effective Time to the member or members of the SHLD Group or the SHO Group, as the case may be.
Section 10.5 Adjustments to Indemnification Obligations .
(a) The parties hereto intend that each Liability subject to indemnification, contribution or reimbursement pursuant hereto will be net of ( i ) all Insurance Proceeds, and ( ii ) all recoveries, judgments, settlements, contribution, indemnities and other amounts received (including by way of set-off) from all Third Parties, in each case that actually reduce the amount of, or are paid to the applicable indemnitee in respect of, such Liability ( Third Party Proceeds ). Accordingly, the amount that a party (each an Indemnifying Party ) is required to pay to each Person entitled to indemnification hereunder (each an Indemnified Party ) shall be reduced by all Insurance Proceeds and Third Party Proceeds received by or on behalf of the Indemnified Party in respect of the relevant Liability; provided , however , that all amounts described in Section 10.2 or Section 10.3 which are incurred by an Indemnified Party shall be paid promptly by the Indemnifying Party and shall not be delayed pending any determination as to the availability of Insurance Proceeds or Third Party Proceeds; provided , further , that upon such payment by or on behalf of an Indemnifying Party to an Indemnified Party in connection with a Third Party Claim, to the extent permitted by applicable Laws such Indemnified Party shall assign its rights to recover all Insurance Proceeds and Third Party Proceeds to the Indemnifying Party and such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnified Party as to all events and circumstances in respect of which such Indemnified Party may have with respect to all rights, defenses, and claims relating to such Third Party Claim. If, notwithstanding the second proviso in the preceding sentence, an Indemnified Party receives a payment required to be made under this Article X (an Indemnity Payment ) from an Indemnifying Party in respect of a Liability and subsequently receives Insurance Proceeds or Third Party Proceeds in respect of such Liability, then the Indemnified Party shall pay to the Indemnifying Party an amount equal to the excess of the amount paid by the Indemnifying Party over the amount that would have been due if such Insurance Proceeds and Third Party Proceeds had been received before the Indemnity Payment was made. Each member of the SHLD Group and each member of the SHO Group shall use reasonable best efforts to seek to collect or recover all Insurance Proceeds and all Third Party Proceeds to which such Person is entitled in respect of a Liability for which such Person seeks indemnification
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pursuant to this Article X; provided , however , that such Persons inability to collect or recover any such Insurance Proceeds or Third Party Proceeds shall not limit the Indemnifying Partys obligations hereunder.
(b) An insurer that would otherwise be obligated to pay a claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurer or other third party shall be entitled to a windfall (i.e., a benefit it would not be entitled to receive in the absence of the indemnification provisions hereof) by virtue of the indemnification provisions hereof.
Section 10.6 Contribution . If the indemnification provided for in this Article X is unavailable to, or insufficient to hold harmless, an Indemnified Party in respect of a Liability for which indemnification is provided for herein then each Indemnifying Party shall, in lieu of indemnifying such Indemnified Party, contribute to the amount paid or payable by such Indemnified Party as a result of such Liability, in such proportion as shall be sufficient to place the Indemnified Party in the same position as if such Indemnified Party were indemnified hereunder. If the contribution provided for in the previous sentence shall, for any reason, be unavailable or insufficient to put the Indemnified Party in the same position as if it were indemnified under Section 10.2 or Section 10.3, as the case may be, then the Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such Liability, in such proportion as shall be appropriate to reflect the relative benefits received by and the relative fault of the Indemnifying Party on the one hand and the Indemnified Party on the other hand with respect to the matter giving rise to the Liability.
Section 10.7 Procedures for Indemnification of Direct Claims . Each claim for indemnification made directly by the Indemnified Party against the Indemnifying Party that does not result from a Third Party Claim shall be asserted by written notice from the Indemnified Party to the Indemnifying Party specifically claiming indemnification hereunder, which notice shall state the amount claimed, if known, and method of computation thereof, and shall contain a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed by such Indemnified Party. Such Indemnifying Party shall have a period of thirty (30) days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such thirty (30) day period, such Indemnifying Party shall be deemed to have accepted responsibility for the indemnification sought and shall have no further right to contest the validity of such claim. If such Indemnifying Party does respond within such thirty (30) day period and rejects such claim in whole or in part, such Indemnified Party shall be free to pursue resolution as provided in Article XI.
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Section 10.8 Procedures for Indemnification of Third Party Claims .
(a) If an Indemnified Party shall receive notice of the assertion of a claim, or commencement of an Action, by a Third Party against it (each, a Third Party Claim ) that may give rise to a claim for indemnification pursuant to this Agreement, within thirty (30) days of the receipt of such notice, the Indemnified Party shall give the Indemnifying Party notice of such Third Party Claim, which notice shall describe such Third Party Claim in reasonable detail; provided , however , that the failure to provide such notice as provided in this Section 10.8 shall not release the Indemnifying Party from any of its obligations under this Article X except to the extent such Indemnifying Party is actually prejudiced by such failure to give notice.
(b) Each Indemnifying Party shall be entitled (but shall not be required) to assume and control the defense of each Third Party Claim at its expense and through counsel of its choice that is reasonably acceptable to the Indemnified Party if it gives notice of its intention to do so to the Indemnified Party within thirty (30) days of the receipt of notice from the Indemnified Party in accordance with Section 10.8(a); provided , however , that the Indemnifying Party shall not, without the prior written consent of the Indemnified Party, settle, compromise or offer to settle or compromise such Third Party Claim; provided , further , that such Indemnified Party shall not withhold such consent if the settlement or compromise ( i ) contains no finding or admission of a violation of Law or a violation of the rights of a Person by the Indemnified Party or any of its Affiliates, ( ii ) contains no finding or admission that would have an adverse effect on the Indemnified Party or any of its Affiliates as determined by the Indemnified Party in good faith, ( iii ) involves only monetary relief which the Indemnifying Party has agreed to pay and does not contain an injunction or other non-monetary relief affecting the Indemnified Party or any of its Affiliates, and ( iv ) includes a full, irrevocable unconditional release of the Indemnified Party from such Third Party Claim.
(c) If the Indemnifying Party elects to undertake the defense against a Third Party Claim as provided by Section 10.8(b), the Indemnified Party shall cooperate with the Indemnifying Party with respect to such defense and shall have the right, but not the obligation, to participate in such defense and to employ separate counsel of its choosing at its own expense; provided , however , that such expense shall be the responsibility of the Indemnifying Party if ( i ) the Indemnifying Party and the Indemnified Party are both named parties to the proceedings and the Indemnified Party shall have reasonably concluded that representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest (in which case the Indemnifying Party shall not be responsible for expenses in respect of more than one counsel for the Indemnified Party in any single jurisdiction), or ( ii ) the Indemnified Party assumes the defense of the Third Party Claim after the Indemnifying Party has failed, in the reasonable judgment of the Indemnified Party, to diligently defend the Third Party Claim after having elected to assume its defense.
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(d) If the Indemnifying Party ( i ) does not elect to assume the defense in accordance with Section 10.8(b), or ( ii ) after assuming the defense of a Third Party Claim, fails to take reasonable steps necessary to defend diligently such Third Party Claim within ten (10) days after receiving written notice from the Indemnified Party to the effect that the Indemnifying Party has so failed, the Indemnified Party shall have the right but not the obligation to assume its own defense; provided , however , that the Indemnified Party shall not settle or compromise such Third Party Claim without the consent of the Indemnifying Party, which consent shall not be unreasonably withheld. For the avoidance of doubt, the Indemnified Partys right to indemnification for a Third Party Claim shall not be adversely affected by assuming the defense of such Third Party Claim.
(e) Subject to Article IV, the Indemnified Party and the Indemnifying Party shall cooperate in the defense of a Third Party Claim including by (i) expeditiously making available all witnesses, all pertinent records, all materials, and all information in each others possession or under each others control relating to the Third Party Claim, (ii) assisting with litigation defense strategy, investigations, discovery preparation, trial preparation, and similar activities with respect to the Third Party Claim, and (iii) using commercially reasonable efforts to avoid taking any action, or omitting to take any action, that would materially and adversely prejudice each others defense of, or actual or potential rights of recovery with respect to, the Third Party Claim. The Indemnifying Party shall have no obligation in accordance with this Article X to an Indemnified Party for any Third Party Claim to the extent such Indemnified Party fails to comply with this Section 10.8(e) with respect to the Third Party Claim and such failure shall have materially and adversely prejudiced the Indemnifying Party.
Section 10.9 Remedies Cumulative . The remedies provided in this Article X shall be cumulative and, subject to the provisions of Article XI, shall not preclude assertion by any Indemnified Party of any other rights or the seeking of any and all other remedies against any Indemnifying Party.
Section 10.10 Survival of Indemnities . The rights and obligations of each of SHLD and SHO and their respective Indemnified Parties hereto under this Article X shall survive the distribution, sale or other transfer by any party of any Assets or the assignment by it of any Liabilities.
ARTICLE XI
DISPUTE RESOLUTION
Section 11.1 Disputes . Except as otherwise specifically provided in any Ancillary Agreement (the terms of which, to the extent so provided therein, shall govern the resolution of Disputes as that term is defined in the Ancillary Agreements), the procedures for discussion, negotiation and mediation set forth in this Article XI shall apply to all disputes, controversies or claims (whether arising in contract, tort or otherwise) that may arise out of, relate to, arise under or in connection with, this Agreement or any Ancillary Agreement, or the transactions contemplated hereby or thereby (including, all actions taken in furtherance of the transactions contemplated hereby or thereby on or prior to the Rights Closing Effective Time), between or among any member of the SHLD Group and the SHO Group (collectively, Disputes ).
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Section 11.2 Dispute Resolution .
(a) On the Rights Closing Effective Time, SHLD and SHO shall form a committee (the Executive Committee ) that will attempt to resolve all Disputes. The Executive Committee shall consist of two representatives designated by each party hereto and shall initially consist of the Chief Financial Officer and the General Counsel (or other chief legal officer) of each party. Each party hereto may replace one or more of its representatives at any time upon notice to the other party hereto.
(b) If a Dispute arises, no party hereto may take any formal legal action (such as seeking to terminate this Agreement, seeking mediation in accordance with Section 11.3, or instituting or seeking any judicial or other legal action, relief, or remedy with respect to or arising out of this Agreement) unless such party has first ( i ) delivered a notice of dispute (the Dispute Notice ) to all of the members of the Executive Committee and ( ii ) complied with the terms of this Article XI; provided , however , that the foregoing shall not apply to any Disputes with respect to compliance with obligations with respect to confidentiality or preservation of privilege. The Executive Committee shall meet no later than the 10th Business Day following delivery of the Dispute Notice (the Dispute Meeting ) and shall attempt to resolve each Dispute that is listed on the Dispute Notice. Each party hereto shall cause its designees on the Executive Committee to negotiate in good faith to resolve all Disputes in a timely manner. If by the 10th Business Day following the Dispute Meeting the Executive Committee has not resolved all of the Disputes (the Resolution Failure Date ), the parties shall proceed to mediate the unresolved Disputes ( Unresolved Disputes ) in accordance with Section 11.3.
Section 11.3 Mediation of Unresolved Disputes . SHLD and SHO shall attempt to resolve all Unresolved Disputes by non-binding mediation. SHLD and SHO shall negotiate in good faith to determine the mediator, the mediators compensation and related costs, and the applicable rules for the mediation. If by the 15th Business Day following the Resolution Failure Date, SHLD and SHO have been unable to settle an Unresolved Dispute the obligations of Seller and Buyer in this Article XI shall terminate with respect to such Unresolved Dispute.
Section 11.4 Continuity of Service and Performance . Unless otherwise agreed in writing, the parties hereto shall continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of dispute resolution pursuant to the provisions of this Article XI with respect to all matters not subject to such Dispute.
45
ARTICLE XII
FURTHER ASSURANCES
Section 12.1 Further Assurances .
(a) The parties hereto shall use all reasonable efforts to take, or cause to be taken, all appropriate action, to do or cause to be done all things necessary, proper or advisable under applicable Law, and to execute and deliver such documents and other papers, as may be required to carry out the provisions of this Agreement and any Ancillary Agreement and to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements, whether before or after the Rights Closing Effective Time.
(b) Without limiting the foregoing, prior to, on and after the Rights Closing Effective Time, each party hereto shall cooperate with the other party, and without any further consideration, but at the expense of the requesting party, to execute and deliver, or use its reasonable efforts to cause to be executed and delivered, all instruments, including, instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all necessary Consents and Governmental Approvals, including, under any permit, license, agreement, indenture or other instrument, and to take all such other actions as such party may reasonably be requested to take by any other party hereto from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby.
(c) SHLD will cause to be performed and hereby guarantees the performance of all actions, agreements and obligations set forth herein to be performed by any member of the SHLD Group. SHO will cause to be performed and hereby guarantees the performance of all actions, agreements and obligations set forth herein to be performed by any member of the SHO Group.
ARTICLE XIII
AMENDMENT AND TERMINATION
Section 13.1 Sole Discretion of SHLD . Notwithstanding any other provision of this Agreement, until the Rights Distribution Date, SHLD shall have the sole and absolute discretion:
(a) to determine whether to proceed with all or any part of the Business Separation, and to determine the timing of and any and all conditions to the completion of the Business Separation or any part thereof or of any other transaction contemplated by this Agreement; and
(b) to amend or otherwise change, delete or supplement, from time to time, any term or element of the Business Separation or any other transaction contemplated by this Agreement.
46
Section 13.2 Amendment and Termination . This Agreement may be amended, supplemented, terminated and the transactions contemplated hereby may be modified or abandoned at any time without the approval of SHO or of the stockholders of SHLD in the sole and absolute discretion of SHLD: (a) prior to the Rights Distribution Date, or (b) after the Rights Distribution Date but prior to the Rights Closing Effective Time, if the board of directors of SHLD determines, in its sole discretion, that the Rights Offering is not in the best interest of SHLD or its shareholders, or that market conditions are such that it is not advisable to consummate the Rights Offering. In the event of a termination in accordance with the foregoing, this Agreement shall forthwith become void and there shall be no Liability on the part of either party hereto; provided , however , such termination shall have no effect on any transactions effected prior to such termination pursuant to Article II and the Implementation Documents in connection therewith shall remain in full force and effect in accordance with the terms thereof. After the Rights Closing Effective Time, this Agreement may not be amended, supplemented or terminated except by an agreement in writing signed by the parties hereto.
ARTICLE XIV
MISCELLANEOUS
Section 14.1 LIMITATION OF LIABILITY .
(a) IN NO EVENT SHALL ANY MEMBER OF THE SHLD GROUP OR THE SHO GROUP BE LIABLE TO ANY MEMBER OF THE SHO GROUP OR THE SHLD GROUP, RESPECTIVELY, FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING, NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED , HOWEVER , THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT AN INDEMNIFYING PARTYS INDEMNIFICATION OBLIGATIONS HEREUNDER WITH RESPECT TO ANY LIABILITY ANY INDEMNIFIED PARTY MAY HAVE TO ANY THIRD PARTY FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES OR LOST PROFITS, EXCEPT AS OTHERWISE PROVIDED IN THE ANCILLARY AGREEMENTS.
(b) Neither party hereto nor any member of its Group shall have any Liability to the other partys Group in the event that any Information exchanged or provided pursuant to this Agreement that is an estimate or forecast, or that is based on an estimate or forecast, is found to be inaccurate in the absence of willful misconduct by the providing Person. Neither party hereto nor any member of its Group shall have any Liability to the other partys Group if any Information is destroyed after reasonable best efforts by the Person from whom Information is requested, to comply with the provisions of Section 6.3.
47
Section 14.2 Expenses . Except with respect to the SHO Assumed Transaction Liabilities and as otherwise expressly set forth in any Ancillary Agreement, all fees, costs and expenses incurred in connection with the preparation, execution, delivery and implementation of this Agreement and the Ancillary Agreements, and the consummation of the transactions contemplated hereby and thereby, shall be borne by SHLD.
Section 14.3 Counterparts . This Agreement may be executed and delivered (including by facsimile transmission) in counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.
Section 14.4 Notices . All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by an internationally recognized overnight courier service, by facsimile or email (with written confirmation of receipt), or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties hereto at the following addresses (or at such other address for a party as shall be specified in a notice given in accordance with this Section 14.4):
If to SHLD, to:
Sears Holdings Corporation
3333 Beverly Road
Hoffman Estates, Illinois 60179
Attn.: General Counsel
Facsimile: (847) 286-2471
Email: Dane.Drobny@searshc.com
If to SHO, to:
Sears Hometown and Outlet Stores, Inc.
3333 Beverly Road
Hoffman Estates, Illinois 60179
Attn.: General Counsel
Facsimile: (847) 286-0266
Email: Charles.Hansen@searshc.com
Section 14.5 Public Announcements . Following the Rights Closing Effective Time, the parties hereto shall be permitted to make, or cause to be made, any press release or public announcement in respect of this Agreement or the transactions
48
contemplated by this Agreement or otherwise communicate with any news media unless otherwise prohibited by Law or applicable stock exchange regulation or the provisions of this Agreement or any Ancillary Agreement; provided, that the parties hereto shall consult with each other prior to issuing, and shall, subject to the requirements of Section 6.5, provide the other party the opportunity to review and comment upon, press releases and other public statements in connection with the Business Separation, the Rights Offering or any of the other transactions contemplated hereby or by any Ancillary Agreement and prior to making any filings with any Governmental Authority or national securities exchange with respect thereto.
Section 14.6 Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any Law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to either party hereto. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement are consummated as originally contemplated to the greatest extent possible.
Section 14.7 Entire Agreement . This Agreement and the Ancillary Agreements, including the exhibits and schedules thereto and together with all the agreements contemplated hereby and thereby (including the Implementation Documents), constitute the entire agreement of the parties hereto with respect to the subject matter hereof and thereof and supersede all prior agreements and undertakings, both written and oral, between the parties hereto with respect to the subject matter hereof and thereof.
Section 14.8 Assignment . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Except as otherwise provided for in this Agreement, this Agreement shall not be assignable, in whole or in part, directly or indirectly, by any party hereto without the prior written consent of the other party, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void. Notwithstanding the foregoing, a party hereto may assign this Agreement in connection with a merger transaction in which such party is not the surviving entity or the sale by such party of all or substantially all of its Assets; provided , that the surviving entity of such merger or the transferee of such Assets shall agree in writing, reasonably satisfactory to the other party, to be bound by the terms of this Agreement as if named as a party hereto.
Section 14.9 Third-Party Beneficiaries . Except for the indemnification rights under this Agreement of any SHLD Indemnitee or SHO Indemnitee in their respective capacities as such, ( a ) the provisions of this Agreement are solely for the benefit of the parties hereto and are not intended to confer upon any Person except the parties hereto
49
any rights or remedies hereunder and ( b ) there are no third-party beneficiaries of this Agreement and this Agreement shall not provide any other Person with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.
Section 14.10 Governing Law; Jurisdiction .
(a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Illinois, without giving effect to the conflicts of law principles thereof. This Agreement will not be subject to any of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.
(b) Each of the parties submits to the exclusive jurisdiction of all Illinois state courts and federal courts of the United States of America sitting in Cook County, Illinois, and all appellate courts to each thereof, in all actions and proceedings arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of all judgments relating thereto, and each of the parties (A) will commence all such actions and proceedings only in such courts, (B) will cause all claims in respect of all such actions and proceedings to be heard and determined in such Illinois state court or, to the extent permitted by law, in such federal court, (C) waives, to the fullest extent it may legally and effectively do so, all objections that it may now or hereafter have to the laying of venue of all such actions and proceedings in any such Illinois state or federal court, and (D) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such actions and proceedings in all such Illinois state and federal courts. A final judgment in any such action or proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. Each party irrevocably consents to service of process in the manner provided for notices in Section 14.4. Nothing in this Agreement will affect the right of any party to serve process in any other manner permitted by applicable Law.
Section 14.11 Waiver of Jury Trial . EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THE PARTIES HERETO HEREBY ( A ) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND ( B ) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 14.11.
50
Section 14.12 Headings . The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.
Section 14.13 Interpretation . Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires. The terms hereof, herein and herewith and words of similar import, unless otherwise stated, shall be construed to refer to this Agreement as a whole (including all of the schedules, exhibits and appendices hereto) and not to any particular provision of this Agreement. Article, Section, Exhibit, and Schedule references are to the articles, sections, exhibits, and schedules of or to this Agreement unless otherwise specified. Any reference herein to this Agreement, unless otherwise stated, shall be construed to refer to this Agreement as amended, supplemented or otherwise modified from time to time in accordance with the terms hereof. The word including and words of similar import when used in this Agreement shall mean including, without limitation, unless the context otherwise requires or unless otherwise specified. The word or shall not be exclusive.
Section 14.14 Specific Performance . In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the affected party shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The other Party shall not oppose the granting of such relief. The parties hereto agree that the remedies at law for any breach or threatened breach hereof, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived.
Section 14.15 Payment Terms .
(a) Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount to be paid or reimbursed by one party to the other under this Agreement shall be paid or reimbursed hereunder within ten (10) days after presentation of an invoice or a written demand therefor and setting forth, or accompanied by, reasonable documentation or other reasonable explanation supporting such amount.
(b) Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount not paid when due pursuant to this Agreement (and any amount billed or otherwise invoiced or demanded and properly payable that is not paid within ten (10) days of such bill, invoice or other demand) shall bear interest at a
51
rate per annum equal to the prime rate plus 2% (or the maximum legal rate, whichever is lower), calculated for the actual number of days elapsed, accrued from the date on which such payment was due up to the date of the actual receipt of payment.
Section 14.16 Survival of Covenants . Except as expressly set forth in this Agreement, the covenants, representations and warranties contained in this Agreement, and the Liabilities for the breach of any obligations contained herein, shall survive the Rights Closing Effective Time and shall remain in full force and effect.
Section 14.17 Waiver . Either party hereto to this Agreement may ( i ) extend the time for the performance of any of the obligations or other acts of the other party and ( ii ) waive compliance with any of the agreements of the other party or conditions to such partys obligations contained herein. Any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party against whom it is sought to enforce such extension or waiver. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition of this Agreement. The failure of either party hereto to assert any of its rights hereunder shall not constitute a waiver of any of such rights.
Section 14.18 Condition Precedent to the Effectiveness of this Agreement . This Agreement will not become effective until it has been approved by the Audit Committee of the Board of Directors of SHLD.
Section 14.19 Counterparts; Facsimile Signatures . This Agreement and any amendment hereto may be executed in multiple counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or by email delivery of scanned pages (e.g., .pdf format data files) shall be effective as delivery of a manually executed counterpart to this Agreement.
[Signature page follows]
52
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
SEARS HOLDINGS CORPORATION | ||
By: |
/s/ William K. Phelan |
|
Name: William K. Phelan | ||
Title: Senior Vice President, Finance | ||
SEARS HOMETOWN AND OUTLET STORES, INC. | ||
By: |
/s/ John E. Ethridge II |
|
Name: John E. Ethridge II Title: Vice President, Supply Chain and Technology |
53
Schedule 1.1(a)
HOMETOWN LOCATIONS
Store
Number |
Address | Town | State | Zip | ||||
1444 | 56 Westport Ave | Norwalk | CT | 06851 | ||||
1483 | 360 N. Bedford Rd. | Mt. Kisco | NY | 10549 | ||||
1801 | 2156 Michigan Ave | Arnold | MO | 63010 | ||||
1806 | 3871 Mexico Rd. | St. Charles | MO | 63303 | ||||
1860 | 1758 Douglas Road | Oswego | IL | 60543 | ||||
1861 | 106 Hansen Blvd | N. Aurora | IL | 60542 | ||||
2194 | 13600 Baltimore Ave | Laurell | MD | 20707 | ||||
2552 | 6000 Greenbelt Road | Greenbelt | MD | 20770 | ||||
2566 | 10757 Ulmerton Rd. | Largo | FL | 33778 | ||||
2925 | 14444 N. Dale Mabry Hwy | Tampa (Carrollwood) | FL | 33618 | ||||
5044 | 10 Pitkin Road | Vernon/Rockville | CT | 06066 | ||||
4718 | 4036 Grand Ave. | Chino | CA | 91710 | ||||
5087 | 1387 Kingwood Drive | Kingwood | TX | 77339 | ||||
5113 | 7740 City Line Avenue | Philadelphia | PA | 19151 | ||||
5133 | 220-05 Hillside Avenue | Queens | NY | 11427 |
Store
Number |
Address | Town | State | Zip | ||||
5153 | 367-389 Sunrise Highway | Patchogue | NY | 11772 | ||||
5154 | 852 N. Colony | Wallingford | CT | 06492 | ||||
5157 | 6169 US Route 6 | Portage | IN | 46368 | ||||
5173 | 985 Bloomfield Ave., Ste.2 | West Caldwell | NJ | 07006 | ||||
5291 | 1150 U.S. Highway 41 | Schererville | IN | 46375 | ||||
5301 | 1800 W. Henderson Rd. | Columbus | OH | 43220 | ||||
5340 | 11728 Fishers Crossing Drive | Fishers | IN | 46038 | ||||
5344 | 225 N. Route 73 | West Berlin | NJ | 08091 | ||||
5351 | 7010 W. 159TH St. | Orland Park | IL | 60462 | ||||
5360 | 4849 W. 111th Street | Alsip | IL | 60803 | ||||
5394 | 450 S. Washington Street | Bergenfield | NJ | 07621 | ||||
5401 | 285 N. Sunbury Rd. | Westerville | OH | 43081 | ||||
5471 | N 96 W 18650 Country Line Rd. | Germantown | WI | 53022 | ||||
5481 | 2575 Hilliard-Rome Road | Columbus | OH | 43026 | ||||
5484 | 705 Bridgeport Avenue | Shelton | CT | 06484 | ||||
3085 | 2518 Sycamore Road | Dekalb | IL | 60115 |
2
Store
Number |
Address | Town | State | Zip | ||||
5502 | 3990 US 22 & 3 | Loveland | OH | 45140 | ||||
5523 | 5137 Nesconset Highway | Port Jefferson Station | NY | 11776 | ||||
5564 | 1075 Hill Road North | Pickerington | OH | 43147 | ||||
5702 | 200 N. Weber Road | Bolingbrook | IL | 60440 | ||||
5772 | 832 South Rand Road | Lake Zurich | IL | 60047 | ||||
5814 | 1235 Farmington Ave. Rte. 6 | Bristol | CT | 06010 | ||||
5873 | 1764 Sheridan Drive | Tonawanda | NY | 14223 | ||||
5904 | 1032 Oneida Plaza Drive | Oneida | NY | 13421 | ||||
5914 | 1019 Montauk Highway | Shirley | NY | 11967 | ||||
5923 | 229 Plaza Blvd. | Morrisville | PA | 19067 | ||||
5934 | 700 Kenhorst Plaza | Reading | PA | 19607 | ||||
5954 | 29 North Ridge Drive | North Windham | CT | 06256 | ||||
5031 | 5425 East Thompson Road | Indianapolis | IN | 46237 | ||||
5041 | 1270 Strongbow | Valparaiso | IN | 46383 | ||||
5050 | 925 Ogden Ave. | Downers Grove | IL | 60515 | ||||
5034 | 265 Main Street (Rt.28) | N. Reading | MA | 01864 |
3
Store
Number |
Address | Town | State | Zip | ||||
7497 | 300 Center Drive | Superior | CO | 80027 | ||||
7569 | 66 Hiram Douglasville Highway | Hiram | GA | 30141 | ||||
7674 | 2716 E. Main St. | St. Charles | IL | 60174 | ||||
7693 | 1475 Stafford Market Place | Stafford | VA | 22556 | ||||
7703 | 1145 High ridge Rd. | Stamford | CT | 06905 | ||||
7860 | 203 Randall Rd. | S. Elgin | IL | 60177 | ||||
5002 | 10400 E. US Hwy. 36 Ste 600 | Avon | IN | 46123 | ||||
5003 | 2214 W. Gennesse Street | Westvale | NY | 13219 | ||||
5062 | 2000 East Dorothy Lane | Kettering | OH | 45420 | ||||
5073 | 5847 S. Transit Road | Lockport | NY | 14094 | ||||
5080 | 4655 Dixie Hwy. | Fairfield | OH | 45014 | ||||
5104 | 585 Portion Road | Lake Ronkonkoma | NY | 11779 | ||||
3005 | 1905 Scenic Highway | Snellville | GA | 30078 | ||||
3015 | 2569 Peachtree Parkway, Suite 270 | Cumming (Suwanee) | GA | 30041 | ||||
9201 | 2150 N. Josey Lane | Carrollton | TX | 75006 | ||||
3004 | 1674 Marketplace Blvd. | Cumming | GA | 30041 |
4
Store
Number |
Address | Town | State | Zip | ||||
3034 | 2239 Georgia Highway 20 | Conyers | GA | 30013 | ||||
9291 | 2750 Heritage Drive | Delafield | WI | 53018 | ||||
9292 | 10954 N. Port Washington Rd. | Mequon | WI | 53092 | ||||
3096 | 798 Lawrenceville-Suwanee Rd. | Lawrenceville | GA | 30043 | ||||
3116 | 1563 Highway 20 W | McDonough | GA | 30253 | ||||
1836 | 439 E. Nelson St. | Lexington | VA | 24450 | ||||
1866 | 1010 E Loop 304 | Crockett | TX | 75835 | ||||
2562 | 764 E. 15th Street | Yazoo City | MS | 39194 | ||||
2579 | 2582 S. Santiam Hwy | Lebanon | OR | 97355 | ||||
3054 | 60 Downeast Hwy | Ellsworth | ME | 04605 | ||||
3099 | 1325 E. Jackson Street | Macomb | IL | 61455 | ||||
3157 | 1721 Paragould Plaza | Paragould | AR | 72450 | ||||
3334 | 1515 N.E. 3rd, Suite B | Prineville | OR | 97754 | ||||
3346 | 19588 Greeno Road | Fairhope | AL | 36532 | ||||
3500 | 1997 E. Platte Ave | Fort Morgan | CO | 80701 | ||||
3684 | 2417 Tongass Ave | Ketchikan | AK | 99901 |
5
Store
Number |
Address | Town | State | Zip | ||||
5231 | 350 Eagle Drive | Rochelle | IL | 61068 | ||||
3061 | 701 South Newport Road | Pontiac | IL | 61764 | ||||
3202 | 1013 Old Hwy 52 | Moncks Corner | SC | 29461 | ||||
3229 | 2910 S. Walton Blvd. | Bentonville | AR | 72712 | ||||
3339 | 1046 Paseo Del Pueblo | Taos | NM | 87571 | ||||
3350 | West Gate Shopping Center | Tiffin | OH | 44883 | ||||
3394 | 1521 Postal Rd. | Chester/Kent Island | MD | 21619 | ||||
3638 | 57840 29 Palms Highway | Yucca Valley | CA | 92284 | ||||
3661 | 8991 Ohio River Rd. | Wheelersburg | OH | 45694 | ||||
3678 | 1361 Rocking W Drive | Bishop | CA | 93514 | ||||
3691 | 513 Huck Finn Shopping Center | Hannibal | MO | 63401 | ||||
7658 | 2445 NW Kings Blvd. | Corvallis | OR | 97330 | ||||
7816 | 200 Able Drive, Suite 9 | Dayton | TN | 37321 | ||||
3945 | 1602B East Shotwell Street | Bainbridge | GA | 39819 | ||||
9248 | Hale Hana Center | Kailua-Kona | HI | 96740 | ||||
5343 | 4480 Atlantic Avenue | Long Beach | CA | 90807 |
6
Store
Number |
Address | Town | State | Zip | ||||
5359 | 6465 Ming Avenue | Bakersfield | CA | 93309 | ||||
5606 | 1151 Anderson Drive | San Rafael | CA | 94901 | ||||
5609 | 1390 North McDowell Boulevard | Petaluma | CA | 94954 | ||||
5612 | 1450 First Street | Livermore | CA | 94550 | ||||
5615 | 1015 West Hammer Lane | Stockton | CA | 95209 | ||||
5626 | 5445 Blackstone Avenue | Fresno | CA | 93710 | ||||
5628 | 800 Playa Avenue | Sand City | CA | 93955 | ||||
5633 | 5130 Mowry Avenue | Fremont | CA | 94538 | ||||
5635 | 125 North Milpitas Boulevard | Milpitas | CA | 95035 | ||||
5636 | 900 El Camino Real | Millbrae | CA | 94030 | ||||
5637 | 2110 Middlefield Road | Redwood City | CA | 94063 | ||||
5642 | 2245 Gellert Boulevard | South San Francisco | CA | 94080 | ||||
5643 | 2555 Charleston Road | Mountain View | CA | 94043 | ||||
5645 | 720 W. San Carlos St. | San Jose | CA | 95126 | ||||
5648 | 777 Sunnyvale-Saratoga Rd. | Sunnyvale | CA | 94087 | ||||
5650 | 1751 East Capitol Expressway | San Jose | CA | 95121 |
7
Store
Number |
Address | Town | State | Zip | ||||
5654 | 5365 Prospect Road | San Jose | CA | 95129 | ||||
5656 | 3425 East Colorado Boulevard | Pasadena | CA | 91107 | ||||
5657 | 452 Fair Oaks Avenue | South Pasadena | CA | 91030 | ||||
5658 | 641 North Victory Boulevard | Burbank | CA | 91502 | ||||
5663 | 3100 Foothill Boulevard | La Crescenta | CA | 91214 | ||||
5674 | 1800 Oakdale Road | Modesto | CA | 95355 | ||||
5681 | 1536 East Champlain Drive | Fresno | CA | 93720 | ||||
5682 | 220 Peabody Road | Vacaville | CA | 95687 | ||||
5686 | 1751 Eastshore Boulevard | El Cerrito | CA | 94530 | ||||
3782 | 9109 Mendenhall Mall Road | Juneau | AK | 99801 | ||||
3650 | 621 Boll Weevil Circle | Enterprise | AL | 36330 | ||||
3704 | 1502 Hwy 80 East | Demopolis | AL | 36732 | ||||
3992 | 1023 Douglas Ave. | Brewton | AL | 36426 | ||||
3105 | 204 West Bypass | Andalusia | AL | 36420 | ||||
3646 | 1908 2nd Ave. E. | Oneonta | AL | 35121 | ||||
3695 | 2918 20th Ave | Valley | AL | 36854 |
8
Store
Number |
Address | Town | State | Zip | ||||
3852 | 4435 N. College Ave | Jackson | AL | 36545 | ||||
3951 | 1234 North Eufaula Avenue | Eufaula | AL | 36027 | ||||
3675 | 690 McQueen Smith Rd. So. | Prattville | AL | 36066 | ||||
3356 | 118 Butler Square | Greenville | AL | 36037 | ||||
3135 | 5850 US Highway 431 | Albertville | AL | 35950 | ||||
3145 | 724 Parkland S/C North | Jasper | AL | 35501 | ||||
3566 | 823 Highway 72 West | Athens | AL | 35611 | ||||
3721 | 3052 Hwy # 5 North | Thomasville | AL | 36784 | ||||
3075 | 1726 A Cherokee Ave SW | Cullman | AL | 35055 | ||||
3393 | 103 U.S. Hwy 231 No. | Troy | AL | 36081 | ||||
5770 | 3798 S. McKenzie Street | Foley | AL | 36535 | ||||
3911 | P.O. Box 11750 | Jackson | WY | 83002 | ||||
3127 | 1320 North Main Street | Harrison | AR | 72601 | ||||
3147 | 1029 Highway 62 East | Mountain Home | AR | 72653 | ||||
3207 | 908 South Mena Street | Mena | AR | 71953 | ||||
3709 | 2607 Hwy 67 South | Pocahontas | AR | 72455 |
9
Store
Number |
Address | Town | State | Zip | ||||
3007 | 749 Wal-Mart Access Road | Monticello | AR | 71655 | ||||
3217 | 201 Skyline Drive | Conway | AR | 72032 | ||||
2736 | 107 Meadow View Drive | Mountain View | AR | 72560 | ||||
3087 | 150 Garden Oaks Drive | Camden | AR | 71701 | ||||
3587 | 1110 Ferguson Drive | Benton | AR | 72015 | ||||
3794 | 475 Hwy 62/412 | Ash Flat | AR | 72513 | ||||
3797 | 1517 C. East Main | Magnolia | AR | 71753 | ||||
3854 | 1301 North Hervey Street | Hope | AR | 71801 | ||||
5270 | 23 South Park Shopping Center | Nashville | AR | 71852 | ||||
3057 | 2395 Harrison St. | Batesville | AR | 72501 | ||||
3097 | 605 West Main Street | Clarksville | AR | 72830 | ||||
3117 | 828 North Washington | Forrest City | AR | 72335 | ||||
3777 | 209 Shopping Way | West Memphis | AR | 72301 | ||||
3873 | 1010 Hwy 25 B North | Heber Springs | AR | 72543 | ||||
3880 | 702 Hwy 64 E | Wynne | AR | 72396 | ||||
3187 | 2310 E. Race Avenue | Searcy | AR | 72143 |
10
Store
Number |
Address | Town | State | Zip | ||||
7726 | 4905 Hwy 7 North | Hot Springs Village | AR | 71909 | ||||
3926 | 1005 Highway #49 West | West Helena | AR | 72390 | ||||
1841 | 13212 N. Saguaro Blvd. | Fountain Hills | AZ | 85268 | ||||
9219 | 49693 Harrison Street | Coachella | CA | 92236 | ||||
3089 | 3115 Stockton Hill Road | Kingman | AZ | 86401 | ||||
3017 | 113 E. Hwy 260 | Payson | AZ | 85541 | ||||
3037 | 1427 East Highway 89-A | Cottonwood | AZ | 86326 | ||||
3656 | 115 W. Esperanza | Green Valley | AZ | 85614 | ||||
3823 | 1355 E. Florence Blvd. | Casa Grande | AZ | 85122 | ||||
3618 | 1009 North H Street | Lompoc | CA | 93436 | ||||
3748 | 580 S. Jaye Street | Porterville | CA | 93257 | ||||
3749 | 3352 Floral Avenue #103 | Selma | CA | 93662 | ||||
7728 | 270 E. Hwy 264, Unit A | Buellton | CA | 93427 | ||||
2169 | 12047 Donner Pass Road | Truckee | CA | 96161 | ||||
3039 | 201 S. Gateway Drive | Madera | CA | 93637 | ||||
3079 | 621 North Golden State Blvd. | Turlock | CA | 95380 |
11
Store
Number |
Address | Town | State | Zip | ||||
3119 | 570 South Main | Red Bluff | CA | 96080 | ||||
3437 | 860 North Yosemite Ave. | Oakdale | CA | 95361 | ||||
3999 | 220 Center St. | Taft | CA | 93268 | ||||
3169 | 384 Placerville Drive | Placerville | CA | 95667 | ||||
3179 | 120 North China Lake Blvd. | Ridgecrest | CA | 93555 | ||||
6911 | 8209 California City Blvd. | California City | CA | 93505 | ||||
7609 | 3000 Green Valley | Cameron Park | CA | 95682 | ||||
3078 | 310 Colorado | Lajunta | CO | 81050 | ||||
3188 | 130 Broadway | Sterling | CO | 80751 | ||||
3600 | 1291 Blue River Parkway | Silverthorne | CO | 80498 | ||||
3642 | 1 E. Main Street | Cortez | CO | 81321 | ||||
3198 | 2851 Riverside Plaza | Steamboat Springs | CO | 80487 | ||||
3168 | 1445 Hawk Parkway | Montrose | CO | 81401 | ||||
3208 | 800 South Camino Del Rio | Durango | CO | 81301 | ||||
3141 | 1900 Airport Road | Rifle | CO | 81650 | ||||
3858 | 2128 Freedom Rd. | Trinidad | CO | 81082 |
12
Store
Number |
Address | Town | State | Zip | ||||
7218 | 1000 North Main Street | Gunnison | CO | 81230 | ||||
5194 | 199 Old Hartford Rd. | Colchester | CT | 06415 | ||||
3384 | 380 New Hartford Road | Barkhamsted | CT | 06063 | ||||
5193 | 507 Danbury Rd. | New Milford | CT | 06776 | ||||
4763 | 1007 Pulaski Hwy | Havre de Grace | MD | 21078 | ||||
6979 | 656A North DuPont Hwy | Milford | DE | 19963 | ||||
1845 | 3207 S US Hwy 1 | Ft. Pierce | FL | 34982 | ||||
3745 | 1441 South Dixie Freeway | New Smyrna Beach | FL | 32168 | ||||
3175 | 904 S. State Rd. 19 | Palatka | FL | 32177 | ||||
3195 | 2121 US 1 South, Space 10 | Saint Augustine | FL | 32086 | ||||
3775 | 4888 W. Palm Coast Parkway | Palm Coast | FL | 32137 | ||||
7070 | 2708 Santa Barbara Blvd. | Cape Coral | FL | 33914 | ||||
3725 | 1133 Industrial Drive | Crestview | FL | 32539 | ||||
7285 | 4181 B South Tamiami Trail | Venice | FL | 34293 | ||||
3975 | 455 South Indiana Avenue | Englewood | FL | 34223 | ||||
9916 | 731 E. Hwy 50 | Clermont | FL | 34711 |
13
Store
Number |
Address | Town | State | Zip | ||||
7720 | 411 W. Madison Street | Starke | FL | 32091 | ||||
7378 | 11223 North Williams St. | Dunnellon | FL | 34432 | ||||
5221 | 2505 Okeechobee Blvd. | West Palm Beach | FL | 33409 | ||||
3215 | 1118A S. 14th Street | Fernandina Beach | FL | 32034 | ||||
5162 | 28340 Trails Edge Blvd. | Bonita Springs | FL | 34134 | ||||
3696 | 124 Rodgers Blvd. | Chiefland | FL | 32626 | ||||
1855 | 131 W. Main Street | Wauchula | FL | 33873 | ||||
1912 | 110 NE Second Place | Cape Coral | FL | 33909 | ||||
3150 | 16750 South US Hwy 441 | Summerfield | FL | 34491 | ||||
3211 | 4747 Hwy 90 East | Marianna | FL | 32446 | ||||
5321 | 7422 Gall Blvd. | Zephyrhills | FL | 33541 | ||||
3245 | 792 East John Sims Pky | Niceville | FL | 32578 | ||||
3815 | 1660 Hwy 41 North | Inverness | FL | 34450 | ||||
7709 | 4563 Bell Lane | Milton | FL | 32571 | ||||
3977 | 406 E. Main St. | Dahlonega | GA | 30533 | ||||
3255 | 215 South Grant Street | Fitzgerald | GA | 31750 |
14
Store
Number |
Address | Town | State | Zip | ||||
3307 | 40 Greenway Court | Newnan | GA | 30265 | ||||
3316 | 2707 East First Street | Vidalia | GA | 30474 | ||||
3955 | 516 South Peterson | Douglas | GA | 31533 | ||||
3265 | 103 B General Screven Way | Hinesville | GA | 31313 | ||||
3515 | 1202 South Park Street | Carrollton | GA | 30117 | ||||
3798 | 306 Riddleville Rd. | Sandersville | GA | 31082 | ||||
3896 | 60 Sears Way | Blairsville | GA | 30512 | ||||
3986 | 15082 U.S. 19 N | Thomasville | GA | 31757 | ||||
3405 | 1503 Hwy 16 West | Griffin | GA | 30223 | ||||
3295 | 1831 N. Columbia St. | Milledgeville | GA | 31061 | ||||
3305 | 977 South 1st Street | Jesup | GA | 31545 | ||||
2706 | 832 Dacula Road | Dacula | GA | 30019 | ||||
4855 | 2476 Memorial Drive | Waycross | GA | 31503 | ||||
1846 | 1124 Greensboro Rd. N.E. | Eatonton | GA | 31024 | ||||
3321 | 110 Bluffs Parkway | Canton | GA | 30114 | ||||
3385 | 718 Northside Drive East | Statesboro | GA | 30458 |
15
Store
Number |
Address | Town | State | Zip | ||||
3635 | 67 Fowler Street | East Ellijay | GA | 30539 | ||||
3856 | 200 Golden Circle | Calhoun | GA | 30701 | ||||
3365 | 28 Hawthorn Ln. | Saint Marys | GA | 31558 | ||||
3655 | 40099 Highway 441 | Commerce | GA | 30529 | ||||
3713 | 528 South Main Street | Swainsboro | GA | 30401 | ||||
3845 | 500 Great Oaks Drive | Monroe | GA | 30655 | ||||
7343 | 305 West Patton Street | LaFayette | GA | 30728 | ||||
7476 | 877 Congo Connection | Eastman | GA | 31023 | ||||
7559 | 1328 Buford Hwy, Ste 110 | Buford | GA | 30518 | ||||
3925 | 2417 S Main Street | Moultrie | GA | 31768 | ||||
3971 | 663 Main Street | Thomson | GA | 30824 | ||||
7371 | 701 Seneca Street | Storm Lake | IA | 50588 | ||||
2941 | 1001 Short Street | Decorah | IA | 52101 | ||||
3200 | 1108 Heires Avenue | Carroll | IA | 51401 | ||||
4899 | 1301 W. Burlington Ave. | Fairfield | IA | 52556 | ||||
9632 | 1815 Lincoln Way | Clinton | IA | 52732 |
16
Store
Number |
Address | Town | State | Zip | ||||
3502 | 3533 Main Street | Keokuk | IA | 52632 | ||||
4663 | 300 West Hickman Rd. | Waukee | IA | 50263 | ||||
5186 | 1676 Sycamore Street | Iowa City | IA | 52240 | ||||
3230 | 2390 Park Street | Sheldon | IA | 51201 | ||||
3268 | 507 Iowa Avenue West | Marshalltown | IA | 50158 | ||||
7902 | 1607 E. 7th Street | Atlantic | IA | 50022 | ||||
9605 | 2020 16th Ave. SW | Cedar Rapids | IA | 52404 | ||||
3121 | 3309 Caldwell Blvd. | Nampa | ID | 83651 | ||||
3151 | 2338 Overland Ave. | Burley | ID | 83318 | ||||
3290 | 664 North 2nd East | Rexburg | ID | 83440 | ||||
3379 | 1480 West Park Plaza | Ontario | OR | 97914 | ||||
2572 | 1679 S. State Street | Jerseyville | IL | 62052 | ||||
3002 | 1844 Southwest Avenue | Freeport | IL | 61032 | ||||
3820 | 1349 Jamie Lane | Waterloo | IL | 62298 | ||||
3671 | 1350 E. Mall Drive | Carbondale | IL | 62901 | ||||
3681 | 601 N. Commercial | Harrisburg | IL | 62946 |
17
Store
Number |
Address | Town | State | Zip | ||||
5272 | 410 Southwind Plaza | Mt. Vernon | IN | 47620 | ||||
3022 | 1306 Thelma Keller Avenue | Effingham | IL | 62401 | ||||
3282 | 117 S. Center Street | Plano | IL | 60545 | ||||
3304 | 1411 W. Main | Fairfield | IL | 62837 | ||||
3970 | 19 Litchfield Plaza Shopping Ctr. | Litchfield | IL | 62056 | ||||
7960 | 313 Mattes Avenue | Vandalia | IL | 62471 | ||||
9607 | 425 Southtowne Drive | Belvidere | IL | 61008 | ||||
5220 | 4035 S. Michigan Street | South Bend | IN | 46614 | ||||
3152 | 419 Clifty Dr. | Madison | IN | 47250 | ||||
1832 | 561 West Connexion Way, Suite 1 | Columbia City | IN | 46725 | ||||
1852 | 27A Putnam Plaza | Greencastle | IN | 46135 | ||||
3652 | 510 Saraina Rd. | Shelbyville | IN | 46176 | ||||
1870 | 352 S. Willowbrook Road | Coldwater | MI | 49036 | ||||
3760 | 1221 North Wayne | Angola | IN | 46703 | ||||
3212 | 1815 North 6th Street | Vincennes | IN | 47591 | ||||
1842 | 247 E. Walnut Street | North Vernon | IN | 47265 |
18
Store
Number |
Address | Town | State | Zip | ||||
3081 | 2940 Miller Drive | Plymouth | IN | 46563 | ||||
3101 | 102 Sycamore Estates | Aurora | IN | 47001 | ||||
3112 | 105 West 24th Street | Connersville | IN | 47331 | ||||
3281 | 1016 W 7th Street | Auburn | IN | 46706 | ||||
3482 | 2816 Frontage Road | Warsaw | IN | 46580 | ||||
3612 | 1760 U.S. 231 South | Crawfordsville | IN | 47933 | ||||
3056 | 1607 W. Broadway | Princeton | IN | 47670 | ||||
3120 | 1480 Old Highway 135 NE | Corydon | IN | 47112 | ||||
3243 | 2236 North Lebanon St. | Lebanon | IN | 46052 | ||||
3266 | 3005 South 14th Street | New Castle | IN | 47362 | ||||
3834 | 2943 John Williams Blvd. | Bedford | IN | 47421 | ||||
3320 | 221 Apache Drive | Rochester | IN | 46975 | ||||
7433 | 1244 W. Main Street | Greenfield | IN | 46140 | ||||
7630 | 1866 Northwood Plaza Drive | Franklin | IN | 46131 | ||||
7742 | 17160 Dragonfly Drive | Noblesville | IN | 46060 | ||||
3318 | 2604 Main Street | Parsons | KS | 67357 |
19
Store
Number |
Address | Town | State | Zip | ||||
3581 | 102 East Main Street | Chanute | KS | 66720 | ||||
3161 | 1435 Cleveland Ave | Marinette | WI | 54143 | ||||
3231 | 322 North Lincoln Road | Escanaba | MI | 49829 | ||||
3326 | 101 N. Washington Street | Junction City | KS | 66441 | ||||
3330 | 2515 - 10th Street | Great Bend | KS | 67530 | ||||
3732 | 300 South Main | Pratt | KS | 67124 | ||||
3122 | 130 North Main | El Dorado | KS | 67042 | ||||
3218 | 220 S. Main Street | Ottawa | KS | 66067 | ||||
3257 | 2601 Central | Dodge City | KS | 67801 | ||||
3351 | 505 N. Poplar | Newton | KS | 67114 | ||||
3560 | 311 North Main | McPherson | KS | 67460 | ||||
3781 | 1937 South Range Ave | Colby | KS | 67701 | ||||
7638 | 7017 Alexandria Pike | Alexandria | KY | 41001 | ||||
3294 | 830 Eastern Bypass | Richmond | KY | 40475 | ||||
3849 | 196 Frankfort Rd. | Shelbyville | KY | 40065 | ||||
3076 | 845B South Main Street | London | KY | 40741 |
20
Store
Number |
Address | Town | State | Zip | ||||
3126 | 804 South 4th Street | Danville | KY | 40422 | ||||
3864 | 1000 E. Cumberland Gap Parkway, B-23867 | Corbin | KY | 40701 | ||||
3874 | 1500 N. Main St. | Monticello | KY | 42633 | ||||
3933 | 624 Jefferson Ave | Paintsville | KY | 41240 | ||||
5232 | 401 Outlet Center Dr. | Georgetown | KY | 40324 | ||||
3544 | 2412 Fort Campbell Blvd. | Hopkinsville | KY | 42240 | ||||
3787 | 234 W. Main St. | Camden | TN | 38320 | ||||
2726 | 1640 Second Street | Henderson | KY | 42420 | ||||
3173 | 1370 Flemingsburg Rd. | Morehead | KY | 40351 | ||||
3847 | 3411 Hwy 119 North | Mayking | KY | 41837 | ||||
3146 | 170 Town Mountain Road | Pikeville | KY | 41501 | ||||
3343 | 168 Village Center Road | Harlan | KY | 40831 | ||||
3555 | 110 Madison Square Ave. | Madisonville | KY | 42431 | ||||
3575 | 50 Tucker Drive | Maysville | KY | 41056 | ||||
3829 | 850 Hwy 15 South | Jackson | KY | 41339 | ||||
7727 | 651 Downing Pines Road | West Monroe | LA | 71292 |
21
Store
Number |
Address | Town | State | Zip | ||||
3843 | 1226 Elton Rd. | Jennings | LA | 70546 | ||||
3277 | 837 US Hwy 90 | Bayou Vista | LA | 70380 | ||||
3287 | 4278 University Parkway | Natchitoches | LA | 71457 | ||||
9209 | 252 Main Street | Baker | LA | 70714 | ||||
3526 | 340 East Laurel | Eunice | LA | 70535 | ||||
3577 | 1339 North Pine | Deridder | LA | 70634 | ||||
5215 | 161 Richland Place | Monroe | LA | 71203 | ||||
3047 | 105 Carrollwood Avenue | Laplace | LA | 70068 | ||||
3422 | 1701 Commerce St. | Ruston | LA | 71270 | ||||
3741 | 7300 Read Blvd. | New Orleans | LA | 70127 | ||||
7123 | 9356 S. Mansfield Rd. | Shreveport | LA | 71118 | ||||
3963 | 901 Creswell Lane | Opelousas | LA | 70570 | ||||
3978 | 206 Elizabeth St. | Many | LA | 71449 | ||||
7954 | 12715 Highway 90 | Luling | LA | 70070 | ||||
7545 | 146 Eastern Ave. | Gloucester | MA | 01930 | ||||
3609 | 124 West St. | Ware | MA | 01082 |
22
Store
Number |
Address | Town | State | Zip | ||||
5192 | 136 Route 6A, Unit B6 | Orleans | MA | 02653 | ||||
6966 | 189 Russell Street | Hadley | MA | 01035 | ||||
9698 | 1167 Providence Rd. | Whitinsville | MA | 01588 | ||||
3743 | 23415 Three Notch Road | California | MD | 20619 | ||||
3323 | 255 Solomons Island Road | Prince Frederick | MD | 20678 | ||||
7813 | 5360 Lincoln Hwy | Gap | PA | 17527 | ||||
1843 | 213 West Broadway | Lincoln | ME | 04457 | ||||
3003 | 771 Roosevelt Trail | North Windham | ME | 04062 | ||||
3163 | 192 College Ave. | Waterville | ME | 04901 | ||||
3364 | 632 Wilton Rd. | Farmington | ME | 04938 | ||||
3574 | 420 Alfred Street | Biddeford | ME | 04005 | ||||
3863 | 90 Moosehead Trail | Newport | ME | 04953 | ||||
3644 | 38 Starrett Drive | Belfast | ME | 04915 | ||||
3232 | 1560 US 31 South | Manistee | MI | 49660 | ||||
3582 | 1650 Wright Ave. | Alma | MI | 48801 | ||||
2281 | 982 South Main Street | Cheboygan | MI | 49721 |
23
Store
Number |
Address | Town | State | Zip | ||||
3280 | 215 West Lake Street | Tawas City | MI | 48763 | ||||
3432 | 2992 Carleton Road | Hillsdale | MI | 49242 | ||||
3718 | 1840 M 119 | Petoskey | MI | 49770 | ||||
3140 | 2711 - I 75 Business Loop | West Branch | MI | 48661 | ||||
3170 | 1150 South Otsego | Gaylord | MI | 49735 | ||||
3180 | 1140 West Three Mile Road | Sault Ste Marie | MI | 49783 | ||||
3271 | Birchwood Mall | Kingsford | MI | 49802 | ||||
3850 | 136 Thunder Bay Shopping Center | Alpena | MI | 49707 | ||||
4789 | 7374 Highland Road | Waterford | MI | 48327 | ||||
3261 | 1356 Imlay City Rd. | Lapeer | MI | 48446 | ||||
3341 | 301 S. Maplewood St. | Greenville | MI | 48838 | ||||
3610 | 56153 M51 South | Dowagiac | MI | 49047 | ||||
3980 | 201 N. Riverside Ave. | St. Clair | MI | 48079 | ||||
5212 | 125 S. Elk Street | Sandusky | MI | 48471 | ||||
3241 | 219 North Mitchell | Cadillac | MI | 49601 | ||||
3251 | 400 US Hwy 41 | Negaunee | MI | 49866 |
24
Store
Number |
Address | Town | State | Zip | ||||
3630 | 1152 Cleaver Road | Caro | MI | 48723 | ||||
3801 | 205 South Dexter | Ionia | MI | 48846 | ||||
3833 | 710 Perry Avenue | Big Rapids | MI | 49307 | ||||
7290 | 1321 E. Colby Street | Whitehall | MI | 49461 | ||||
7370 | 4255 Alpine Ave. | Comstock Park | MI | 49321 | ||||
9890 | 211 N US Hwy 131 | Three Rivers | MI | 49093 | ||||
3210 | 5465 Mt. Iron Dr. | Virginia | MN | 55792 | ||||
3471 | 211 West Lincoln Avenue | Fergus Falls | MN | 56537 | ||||
3370 | 1315 Hwy 10 West | Detroit Lakes | MN | 56501 | ||||
3702 | 1301 18th Ave. NW | Austin | MN | 55912 | ||||
3802 | 24135 Greenway Road | Forest Lake | MN | 55025 | ||||
4463 | 715 Main Street | Osage | IA | 50461 | ||||
3401 | 6380 W. Frontage Road | Medford | MN | 55049 | ||||
3790 | 500 East Main St. | Luverne | MN | 56156 | ||||
7662 | 3218 Hwy 10 East | Moorhead | MN | 56560 | ||||
1862 | 7955 Hwy 55 | Rockford | MN | 55373 |
25
Store
Number |
Address | Town | State | Zip | ||||
3703 | 450 South State Street | Fairmont | MN | 56031 | ||||
3453 | 1950 2nd Avenue SE | Cambridge | MN | 55008 | ||||
3291 | 303 Main Avenue North | Thief River Falls | MN | 56701 | ||||
3440 | 1605 S. Broadway | New Ulm | MN | 56073 | ||||
3738 | 2722 Bridge Ave | Albert Lea | MN | 56007 | ||||
3162 | 2819 Highway 29 South | Alexandria | MN | 56308 | ||||
3411 | 1239 Pokegama Avenue | Grand Rapids | MN | 55744 | ||||
3441 | 15910 Edgewood Drive | Baxter | MN | 56425 | ||||
3632 | 500 3rd Street West | International Falls | MN | 56649 | ||||
3761 | 330 West Second St. | Winona | MN | 55987 | ||||
9982 | 3420 150th St W | Rosemount | MN | 55068 | ||||
9270 | 9034 Overland Plaza | Overland | MO | 63114 | ||||
5303 | 4820 S. 4th Street | Leavenworth | KS | 66048 | ||||
3762 | 3797 Hwy 54 | Osage Beach | MO | 65065 | ||||
5191 | 1147 E. North Ave. | Belton | MO | 64012 | ||||
3680 | 490 South Jefferson Avenue | Lebanon | MO | 65536 |
26
Store
Number |
Address | Town | State | Zip | ||||
2991 | 1759 James River Road | Ozark | MO | 65721 | ||||
3342 | 703 East Young Street | Warrensburg | MO | 64093 | ||||
3010 | 19014 Business 13 North | Branson West | MO | 65737 | ||||
3051 | 1612 Elliott Avenue | Aurora | MO | 65605 | ||||
3372 | 1048 Washington Square | Washington | MO | 63090 | ||||
3442 | 2988 South Clark | Mexico | MO | 65265 | ||||
6908 | 155 Twin City Mall | Crystal City | MO | 63019 | ||||
3851 | 206 Progress St. | Perryville | MO | 63775 | ||||
7782 | 1315 South Main Street Suite A | Maryville | MO | 64468 | ||||
3012 | 1206 N. Douglas | Malden | MO | 63863 | ||||
3362 | 738 Market Street | Farmington | MO | 63640 | ||||
3400 | 111 E. Boston | Brookfield | MO | 64628 | ||||
3552 | 1101 E. Scenic Rivers Blvd. | Salem | MO | 65560 | ||||
3889 | 2101 North Walnut | Cameron | MO | 64429 | ||||
3072 | 2216 South Baltimore | Kirksville | MO | 63501 | ||||
3272 | 1347 Southern Hills | West Plains | MO | 65775 |
27
Store
Number |
Address | Town | State | Zip | ||||
7514 | 101A SW Eagle Parkway | Grain Valley | MO | 64029 | ||||
1827 | 1108 A Mississippi Drive | Waynesboro | MS | 39367 | ||||
1826 | 381 Highway 51 | Ridgeland | MS | 39157 | ||||
2730 | 813 US Highway 98 | Columbia | MS | 39429 | ||||
3377 | 2480 East I-20 | Vicksburg | MS | 39180 | ||||
3626 | 2200 Sandy Lane | Laurel | MS | 39443 | ||||
4787 | 5547 I-55 South | Byram | MS | 39272 | ||||
5214 | 1651 HWY 1 South Suite A | Greenville | MS | 38701 | ||||
3347 | 522 Third Street | Cleveland | MS | 38732 | ||||
6985 | 1560-C West Government St. | Brandon | MS | 39042 | ||||
7396 | 306 East Walnut | Ripley | MS | 38663 | ||||
3357 | 937 Commerce Avenue | Clarksdale | MS | 38614 | ||||
3565 | 31 South Sergeant Prentiss Dr. #3 | Natchez | MS | 39120 | ||||
3623 | 622 Hwy 12 E | Starkville | MS | 39759 | ||||
3613 | 216 Line Avenue | Philadelphia | MS | 39350 | ||||
7614 | 7501 Goodman Rd. | Olive Branch | MS | 38654 |
28
Store
Number |
Address | Town | State | Zip | ||||
3579 | 1753 Hwy 2 West | Havre | MT | 59501 | ||||
3248 | 1105 Hwy 2 West | Kalispell | MT | 59901 | ||||
3932 | 1704 N. First Street | Hamilton | MT | 59840 | ||||
1929 | 124 South Main Street | Livingston | MT | 59047 | ||||
3288 | 3703 Harrison Ave. #G | Butte | MT | 59701 | ||||
3598 | 2825 W. Main St. | Bozeman | MT | 59718 | ||||
3929 | 520 Mineral Ave. | Libby | MT | 59923 | ||||
3226 | 1002 West Cumberland Street | Dunn | NC | 28334 | ||||
3236 | 1308 Carolina Avenue | Washington | NC | 27889 | ||||
3246 | 917 East Main Street | Lincolnton | NC | 28092 | ||||
3426 | 1155 N. Main Street | Marion | NC | 28752 | ||||
3446 | 5100 South Croatan Highway | Nags Head | NC | 27959 | ||||
3196 | 4329 Fayetteville Rd. | Lumberton | NC | 28358 | ||||
3274 | 352 North Broad Street | Brevard | NC | 28712 | ||||
3276 | # 6 Whiteville Plaza | Whiteville | NC | 28472 | ||||
3396 | 1211 Julian Allsbrook Hwy | Roanoke Rapids | NC | 27870 |
29
Store
Number |
Address | Town | State | Zip | ||||
3665 | 1573 Freeway Drive | Reidsville | NC | 27320 | ||||
6863 | 211 S. Broad Street | Edenton | NC | 27932 | ||||
3894 | 3138 Martin Luther King Jr. Blvd. | New Bern | NC | 28562 | ||||
1825 | 8878 US 70 Highway West, Suite 300 | Clayton | NC | 27520 | ||||
3065 | 203 East 1st Street | West Jefferson | NC | 28694 | ||||
3156 | 1535 Dabney Drive | Henderson | NC | 27536 | ||||
3166 | 1377 N. Sandhills Boulevard | Aberdeen | NC | 28315 | ||||
3875 | 1180 Blowing Rock Road, E-6 | Boone | NC | 28607 | ||||
3969 | 1800 Four Seasons Blvd.Suite D-1 | Hendersonville | NC | 28792 | ||||
3416 | 1262 Andrews Road | Murphy | NC | 28906 | ||||
3423 | 326 South Bickett Boulevard | Louisburg | NC | 27549 | ||||
3424 | New Highway 64 West | Lexington | NC | 27295 | ||||
3436 | 834 Hardee Road | Kinston | NC | 28504 | ||||
3763 | 5302 S. Main Street | Shallotte | NC | 28459 | ||||
7292 | 15530 US Hwy 17N | Hampstead | NC | 28443 | ||||
7506 | 703 Edgewood Road | Wilkesboro | NC | 28697 |
30
Store
Number |
Address | Town | State | Zip | ||||
3958 | 11947 South Hwy 226 | Spruce Pine | NC | 28777 | ||||
3979 | 163 Waynesville Plaza | Waynesville | NC | 28786 | ||||
9970 | 619 N Main Street | Kernersville | NC | 27284 | ||||
3981 | 822 Dakota Ave | Wahpeton | ND | 58075 | ||||
2569 | 2308 11th Ave West | Williston | ND | 58801 | ||||
3481 | 346 Highway 2 West | Devils Lake | ND | 58301 | ||||
3308 | 1615 Broadway | Scottsbluff | NE | 69361 | ||||
3324 | 327 Beech Street | Chadron | NE | 69337 | ||||
3557 | 5804 - 2nd Avenue | Kearney | NE | 68845 | ||||
7502 | 2440 Cornhusker Rd. | Bellevue | NE | 68123 | ||||
3032 | 1200 North 6th Street | Beatrice | NE | 68310 | ||||
3011 | 4300 - 23rd Street | Columbus | NE | 68601 | ||||
3734 | 2110 Market Lane | Norfolk | NE | 68701 | ||||
3901 | 206 Westview Plaza | McCook | NE | 69001 | ||||
3050 | 930 South Burlington | Hastings | NE | 68901 | ||||
3821 | 310 East 5th Street | North Platte | NE | 69101 |
31
Store
Number |
Address | Town | State | Zip | ||||
3043 | #13 Lilac Mall | Rochester | NH | 03867 | ||||
3273 | 4 Sears Drive | Rindge | NH | 03461 | ||||
3673 | 742 Tenney Mountain Hwy | Plymouth | NH | 03264 | ||||
3053 | 529 Eastman Rd. | Center Conway | NH | 03813 | ||||
3285 | 1 Batchelder Road | Seabrook | NH | 03874 | ||||
3103 | 176 Highway 202 & 31 | Ringoes | NJ | 08551 | ||||
3143 | 240 White Horse Pike | Hammonton | NJ | 08037 | ||||
3319 | 405 E. Navajo | Hobbs | NM | 88240 | ||||
3826 | 19554 Highway 314 | Belen | NM | 87002 | ||||
7667 | 101 S. White Sands Blvd. | Alamogordo | NM | 88310 | ||||
3966 | 2172 Highway 70 West | Ruidoso Downs | NM | 88346 | ||||
2178 | 1085 Pioneer Blvd. | Mesquite | NV | 89027 | ||||
3306 | 228 West Main Street | Malone | NY | 12953 | ||||
3203 | 61 South Main Street | Oneonta | NY | 13820 | ||||
3603 | 3725 East Main | Fredonia | NY | 14063 | ||||
3024 | 960 State Route 36 | Hornell | NY | 14843 |
32
Store
Number |
Address | Town | State | Zip | ||||
9843 | 160 Clinton Ave. | Cortland | NY | 13045 | ||||
3104 | 6586 St. Hwy 56 | Potsdam | NY | 13676 | ||||
3134 | 14218 Route 219 | Springville | NY | 14141 | ||||
3148 | 461 North Main St. | Warsaw | NY | 14569 | ||||
4172 | 87-91 Nelson Road | Cazenovia | NY | 13035 | ||||
5152 | 1601 Penfield Rd. | Rochester | NY | 14625 | ||||
3223 | 325 East Albany Street | Herkimer | NY | 13350 | ||||
3428 | 25 Sullivan Avenue, Suite 1 | Liberty | NY | 12754 | ||||
3841 | 8326 Lewiston Road | Batavia | NY | 14020 | ||||
3853 | 65 Main Street | Saranac Lake | NY | 12983 | ||||
3923 | 7 Dover Village Plaza, Suite #2 | Dover Plains | NY | 12522 | ||||
7893 | 4364 Pondside Plaza | Geneseo | NY | 14454 | ||||
3983 | 1572 State Route 22NW | Washington Court House | OH | 43160 | ||||
3800 | 15561 W. High St. | Middlefield | OH | 44062 | ||||
2751 | 2350 East State Street | Salem | OH | 44460 | ||||
3204 | 1159 South Shannon | Van Wert | OH | 45891 |
33
Store
Number |
Address | Town | State | Zip | ||||
3611 | 1810 E. Mansfield St. | Bucyrus | OH | 44820 | ||||
3883 | 780 East Main Street | Jackson | OH | 45640 | ||||
3390 | Skyview Plaza St. Rt. 170 | East Liverpool | OH | 43920 | ||||
3462 | 2200 Eastern Ave | Gallipolis | OH | 45631 | ||||
3531 | 743 E. State Street F2 | Athens | OH | 45701 | ||||
7821 | 1258 Bellefontaine St. | Wapakoneta | OH | 45895 | ||||
3074 | 27 Pine Grove Square | Grove City | PA | 16127 | ||||
7853 | 100 Perry Highway | Harmony | PA | 16037 | ||||
4951 | 360 E. Broad Street | Pataskala | OH | 43062 | ||||
2172 | 150 Hocking Mall | Logan | OH | 43138 | ||||
3020 | 2995 Cleveland Road | Wooster | OH | 44691 | ||||
3520 | 2500 West State Street | Alliance | OH | 44601 | ||||
3791 | 989 E. Columbus St. | Kenton | OH | 43326 | ||||
5052 | 6656 N. Ridge Rd. | Madison | OH | 44057 | ||||
3769 | 1220 Russ Road | Greenville | OH | 45331 | ||||
3804 | 1234 N. Main | Bowling Green | OH | 43402 |
34
Store
Number |
Address | Town | State | Zip | ||||
3868 | 993 Coshocton Road | Mount Vernon | OH | 43050 | ||||
7807 | 3409 S. Broadway | Edmond | OK | 73013 | ||||
3028 | 1717 S. Broadway | Grove | OK | 74344 | ||||
3447 | 1101 Lonnie Abbott Blvd | Ada | OK | 74820 | ||||
3722 | 200 N. Mill | Pryor | OK | 74361 | ||||
3386 | 2821 West 3rd Street | Elk City | OK | 73648 | ||||
3604 | 310 N. Washington #1247 | Weatherford | OK | 73096 | ||||
3636 | 3000 S. Eighth Street | Woodward | OK | 73801 | ||||
3647 | 1601 South Wood Drive | Okmulgee | OK | 74447 | ||||
3727 | 617 S. Main St. | Eufaula | OK | 74432 | ||||
3936 | 27 Plaza South | Tahlequah | OK | 74464 | ||||
3457 | 412 East Hartford | Ponca City | OK | 74601 | ||||
3708 | 615 Westside Dr. | Durant | OK | 74701 | ||||
7483 | 1922 S. 4th St. | Chickasha | OK | 73018 | ||||
3949 | Rural Route 2, Box 976-2 | Broken Bow | OK | 74728 | ||||
3469 | 1621 NE Baker Street | McMinnville | OR | 97128 |
35
Store
Number |
Address | Town | State | Zip | ||||
3619 | 1700 Portland Ave. | LaGrande | OR | 97850 | ||||
3479 | 1332 West 6th Street | The Dalles | OR | 97058 | ||||
3369 | 1611 Virginia Avenue | North Bend | OR | 97459 | ||||
3389 | 1551 Northeast F Street | Grants Pass | OR | 97526 | ||||
3808 | 2017 Main Street | Baker City | OR | 97814 | ||||
3876 | 685-A Highway 101 | Florence | OR | 97439 | ||||
3419 | 1152 Marine Drive | Astoria | OR | 97103 | ||||
3429 | 2200 N COAST HWY 101 | Newport | OR | 97365 | ||||
3439 | 80487 North Hwy 395 | Hermiston | OR | 97838 | ||||
3449 | 51581 Columbia River Highway | Scappoose | OR | 97056 | ||||
4734 | 224 SW 6th Street | Redmond | OR | 97756 | ||||
5017 | 510 SW 5th Street | Madras | OR | 97747 | ||||
3368 | 118 Gateway Blvd. | Cottage Grove | OR | 97424 | ||||
3922 | 1517 SW Highway 101 | Lincoln City | OR | 97367 | ||||
3373 | 1534 North Center Avenue | Somerset | PA | 15501 | ||||
1823 | 380 West Columbus Ave | Corry | PA | 16407 |
36
Store
Number |
Address | Town | State | Zip | ||||
3974 | 1385 Bucktail Rd. | St. Marys | PA | 15857 | ||||
3094 | 9525 Lincoln Highway | Bedford | PA | 15522 | ||||
1903 | 1241 Blakeslee Blvd. East | Lehighton | PA | 18235 | ||||
2753 | 7495 Huntingdon Plaza | Huntingdon | PA | 16652 | ||||
3374 | 1516 Golden Mile Road | Towanda | PA | 18848 | ||||
3739 | 559 High Street | Lock Haven | PA | 17745 | ||||
3871 | 173 N Main Street | Mansfield | PA | 16933 | ||||
3878 | 16039 Conneaut Lake Rd. Suite #101 | Meadville | PA | 16335 | ||||
3083 | 240-4 South West End Blvd. | Quakertown | PA | 18951 | ||||
5574 | 400 North Union St. | Olean | NY | 14760 | ||||
3190 | 325 West Freedom Ave, Suite #115 | Burnham | PA | 17009 | ||||
7734 | 5163 Milford Road | East Stroudsburg | PA | 18302 | ||||
9741 | Local #10 Quatro Calles Shop CTR 200Carretera 116 STE | Yauco | PR | 00698 | ||||
7735 | Carr. 167 Esq. 199 | Bayamon | PR | 00956 | ||||
3224 | Carretera No. 2 Km 110.3 | Isabela | PR | 00662 | ||||
9747 | 1000 Jesus T. Pinero Ave. | Cayey | PR | 00736 |
37
Store
Number |
Address | Town | State | Zip | ||||
3264 | 20 Commons Corner Way | Wakefield | RI | 02879 | ||||
3414 | 1235 West Main Road | Middletown | RI | 02842 | ||||
3055 | 366 Market Street | Seneca | SC | 29678 | ||||
4111 | 1298 Broad Street | Sumter | SC | 29150 | ||||
7515 | 523 Columbia Avenue | Lexington | SC | 29072 | ||||
3615 | P.O. Box 146 | Lugoff | SC | 29078 | ||||
3693 | 217 Highway 701 N. | Loris | SC | 29569 | ||||
3887 | 107 Westfield St. | Hartsville | SC | 29550 | ||||
3325 | 1410 Montague Ave. Ext. | Greenwood | SC | 29649 | ||||
3455 | 1125 Highway 9 Bypass | Lancaster | SC | 29720 | ||||
3785 | 1249 N. Fraser Street | Georgetown | SC | 29440 | ||||
3836 | 377 Bells Highway | Walterboro | SC | 29488 | ||||
3144 | 1801 North Main | Mitchell | SD | 57301 | ||||
3160 | 1101 Jenson Ave. | Watertown | SD | 57201 | ||||
3278 | 2901 Broadway | Yankton | SD | 57078 | ||||
3735 | 2221 Jacksboro Pike | LaFollette | TN | 37766 |
38
Store
Number |
Address | Town | State | Zip | ||||
3903 | 106 Hwy 51 North | Batesville | MS | 38606 | ||||
3367 | 1229D Sunset Drive | Grenada | MS | 38901 | ||||
3576 | 236 South Roane St. | Harriman | TN | 37748 | ||||
2723 | 1094 Wayne Road | Savannah | TN | 38372 | ||||
3186 | 1060 Mineral Wells Ave | Paris | TN | 38242 | ||||
3915 | 6034 South First Street | Milan | TN | 38358 | ||||
3486 | 550 Highway 51 By-Pass | Dyersburg | TN | 38024 | ||||
3546 | 231 Northgate Shopping Center | McMinnville | TN | 37110 | ||||
3547 | 715 North Main Street | Covington | TN | 38019 | ||||
7491 | 640 W. Poplar Ave | Collierville | TN | 38017 | ||||
7737 | 269 Dickson Plaza Drive | Dickson | TN | 37055 | ||||
7815 | 1202 S. James M. Campbell Blvd. | Columbia | TN | 38401 | ||||
9628 | 620 Madison St. | Shelbyville | TN | 37160 | ||||
3616 | 900 North Austin Avenue #123 | Georgetown | TX | 78626 | ||||
3766 | 1208 West Dickinson | Fort Stockton | TX | 79735 | ||||
4798 | 2301 10th St. | Floresville | TX | 78114 |
39
Store
Number |
Address | Town | State | Zip | ||||
3568 | 2801 Hwy 180 East, Suite # 14 | Mineral Wells | TX | 76067 | ||||
3967 | 2024 Crockett Rd. | Palestine | TX | 75801 | ||||
9776 | 1115 West Park Avenue | Hereford | TX | 79045 | ||||
3487 | 320 North Commerce | Ardmore | OK | 73401 | ||||
3742 | 2720A N. Main Street | Altus | OK | 73521 | ||||
3527 | 1212 Marlandwood | Temple | TX | 76502 | ||||
3728 | 811 E. Main Street | Alice | TX | 78332 | ||||
1975 | 1627 South Jackson Street | Jacksonville | TX | 75766 | ||||
3458 | 114 North Business I-H35 | New Braunfels | TX | 78130 | ||||
3806 | 307 N.W. Loop 436 | Carthage | TX | 75633 | ||||
3948 | 909 E. Milam | Mexia | TX | 76667 | ||||
5175 | 1700 RR 620 North | Lakeway | TX | 78734 | ||||
3328 | 168 Col. Etheredge Blvd. | Huntsville | TX | 77340 | ||||
7489 | 111A Blanco Ave | Blanco | TX | 78606 | ||||
9258 | 708 S. Dumas Ave. | Dumas | TX | 79029 | ||||
1932 | 2320 Highway 36 South | Sealy | TX | 77474 |
40
Store
Number |
Address | Town | State | Zip | ||||
2709 | 2625 South Loop 35 | Alvin | TX | 77511 | ||||
2739 | 601 Northwest Parkway, Suite 3 | Azle | TX | 76020 | ||||
3378 | 836 West 7th Avenue | Corsicana | TX | 75110 | ||||
3388 | 5109 Wesley Street | Greenville | TX | 75401 | ||||
3488 | 1111 E. Tyler #101B | Athens | TX | 75751 | ||||
3528 | 600 North Highway 77 | Waxahachie | TX | 75165 | ||||
3607 | 821 Hwy 90A East | Richmond | TX | 77469 | ||||
3717 | 1609 Sedberry | Marshall | TX | 75670 | ||||
3756 | 118 S. Main St. | Pleasanton | TX | 78064 | ||||
4693 | 8910 Bandera Road | San Antonio | TX | 78250 | ||||
3026 | 2323 N. Main Suite B | Liberty | TX | 77575 | ||||
3337 | 1601 S. Hwy 77 | Kingsville | TX | 78363 | ||||
3398 | 420 Early Blvd. | Early | TX | 76802 | ||||
3418 | 3801 North Street | Nacogdoches | TX | 75961 | ||||
3672 | 1010 West Business 380 | Decatur | TX | 76234 | ||||
3747 | 202 Adams Drive | Weatherford | TX | 76086 |
41
Store
Number |
Address | Town | State | Zip | ||||
3866 | 2514 South State Hwy 36 | Gatesville | TX | 76528 | ||||
3882 | 1623 N. Hobart | Pampa | TX | 79065 | ||||
3744 | 510 East I-H10 | Seguin | TX | 78155 | ||||
3988 | 332 W. FM 564 | Mineola | TX | 75773 | ||||
7787 | 638 East Houston Street | Cleveland | TX | 77327 | ||||
3916 | 2264 MacArthur Drive | Orange | TX | 77630 | ||||
1815 | 1803 West 1800 North, G-3 | Clinton | UT | 84015 | ||||
3962 | 25 East 800 South | Richfield | UT | 84701 | ||||
5202 | 84 S. Main Street | Heber City | UT | 84032 | ||||
3529 | 1830 N. Main | Cedar City | UT | 84720 | ||||
7173 | 360 N. Main Street | Ephraim | UT | 84627 | ||||
7408 | 162 N. Main Street | Tooele | UT | 84074 | ||||
3289 | 25044 Lankford Hwy (Route 13) | Onley | VA | 23418 | ||||
1923 | 1170 Celebration Ave. | Moneta | VA | 24121 | ||||
3363 | 571 C James Madison Highway | Culpeper | VA | 22701 | ||||
3474 | 51-J Burgess Road | Harrisonburg | VA | 22801 |
42
Store
Number |
Address | Town | State | Zip | ||||
3433 | 3100 Halifax Rd. | South Boston | VA | 24592 | ||||
3095 | P.O. Box 709 | Gloucester | VA | 23061 | ||||
3444 | 1206 Greenville Avenue | Staunton | VA | 24401 | ||||
3484 | Wise County Plaza Shopping Center | Wise | VA | 24293 | ||||
3663 | 40518 West Morgan Ave. | Pennington Gap | VA | 24277 | ||||
7468 | 783 E. Main Street | Abingdon | VA | 24210 | ||||
1817 | 1425 C South Main Street | Farmville | VA | 23901 | ||||
3712 | 1675 Tappahannock Blvd. | Tappahannock | VA | 22560 | ||||
5190 | 2010 Second Street | Richlands | VA | 24641 | ||||
5695 | 412 N. Main Street | Kilmarnock | VA | 22482 | ||||
2702 | 383 Exhange Street | Middlebury | VT | 05753 | ||||
3513 | U.S. Route 5 | Derby | VT | 05829 | ||||
3533 | P.O. Box 598 | Morrisville | VT | 05661 | ||||
4694 | 1999 Memorial Drive, Suite 2 | St. Johnsbury | VT | 05819 | ||||
3523 | 831 Meadow Street | Littleton | NH | 03561 | ||||
7573 | 94 Harvest Lane | Williston | VT | 05495 |
43
Store
Number |
Address | Town | State | Zip | ||||
3503 | 1598 US Route 302 - Berlin | Barre | VT | 05641 | ||||
4864 | 414 Route 7 South | Milton | VT | 05468 | ||||
3044 | 214 Northside Drive Suite 5 | Bennington | VT | 05201 | ||||
3124 | 364 Swanton Rd. | Saint Albans | VT | 05478 | ||||
3589 | 465 N.E. Midway Boulevard | Oak Harbor | WA | 98277 | ||||
3158 | 730 E. Main | Othello | WA | 99344 | ||||
3954 | 1410 South Blaine | Moscow | ID | 83843 | ||||
2159 | 101 Mashell Ave N. | Eatonville | WA | 98328 | ||||
3549 | 520 South Lincoln Street | Port Angeles | WA | 98362 | ||||
3019 | 702 Hwy 395 North | Colville | WA | 99114 | ||||
3448 | 10 West First Street | Cheney | WA | 99004 | ||||
5180 | 224 NE 3rd Ave. | Camas | WA | 98607 | ||||
3559 | 312 South Division Street | Moses Lake | WA | 98837 | ||||
3569 | 505 North Pearl | Ellensburg | WA | 98926 | ||||
5693 | 1206 Basin St. SW | Ephrata | WA | 98823 | ||||
3891 | 1908 Lake Shore Dr. East | Ashland | WI | 54806 |
44
Store
Number |
Address | Town | State | Zip | ||||
3250 | 1645 N. Spring St. | Beaver Dam | WI | 53916 | ||||
3191 | 908 Lincoln St. | Rhinelander | WI | 54501 | ||||
3391 | 1660 Commerce Court | River Falls | WI | 54022 | ||||
3532 | 275 W. 33rd St. | Hastings | MN | 55033 | ||||
3731 | 2800 College Drive | Rice Lake | WI | 54868 | ||||
3182 | 2521 A Hils Court | Menomonie | WI | 54751 | ||||
7822 | 700 E. Blackhawk Ave. | Prairie du Chien | WI | 53821 | ||||
3562 | 520 S. Black River | Sparta | WI | 54656 | ||||
3052 | 700 East Magnolia | Manitowoc | WI | 54220 | ||||
6856 | 2615 Eastern Ave | Plymouth | WI | 53073 | ||||
7270 | 1114 N. Superior Ave | Tomah | WI | 54660 | ||||
7398 | 1150 Service Road | Kiel | WI | 53042 | ||||
1851 | 15734 Hwy 63 | Hayward | WI | 54843 | ||||
1933 | 1970 Sutler Ave | Beloit | WI | 53511 | ||||
3181 | 351 Peller Road | Lake Geneva | WI | 53147 | ||||
3729 | 316 Service Road | Spooner | WI | 54801 |
45
Store
Number |
Address | Town | State | Zip | ||||
3080 | 1720 South Church Street | Watertown | WI | 53094 | ||||
3221 | 1810 North Central | Marshfield | WI | 54449 | ||||
3239 | 1515 Bohmann Dr. | Richland Center | WI | 53581 | ||||
3435 | 950 Elden Ave. | Amery | WI | 54001 | ||||
7163 | 2081 Witzel Ave. | Oshkosh | WI | 54904 | ||||
3189 | 822 E. Green Bay Street | Shawano | WI | 54166 | ||||
7952 | 55 Viking Drive | Reedsburg | WI | 53959 | ||||
3993 | 445 State Highway 64 | Antigo | WI | 54409 | ||||
3583 | 29 South Hill Plaza Drive | Ripley | WV | 25271 | ||||
3283 | 9803 Mall Loop Road | Fairmont | WV | 26554 | ||||
2733 | 1921 Applebee Way | Covington | VA | 24426 | ||||
3023 | Box 17A, Rte. 1 | Ronceverte | WV | 24970 | ||||
3113 | 237 South Kanawha Street | Buckhannon | WV | 26201 | ||||
3553 | 50 Stonewall Drive | Summersville | WV | 26651 | ||||
4834 | 500 Keyser Square | Keyser | WV | 26726 | ||||
3893 | 89 Pleasant Hill Dr. | Oakland | MD | 21550 |
46
Store
Number |
Address | Town | State | Zip | ||||
3114 | 1611 Harrison Ave. | Elkins | WV | 26241 | ||||
3543 | 105 Holly Avenue | Logan | WV | 25601 | ||||
9361 | 300 Wharton Circle Suite 120 | Triadelphia | WV | 26059 | ||||
3578 | 63 Center Street | Rock Springs | WY | 82901 | ||||
1867 | 411 S. 2nd Street | Laramie | WY | 82070 | ||||
3470 | 305 East Lakeway Road | Gillette | WY | 82718 | ||||
3018 | 801 N. Federal | Riverton | WY | 82501 | ||||
1849 | 3150 Baseline Hwy | Cornelius | OR | 97113 | ||||
1869 | 1422 Highway 367 North | Newport | AR | 72112 | ||||
2187 | 9900 South IH 35 Service Road | Austin | TX | 78748 | ||||
2738 | 900 North 5th Street | Leesville | LA | 71446 | ||||
3001 | 1909 E. Austin Blvd. | Nevada | MO | 64772 | ||||
3006 | 99 Cary Lu Circle | Harpers Ferry | WV | 25425 | ||||
3030 | 211 Highway 432 | Oskaloosa | IA | 52577 | ||||
3048 | 220 Rotanzi St. | Ramona | CA | 92065 | ||||
3102 | 7147 West 48th Street | Fremont | MI | 49412 |
47
Store
Number |
Address | Town | State | Zip | ||||
3303 | 850 N. Van Dyke | Bad Axe | MI | 48413 | ||||
3309 | 2302 West Pierce Street | Carlsbad | NM | 88220 | ||||
3311 | 06585 M66 Hwy | Charlevoix | MI | 49720 | ||||
3338 | 410 S. Texas Drive | Eagle Pass | TX | 78852 | ||||
3382 | 1070 S. Bishop Street | Rolla | MO | 65401 | ||||
3387 | 1801 S. Harper Rd. | Corinth | MS | 38834 | ||||
3421 | 2722 Paul Bunyan Drive N.W. | Bemidji | MN | 56601 | ||||
3445 | 1347-B Ribaut Road | Port Royal | SC | 29935 | ||||
3463 | 600 North Broad | Middletown | DE | 19709 | ||||
3473 | 560 Chestnut St. | Bradford | PA | 16701 | ||||
3489 | 97900 Shopping Center Drive | Harbor | OR | 97415 | ||||
3494 | 972 East Stuart Dr. | Galax | VA | 24333 | ||||
3519 | 1783 West Hwy 40 | Vernal | UT | 84078 | ||||
3530 | 1420 East College Drive | Marshall | MN | 56258 | ||||
3538 | 1507 West 5th Street | Plainview | TX | 79072 | ||||
3539 | 115 E 400N | Logan | UT | 84321 |
48
Store
Number |
Address | Town | State | Zip | ||||
3572 | 224 East Hwy 12 | Litchfield | MN | 55355 | ||||
3590 | 11130 W US Highway 50 | Poncha Springs | CO | 81242 | ||||
3591 | 901 W. Morton Avenue | Jacksonville | IL | 62650 | ||||
3617 | 2004 West State Hwy 71 | LaGrange | TX | 78945 | ||||
3640 | 1535 American Legion Rd. | Mountain Home | ID | 83647 | ||||
3648 | 1004 N. Brindlee Mtn. Pkwy. | Arab | AL | 35016 | ||||
3686 | 2603 US Hwy 281 North | Marble Falls | TX | 78654 | ||||
3698 | 911 Main Street | Susanville | CA | 96130 | ||||
3752 | 918 S. Alabama Ave | Monroeville | AL | 36460 | ||||
3809 | 1795 12th Street | Hood River | OR | 97031 | ||||
3816 | 512 S Adams Street | Fredericksburg | TX | 78624 | ||||
3827 | 3308 Highway 35 North | Rockport-Fulton | TX | 78382 | ||||
3867 | 11554 Columbia St. | Blakely | GA | 39823 | ||||
3898 | 325 S. Davis Rd. | LaGrange | GA | 30241 | ||||
3900 | 2800 Cornerstone Drive | Pagosa Springs | CO | 81147 | ||||
3902 | 743 Gaines Drive | Clinton | MO | 64735 |
49
Store
Number |
Address | Town | State | Zip | ||||
3908 | 40322 Junction Drive | Oakhurst | CA | 93644 | ||||
3921 | 2092 E. Main Street | Robinson | IL | 62454 | ||||
3930 | 2052 North Jefferson | Huntington | IN | 46750 | ||||
3944 | 1905 Wilson Rd. | Newberry | SC | 29108 | ||||
3961 | 1514 S. Main | Boerne | TX | 78006 | ||||
3989 | 2645 Mountain Hwy | Elko | NV | 89801 | ||||
5199 | 1056 North Marine Corps Drive | Tamuning | GU | |||||
5248 | 6818 S Zarzamora | San Antonio | TX | 78224 | ||||
3021 | 220 Baden Strasse | Jasper | IN | 47546 | ||||
3031 | 3917 North Carson Street | Carson City | NV | 89706 | ||||
3033 | 367 Washington Street | Claremont | NH | 03743 | ||||
3059 | 4311 South 6th | Klamath Falls | OR | 97603 | ||||
3066 | 912 South 12th Street | Murray | KY | 42071 | ||||
3067 | 2700 Mount Pleasant Street | Burlington | IA | 52601 | ||||
3092 | 26-1st Ave. Southwest | Lemars | IA | 51031 | ||||
3093 | 7172 Rte. 54 | Bath | NY | 14810 | ||||
3108 | 1005 Stevenson Ave. | Enumclaw | WA | 98022 |
50
Store
Number |
Address | Town | State | Zip | ||||
3111 | 1605 First Street South | Willmar | MN | 56201 | ||||
3115 | 2908 Citizens Parkway | Selma | AL | 36701 | ||||
3136 | 370 So. Hwy 27 #9 | Somerset | KY | 42501 | ||||
3159 | 14691 Mono Way | Sonora | CA | 95370 | ||||
3171 | 1919 Old West Main | Red Wing | MN | 55066 | ||||
3172 | 550 North Fairview Boulevard | Kendallville | IN | 46755 | ||||
3174 | 204 W. Main Street | Ft. Kent | ME | 04743 | ||||
3176 | 1860 N. Main St. | Crossville | TN | 38555 | ||||
3197 | 302 North 6th Street | Blytheville | AR | 72315 | ||||
3206 | 2534 Lee Avenue | Sanford | NC | 27332 | ||||
3237 | 1602 Industrial Road | Emporia | KS | 66801 | ||||
3238 | 4551 S. White Mountain Rd. #3 | Show Low | AZ | 85901 | ||||
3240 | 643 N. Morley | Moberly | MO | 65270 | ||||
3267 | 2508 Vine Street | Hays | KS | 67601 | ||||
3270 | 1010 S. Kansas | Liberal | KS | 67901 | ||||
3301 | 910 Evergreen | Houghton | MI | 49931 |
51
Store
Number |
Address | Town | State | Zip | ||||
3340 | 104 South Sunset | Butler | MO | 64730 | ||||
3345 | Franklin Village Mall #19A | Kittanning | PA | 16201 | ||||
3359 | 762 Lindsay Lane | Cody | WY | 82414 | ||||
3371 | 3606 East Lincolnway | Sterling | IL | 61081 | ||||
3392 | P.O. Box 940 | Saint Robert | MO | 65584 | ||||
3406 | 2400 Veterans Blvd. | Del Rio | TX | 78840 | ||||
3410 | 1467 Coffeen Avenue | Sheridan | WY | 82801 | ||||
3467 | 500 Village Blvd. | Mcalester | OK | 74501 | ||||
3475 | 3050 Village Park Drive | Plover | WI | 54467 | ||||
3498 | 3715 134th Street NE | Marysville | WA | 98271 | ||||
3501 | 910 Huntington Avenue | Wisconsin Rapids | WI | 54494 | ||||
3512 | 7363 Hwy. 51 South | Minocqua | WI | 54548 | ||||
3522 | 4193 East Grand River | Howell | MI | 48843 | ||||
3540 | 1400 S. Mission St. | Mount Pleasant | MI | 48858 | ||||
3571 | 1704 S. Heaton | Knox | IN | 46534 | ||||
3592 | 101 N. Fourth St. | Atchison | KS | 66002 |
52
Store
Number |
Address | Town | State | Zip | ||||
3593 | 161 Main Street | Gorham | NH | 03581 | ||||
3620 | 420 Shilling Drive North | Dundas | MN | 55019 | ||||
3631 | 210 1st Street South East | Little Falls | MN | 56345 | ||||
3643 | 228 Stockbridge Rd. | Great Barrington | MA | 01230 | ||||
3667 | 1203 W. Ferguson Rd. | Mt. Pleasant | TX | 75455 | ||||
3689 | 444 HWY 531 | Minden | LA | 71055 | ||||
3737 | 914 West Main | Homer | LA | 71040 | ||||
3765 | 4695 CR540A East | Lakeland | FL | 33830 | ||||
3822 | 1600 A Street N.E. | Linton | IN | 47441 | ||||
3839 | 160 Fairview Ave | Hudson | NY | 12534 | ||||
3848 | 239 Walker Rd. | Alamosa | CO | 81101 | ||||
3877 | 13447 Highway 157 | Moulton | AL | 35650 | ||||
3938 | 3862 Hwy 280 | Alexander City | AL | 35010 | ||||
3956 | 301 East Main Street | Atlanta | TX | 75551 | ||||
3976 | 3300 Highway 11 North | Picayune | MS | 39466 | ||||
3996 | 404 W. Main St. | Lake City | SC | 29560 |
53
Store
Number |
Address | Town | State | Zip | ||||
7482 | 60 E. Main Street | Norwalk | OH | 44857 | ||||
7671 | 14283 Fenton Road | Fenton | MI | 48430 | ||||
7781 | 540 Commons Drive | Fulton | MO | 65251 | ||||
7814 | 1214 N. Weslyan Blvd. | Rocky Mount | NC | 27804 | ||||
7825 | 1094 South East Vermont Ave | Arcadia | FL | 34266 | ||||
7921 | 238 W. 6th Street | Concordia | KS | 66901 | ||||
3910 | 1867 - 6th Avenue West | Dickinson | ND | 58601 | ||||
3919 | 232 Valley Center PL. | Sequim | WA | 98382 | ||||
3920 | 1690 East 23rd Ave. North | Fremont | NE | 68025 | ||||
3953 | 671 Happy Valley Rd. | Glasgow | KY | 42141 | ||||
3957 | 1655 Henderson, Suite A | Cleburne | TX | 76033 | ||||
9490 | 69 North 28th St | Superior | WI | 54880 | ||||
9774 | 4100 S. New Braunfels Ave. | San Antonio | TX | 78223 | ||||
9941 | 1450 Kearney Road | Excelsior Springs | MO | 64024 | ||||
1812 | 1000 South 8th Street | Clarinda | IA | 51632 | ||||
1833 | 103 S. 6th Street | Brownfield | TX | 79316 |
54
Store
Number |
Address | Town | State | Zip | ||||
1934 | 322 Eureka Street | Berryville | AR | 72616 | ||||
2701 | 2790 Woodlawn Road | Lincoln | IL | 62656 | ||||
2707 | Carretera No. 2 Barrio Candelaria KM 18.3 | Toa Baja | PR | 00949 | ||||
2761 | 1108 E. 16th Street | Wellington | KS | 67152 | ||||
2776 | 7827 Highway 613 | Moss Point | MS | 39563 | ||||
2780 | 2014 Lincolnway East, Suite 2 | Goshen | IN | 46528 | ||||
3000 | 208 Ute Street | Delta | CO | 81416 | ||||
3036 | 913 East Sixth Avenue | Stillwater | OK | 74074 | ||||
3038 | 2140 Feather River Blvd. | Oroville | CA | 95965 | ||||
3042 | 815 Fulton Box # 4 | Waupaca | WI | 54981 | ||||
3049 | 15875 Dam Road Ext. | Clearlake | CA | 95422 | ||||
3062 | 2524 North Broadway | Pittsburg | KS | 66762 | ||||
3073 | 3845 Bay Shore Road | North Cape May | NJ | 08204 | ||||
3091 | 1429 West High Street | Bryan | OH | 43506 | ||||
3107 | 2020 Northwest Ave | El Dorado | AR | 71730 | ||||
3109 | 362 North Franklin Street | Fort Bragg | CA | 95437 |
55
Store
Number |
Address | Town | State | Zip | ||||
3123 | 19 Washington Square Mall | Chestertown | MD | 21620 | ||||
3125 | 2630 Alabama Avenue N. | Fort Payne | AL | 35967 | ||||
3165 | 158 Micah Way | Scottsboro | AL | 35769 | ||||
3178 | 835 First Street | Gilroy | CA | 95020 | ||||
3192 | 1005 North 18th Street | Centerville | IA | 52544 | ||||
3199 | 1230 Airport Park Blvd. | Ukiah | CA | 95482 | ||||
3296 | 604 East Broadway | Sweetwater | TX | 79556 | ||||
3297 | 412 Avenue B | Bogalusa | LA | 70427 | ||||
3299 | Road 111 km. 15.6 | San Sebastian | PR | 00685 | ||||
3312 | 720 South Westwood Boulevard | Poplar Bluff | MO | 63901 | ||||
3349 | 901 Metro | Gallup | NM | 87301 | ||||
3395 | 921 Hillcrest Parkway | Dublin | GA | 31021 | ||||
3397 | 222 Highway 51 North | Brookhaven | MS | 39601 | ||||
3434 | P.O. Box 6 | South Hill | VA | 23970 | ||||
3450 | 721 West Bedford Road | Morris | IL | 60450 | ||||
3460 | 2915 North Summit | Arkansas City | KS | 67005 |
56
Store
Number |
Address | Town | State | Zip | ||||
3466 | 1421 S. First Street | Union City | TN | 38261 | ||||
3468 | 3120 Avenue F | Bay City | TX | 77414 | ||||
3472 | 1411 N. Liberty Circle E. | Greensburg | IN | 47240 | ||||
3493 | P.O. Box 218 | Houlton | ME | 04730 | ||||
3496 | 2001 North St. Marys Street | Beeville | TX | 78102 | ||||
3497 | 420 Hwy. 377 E | Granbury | TX | 76048 | ||||
3508 | 1402 Mockingbird Lane | Sulphur Springs | TX | 75482 | ||||
3518 | 2185 West South Loop | Stephenville | TX | 76401 | ||||
3525 | 1555 Fording Island Road, Suite F | Hilton Head Island | SC | 29926 | ||||
3536 | 2344 East Main | Uvalde | TX | 78801 | ||||
3537 | 1990 McCulloch Boulevard #104 | Lake Havasu City | AZ | 86403 | ||||
3548 | 1901 West Gibson | Jasper | TX | 75951 | ||||
3567 | 168 Golden Rod | Mansura | LA | 71350 | ||||
3599 | 317 S. Main Street | Omak | WA | 98841 | ||||
3633 | 1009 Arizona Ave. | Parker | AZ | 85344 | ||||
3639 | 1190 Trade Days Blvd. | Canton | TX | 75103 |
57
Store
Number |
Address | Town | State | Zip | ||||
3649 | 1281 E. Calvada Blvd. | Pahrump | NV | 89048 | ||||
3690 | 18675 Unit 26 Coastal Hwy. | Rehoboth | DE | 19971 | ||||
3694 | 813 East Main Street | Cobleskill | NY | 12043 | ||||
3700 | 3151 S. Springfield Ave. | Bolivar | MO | 65613 | ||||
3714 | KM 2.8 Bo Quebradillas | Barranquitas | PR | 00794 | ||||
3736 | P.O. Box 241 | Henderson | TN | 38340 | ||||
3772 | 3315 6th Ave. SE | Aberdeen | SD | 57401 | ||||
3859 | 1430 W. Williams Ave. | Fallon | NV | 89406 | ||||
3870 | 926 W. High Street | Ebensburg | PA | 15931 | ||||
3906 | 1339 Highway 270 West | Malvern | AR | 72104 | ||||
3913 | 15455 Route 6 | Clarendon | PA | 16313 | ||||
3918 | 1393 Fort Williams Square | Sylacauga | AL | 35150 | ||||
3950 | 1124 Independence Ave. | Kennett | MO | 63857 | ||||
3952 | 116 South First Street | Montevideo | MN | 56265 | ||||
5108 | 3355 Hwy 431, Suite 7 | Roanoke | AL | 36274 | ||||
5276 | 18721 E Ponderosa | Parker | CO | 80138 |
58
Store
Number |
Address | Town | State | Zip | ||||
5312 | 5885 Palmer Park Blvd. | Colorado Springs | CO | 80915 | ||||
3016 | 2130 Decherd Boulevard | Decherd | TN | 37324 | ||||
3029 | 2570 S. Main Street | Lakeport | CA | 95453 | ||||
3040 | 1016 Linn Street | Sikeston | MO | 63801 | ||||
3058 | 74 South Carbon Avenue | Price | UT | 84501 | ||||
3082 | 300 North Penn | Independence | KS | 67301 | ||||
3084 | 480 Downtowner Plaza | Coshocton | OH | 43812 | ||||
3086 | 275 Southside Mall Road | South Williamson | KY | 41503 | ||||
3088 | 1702 East Gregory Avenue | Sunnyside | WA | 98944 | ||||
3100 | 704 Avenue G | Fort Madison | IA | 52627 | ||||
3106 | 450 Village Lane | Hazard | KY | 41701 | ||||
3129 | 129 Idaho Maryland Road | Grass Valley | CA | 95945 | ||||
3138 | 1305 W. Yosemite Ave. | Manteca | CA | 95336 | ||||
3142 | 4103 Holiday Lane | Ottawa | IL | 61350 | ||||
3149 | 415 Grass Valley Highway | Auburn | CA | 95603 | ||||
3167 | 920 South Arkansas Avenue | Russellville | AR | 72801 |
59
Store
Number |
Address | Town | State | Zip | ||||
3209 | 795 S. Highway 49 | Jackson | CA | 95642 | ||||
3216 | 1503 West Ehringhaus Street | Elizabeth City | NC | 27909 | ||||
5710 | 1025 North Texas Blvd. | Weslaco | TX | 78596 | ||||
3219 | 835 Tucker Road #A and B | Tehachapi | CA | 93561 | ||||
3222 | St. Marys Square | Saint Marys | OH | 45885 | ||||
3228 | 1700 Rainbow Drive | Canon City | CO | 81212 | ||||
3249 | 427 Main Street | Woodland | CA | 95695 | ||||
3256 | 2350 Miracle Mile Road | Bullhead City | AZ | 86442 | ||||
3269 | 1701 Soscol Ave | Napa | CA | 94559 | ||||
3279 | 615 East Hobson Way | Blythe | CA | 92225 | ||||
3298 | 3120 Dredge Drive | Helena | MT | 59602 | ||||
3302 | 1037 W. Broadway | Centralia | IL | 62801 | ||||
3310 | 1704 W. Main St. | Carmi | IL | 62821 | ||||
3327 | 707 North Lamar | Oxford | MS | 38655 | ||||
3329 | 1310 Silver Heights Boulevard | Silver City | NM | 88061 | ||||
3332 | 3117 West Broadway | Sedalia | MO | 65301 |
60
Store
Number |
Address | Town | State | Zip | ||||
3348 | 2507 Becker Drive | Brenham | TX | 77833 | ||||
3353 | Easton Market Place | Easton | MD | 21601 | ||||
3358 | 345 Junction Highway | Kerrville | TX | 78028 | ||||
3381 | 6375 M 72 West | Grayling | MI | 49738 | ||||
3399 | 2400 - 8th Avenue Southwest | Jamestown | ND | 58401 | ||||
3408 | 1801 East FM 700-C6 | Big Spring | TX | 79720 | ||||
3412 | 1299 W. Washington | Pittsfield | IL | 62363 | ||||
3420 | 408 Central Avenue | Estherville | IA | 51334 | ||||
3425 | 735 Old Austin Hwy | Bastrop | TX | 78602 | ||||
3431 | 990 West 41st Street | Hibbing | MN | 55746 | ||||
3438 | 321 North Beatty | Livingston | TX | 77351 | ||||
3478 | 2121 North Main | Taylor | TX | 76574 | ||||
3499 | 1702 Freedom Boulevard | Freedom | CA | 95019 | ||||
3541 | 501 West North Avenue | Flora | IL | 62839 | ||||
3556 | 1420 Cedar Lane | Tullahoma | TN | 37388 | ||||
3561 | 325 S. Washington | Duquoin | IL | 62832 |
61
Store
Number |
Address | Town | State | Zip | ||||
3585 | 1315 North Norwood Street | Wallace | NC | 28466 | ||||
3586 | 3001 North Highway 81 | Duncan | OK | 73533 | ||||
3597 | 301 Fairview | Crossett | AR | 71635 | ||||
3628 | 912 Main Street | Winfield | KS | 67156 | ||||
3634 | 3119 Cranberry Hwy | East Wareham | MA | 02538 | ||||
3645 | 1605 - 7th Street North | Clanton | AL | 35045 | ||||
3662 | 137 E. Illinois Street | Spearfish | SD | 57783 | ||||
3685 | 1946 Bypass Rd. | Winchester | KY | 40391 | ||||
3706 | 410 Pinola Drive SE | Magee | MS | 39111 | ||||
3707 | 717 West Park Ave | Greenwood | MS | 38930 | ||||
3715 | 740 N. Main Street | Fuquay-Varina | NC | 27526 | ||||
3724 | 1544 N. Temple | Fayette | AL | 35555 | ||||
3754 | 756 Century Ave SW | Hutchinson | MN | 55350 | ||||
3780 | 1654 7th Street | Las Vegas | NM | 87701 | ||||
3786 | Ferram Plaza | Aguadilla | PR | 00603 | ||||
3795 | 1406 Huntsville Highway | Fayetteville | TN | 37334 |
62
Store
Number |
Address | Town | State | Zip | ||||
3796 | 2919 W. Pine | Arkadelphia | AR | 71923 | ||||
3831 | 915 13th Street SW | Spencer | IA | 51301 | ||||
3881 | 703 W. Main St. | Olney | IL | 62450 | ||||
6846 | 1317 Armory Drive | Franklin | VA | 23851 | ||||
6987 | 1926 Hwy 64 North | Guymon | OK | 73942 | ||||
7176 | 700 Tennessee Blvd. | Dalhart | TX | 79022 | ||||
3723 | 1606 N. Locust Ave | Lawrenceburg | TN | 38464 | ||||
7220 | 803 Martin St S | Pell City | AL | 35128 | ||||
7467 | 1444 N. Broad Street | Tazewell | TN | 37879 | ||||
7550 | 1800 Pipestone Rd | Benton Harbor | MI | 49022 | ||||
7700 | 580 W Hwy 32 | Stockton | MO | 65785 | ||||
7721 | 99 Hwy 37 S | Cassville | MO | 65625 | ||||
7732 | 3115 HWY 28 EAST | Pineville | LA | 71360 | ||||
7765 | El Trigal Plaza Shopping Center | Manati | PR | 00674 | ||||
3907 | 1106 Highway 16 South | Graham | TX | 76450 | ||||
3912 | 685 E. State Street | Georgetown | OH | 45121 |
63
Store
Number |
Address | Town | State | Zip | ||||
3927 | 1710 W. Main St. | Gun Barrel City | TX | 75147 | ||||
3998 | 827 S. Main St. | Yreka | CA | 96067 | ||||
9278 | Carr. PR-3 Int PR 956 KM 24.5 | Rio Grande | PR | 00745 | ||||
9591 | 417 S. First St. | Lamesa | TX | 79331 | ||||
9976 | Carretera #3 km 82.5 | Humacao | PR | 00791 | ||||
1811 | 2720 State Highway 121 | Euless | TX | 76039 | ||||
1856 | 5864 N. Tarrant Pkwy | Ft. Worth | TX | 76137 | ||||
1858 | 12770 South Freeway Suite 176 | Burleson | TX | 76028 | ||||
7567 | 145 W. FM 1382 | Cedar Hill | TX | 75104 | ||||
7686 | 6186 Retail Rd. | Dallas | TX | 75231 | ||||
1741 | 9544 Manchester Rd. | Rock Hill | MO | 63119 | ||||
1803 | 14173 Manchester Road Suite | Manchester (Town & Country) | MO | 63011 | ||||
2930 | 1890 Wentzville Pkwy | Wentzville | MO | 63385 | ||||
5171 | 455 N Hwy 67 | Florissant | MO | 63031 | ||||
5331 | 2947 Highway K | OFallon | MO | 63366 | ||||
5392 | 40 Dillon Plaza | High Ridge | MO | 63049 |
64
Store
Number |
Address | Town | State | Zip | ||||
5900 | 3160 Telegraph Road | St. Louis | MO | 63125 | ||||
1821 | 1294 Town Centre Dr. | Eagan | MN | 55123 | ||||
1926 | 9721 E. Independence Blvd. | Matthews | NC | 28105 | ||||
1931 | 8300 Tamarack Village | Woodbury | MN | 55125 | ||||
1940 | 11669 Fountain Dr. | Maple Grove | MN | 55369 | ||||
2192 | 701 Apollo Drive, Suite 130 | Lino Lakes | MN | 55014 | ||||
2202 | 4530-A 40th Street NW | Washington (Tenleytown) | DC | 20016 | ||||
2426 | 2980 Prince William Parkway | Woodbridge | VA | 22192 | ||||
2634 | 9821 Northlake Center Parkway | Charlotte (Northlake) | NC | 28216 | ||||
2713 | 10035 Biddick Ln., Suite 100 | Huntersville | NC | 28078 | ||||
5091 | 2000 Cooper Foster Park | Lorain | OH | 44053 | ||||
5120 | 5308 Detroit Road | Elyria | OH | 44035 | ||||
5130 | 2300 Troy Road | Edwardsville | IL | 62025 | ||||
5184 | 13348 Franklin Farm Road | Herndon | VA | 20171 | ||||
5210 | 949 E. Aurora | Macedonia | OH | 44056 | ||||
5320 | 501 #20 Beltline Road Suite P | Collinsville | IL | 62234 |
65
Store
Number |
Address | Town | State | Zip | ||||
5341 | 8459 Washington Street | Bainbridge | OH | 44023 | ||||
5354 | 1180 N. Court Street | Medina | OH | 44256 | ||||
5371 | 653 Carlyle Ave. Suite C | Belleville | IL | 62221 | ||||
5411 | 3737 W Market St - Unit A | Fairlawn | OH | 44333 | ||||
5474 | 4706 Route 8 | Allison Park | PA | 15101 | ||||
5774 | 6365 Multiplex Drive | Centreville | VA | 20121 | ||||
5810 | 6009 Mahoning Avenue | Youngstown | OH | 44515 | ||||
5871 | 7490 Broadview Road | Parma | OH | 44134 | ||||
5022 | 23200 Lorain Road | North Olmsted | OH | 44070 | ||||
5081 | 843 30th Street NW | Canton | OH | 44709 | ||||
9296 | 300 Bonner Mall Way, Suite 102-105 | Ponderay | ID | 83852 | ||||
2024 | 2370 South Range Ave | Denham Springs | LA | 70726 | ||||
5274 | #2 Fairhaven Commons Way | Fairhaven | MA | 02719 | ||||
5353 | 310 Pond Street (Rt. 126) | Ashland | MA | 01721 | ||||
5103 | 95 Drum Hill Road | Chelmsford | MA | 01824 | ||||
9286 | 2115A Commonwealth Ave. | Alhambra | CA | 91803 |
66
Store
Number |
Address | Town | State | Zip | ||||
9295 | 30485 Avenida de Las Flores | Rancho Santa Margarita | CA | 92688 | ||||
1848 | 3951 Costco Drive | Tucson | AZ | 85741 | ||||
1829 | 13277 W. McDowell Rd. | Goodyear | AZ | 85338 | ||||
4778 | 8684 E. Raintree Dr. | Scottsdale | AZ | 85260 | ||||
7537 | 401 East Bell Rd. | Phoenix | AZ | 85022 | ||||
3008 | 2100 S. Gilbert Rd. | Chandler | AZ | 85286 | ||||
1808 | 1150 N. Fry Rd. | Houston (Katy) | TX | 77084 | ||||
1809 | 14215 FM 2920 | Tomball | TX | 77377 | ||||
1857 | 2805 Gulf Freeway South | League City | TX | 77573 | ||||
1859 | 15242 Wallisville Rd. | Houston (Wallisville) | TX | 77049 | ||||
1938 | 10904 Memorial Hermann Dr. | Pearland | TX | 77584 | ||||
1965 | 5932 Fairmont Parkway | Pasadena | TX | 77505 | ||||
5246 | 649 S. Mason Rd. | Katy | TX | 77450 | ||||
7178 | 15850 Southwest Freeway | Sugar Land | TX | 77478 | ||||
7379 | 25704 Northwest Freeway | Cypress | TX | 77429 | ||||
7391 | 1302 West Davis Street | Conroe | TX | 77304 |
67
Store
Number |
Address | Town | State | Zip | ||||
7389 | 7011 FM 1960 East | Humble | TX | 77346 | ||||
1819 | 5601 Liberty Grove Road | Rowlett | TX | 75089 | ||||
1928 | 1405 Hwy 287 North, Suite 107 | Mansfield | TX | 76063 | ||||
1936 | 5810 Long Prairie Rd. | Flower Mound | TX | 75028 | ||||
1937 | 1925 Central Expressway Bldg. G | McKinney | TX | 75070 | ||||
5086 | 11293 Fuqua Rd. | Houston | TX | 77089 | ||||
5247 | 4550 Highway 6 South | Sugarland | TX | 77479 | ||||
5067 | 6793 Spencer Highway | Pasadena | TX | 77505 | ||||
2004 | 2001 Widewaters Parkway | Knightdale | NC | 27545 | ||||
5195 | 9425 Jones Road | Houston | TX | 77065 | ||||
5196 | 4690 Louetta | Spring | TX | 77388 | ||||
5457 | 8475 Highway 6 North | Houston | TX | 77095 | ||||
5736 | 4775 W. Panther Crk Dr Ste 270 | Woodlands | TX | 77381 | ||||
9666 | 511 Rt. 70 East #300 | Brick | NJ | 08723 | ||||
5134 | 235 Ridgedale | Cedar Knolls | NJ | 07927 | ||||
9668 | 780 Rt. 3 West | Clifton | NJ | 07012 |
68
Store
Number |
Address | Town | State | Zip | ||||
5604 | 305 Second Ave. - Suite 201 | Collegeville | PA | 19426 | ||||
5083 | 3762 Easton-Nazareth Hwy. | Easton | PA | 18045 | ||||
5033 | 540 Oxford Valley Road | Fairless Hills | PA | 19030 | ||||
5243 | 616 N. Delsea Dr. (RT 47) | Glassboro | NJ | 08028 | ||||
5804 | 1926 Union Valley Road | Hewitt | NJ | 07421 | ||||
5874 | 4010 Rt. 9 South | Howell | NJ | 07731 | ||||
5293 | 2170 County Line Road | Huntingdon Valley | PA | 19006 | ||||
5213 | 817 E. Baltimore Pike | Kennett Square | PA | 19348 | ||||
5902 | 80 Godwin Avenue | Midland Park | NJ | 07432 | ||||
5843 | 400 College Square | Newark | DE | 19713 | ||||
5124 | 13 Hampton House / Rt. 206N | Newton | NJ | 07860 | ||||
5223 | 2811 Dekalb Pike | Norristown | PA | 19401 | ||||
5980 | 700 Nutt Road, Ste 500 | Phoenixville | PA | 19460 | ||||
5123 | 70 Northwest End Blvd. | Quakertown | PA | 18951 | ||||
5473 | 551-556 Raritan Road | Roselle | NJ | 07203 | ||||
4661 | 4910 Hadley Center Drive | S. Plainfield | NJ | 07080 |
69
Store
Number |
Address | Town | State | Zip | ||||
5164 | 7150 Hamilton Blvd. Box 808 | Trexlertown | PA | 18087 | ||||
7172 | 5851 NJ Rte 42 South | Turnersville | NJ | 08012 | ||||
5284 | 1661 Easton Road C-1 | Warrington | PA | 18976 | ||||
2235 | 6169 S. Jog Rd. Suite 8A-10A | Lake Worth | FL | 33467 | ||||
2785 | 13550 SW 120th Street, Bay 418 | Miami (Kendall) | FL | 33186 | ||||
4256 | 6605 S. Dixie Highway | Miami (Dadeland) | FL | 33143 | ||||
7557 | 4376 North State Road 7 | Coral Springs | FL | 33067 | ||||
7565 | 7910 W. Commercial Blvd. | Lauderhill | FL | 33351 | ||||
9522 | 2931 West Shore Drive | Holland | MI | 49424 | ||||
5472 | 3 N. Randall Road | Batavia | IL | 60510 | ||||
2559 | 9269 S. Village Shop Drive | Sandy | UT | 84094 |
70
Schedule 1.1(b)
OUTLET STORES LOCATIONS
Store
Number |
Address | City | State | Zip | ||||
7920 | 1265 Town Square Drive. | Ft. Worth | TX | 76116 | ||||
9951 | 3610 Peck Dr. | El Monte | CA | 36071 | ||||
4650 | 18355 LBJ Freeway unit 55 | Mesquite | TX | 75150 | ||||
9405 | 12080 Carmel Mountain | Carmel Mountain | CA | 92128 | ||||
4526 | 4560 Forest Hill Blvd | West Palm Beach | FL | 33415 | ||||
9603 | 8284 Troy Pike | Huber Heights | OH | 45424 | ||||
9785 | 8247 W Golf rd | Niles | Il | 60174 | ||||
9411 | 11687 Westheimer Rd | West Houston | TX | 77077 | ||||
9796 | 109 N Greenville Ave | Allen | TX | 75002 | ||||
9756 | 16040 S. Harlem Ave | Tinley Park | IL | 60477 | ||||
9696 | 1701 US Hwy 22 | Plainfield | NJ | 07060 | ||||
7704 | 8345 W. Belmont | River Grove | IL | 60170 | ||||
9284 | 13435 Hwy, 183 N | Austin | TX | 78750 | ||||
9764 | 200 W Bellview | Englewood | CO | 80110 | ||||
9870 | 2235 S. Eastwood Drive | Woodstock | IL | 60098 | ||||
9986 | 14453 Hall Rd | Shelby Township | MI | 48315 | ||||
4790 | 6169 US Route 6 | Portage | IN | 46368 | ||||
7237 | 7055 East broadway | Tucson | AZ | 85710 | ||||
9671 | 3700 William Penn Highway | Monroeville | PA | 15146 | ||||
7818 | 19750 North Freeway (HI-45N) | Spring | TX | 77373 | ||||
9670 | 540 S. Hwy 59 | Naperville | IL | 60540 | ||||
5060 | 2885 Gender Rd | Reynoldsburg | OH | 43068 | ||||
9114 | 2700 Dekalb Pike | Norristown | PA | 19401 | ||||
9282 | 11000 Veirs Mills Road | Silver Spring | MD | 20902 | ||||
7359 | 2505-B Vista Way 1 | Oceanside | CA | 92054 | ||||
9983 | 6101 N Military Highway | Norfolk | VA | 23518 | ||||
9974 | 545 Concord Pkwy | Concord | NC | 28027 | ||||
7661 | 6801 Dixie Highway | Louisville | KY | 40258 | ||||
9111 | Discover Mills 5900 Sugarloaf Parkway | Lawrenceville | GA. | 30043 | ||||
9112 | 8540 Maurer | Lenexa | KS | 66219 | ||||
7911 | 29222 Carronada Dr | Perrysburg | OH | 43551 | ||||
7089 | 12025 N 32nd St | Phoenix | AZ | 85028 | ||||
7611 | 51 Spiral dr | Florence | KY | 41042 |
Store
Number |
Address | City | State | Zip | ||||
7592 | 6020 Sawmill Road Suite 300 | Dublin | OH | 43017 | ||||
9888 | 10176 SE 82nd AVE | Clackamas | OR | 97086 | ||||
9849 | 10405 S. Eastern AVE | Henderson | NV | 89074 | ||||
9944 | 8200 Belair RD | Baltimore | MD | 21236 | ||||
9850 | 2101 Telegraph | Bloomfield | MI | 48302 | ||||
9892 | 1302 Bridford PKWY | Greensboro | NC | 27407 | ||||
9876 | 4300 Fayetteville RD | Raleigh | NC | 27603 | ||||
7601 | 10200 Colerain Ave. Ste 11 | Cincinatti | OH | 45251 | ||||
7631 | 401 SOUTHWEST PLZ STE 105 | Arlington | TX | 76016 | ||||
7659 | 19800 HAWTHORNE BLVD #280 | Torrence | CA | 90503 | ||||
7349 | 857 North Val Vista Drive | Gilbert | AZ | 85234 | ||||
7612 | 1140 ROSWELL ROAD SE | Marietta | GA | 30062 | ||||
5264 | 5450 Highway 153 | Hixson | TN | 37343 | ||||
7546 | 898 N. Miami Beach Blvd | North Miami Beach | FL | 33162 | ||||
7633 | 190 Frontage Road | West Haven | CT | 06516 | ||||
7438 | 2335 East Imperial Highway | Brea | CA | 92821 | ||||
9497 | 680 West Winton Avenue | Hayward | CA | 94545 | ||||
7541 | 7647 W 88th Ave | Westminster | CO | 80005 | ||||
7450 | 26662 Brookpark Extension | North Olmsted | OH | 44070 | ||||
7440 | 35101 Euclid Ave | Willoughby | OH | 44094 | ||||
9486 | 350 Glendale Ave. | Sparks | NV | 89431 | ||||
7529 | 366 E. 1300 South | Orem | UT | 84058 | ||||
7564 | 9571 South Blvd | Charlotte | NC | 28273 | ||||
9897 | 820 Rector Drive East, Suite 120 | San Antonio | TX | 78209 | ||||
7533 | 1117 Woodruff Rd, Suite K. | Greenville | SC | 29607 | ||||
7556 | 1915 Mount Zion Rd | Morrow | GA | 30260 | ||||
6052 | 8245B North Florida Road | Tampa | FL | 33604 | ||||
9229 | 1200 Blumenfeld Dr, Suite C | Sacramento | CA | 95815 | ||||
7586 | 7910 S.W. 104th St. | Miami | FL | 33156 | ||||
5282 | 728 South Orange | West Covina | CA | 91790 | ||||
5298 | 2280 Griffin Way | Corona East | CA | 92879 | ||||
7652 | 2700 Winter Street NE | Minneapolis | MN | 55413 | ||||
7457 | 3555-2 St. Johns Bluff Road | Jacksonville | FL | 32224 | ||||
7538 | 15711 1/2 Aurora Ave. North | Shoreline | WA | 98133 | ||||
7593 | 2005 South Military Hwy | Chesapeake | VA | 23320 | ||||
7588 | 393 East Main St | Hendersonville | TN | 37075 | ||||
7590 | 7333 W. 79th Street | Bridgeview | IL | 60455 | ||||
5342 | 1561 Almonesson Rd | Deptford | NJ | 08096 |
2
Store
Number |
Address | City | State | Zip | ||||
7507 | 5799 Rome-Taberg Rd | Rome | NY | 13440 | ||||
7562 | 6045 S. Packard Ave. | Cudahy | WI | 53110 | ||||
7424 | 2209 North Hampton Street | Holyoke | MA | 01040 | ||||
5397 | 4500 NE 122nd Ave. | Portland | OR | 97230 | ||||
7561 | 9860 Telegraph Road | Taylor | MI | 48180 | ||||
5361 | 495 Prospect Ave #11 | West Orange | NJ | 07052 | ||||
5365 | 2661A S Woodland Blvd | Deland | FL | 32704 | ||||
4583 | 3203 N Mayfair RD | Wauwatosa | WI | 53222 | ||||
4585 | 1000-2 Montauk Hwy | West Babylom | NY | 11704 | ||||
5207 | 1750 Richmond Rd | McHenry | IL | 60050 | ||||
4595 | Carr. 176 K.M. 0.3 | Cupey Bajo | PR | 00926 | ||||
4598 | 5000 Arizona Mills Circle, Suite 625 | Tempe | AZ | 85282 | ||||
4696 | 5555 St. Louis Mills Blvd., Suite 283 | Hazelwood | MO | 63042 | ||||
4697 | 870 Great Mall Drive | Milpitas | CA | 95035 | ||||
4599 | 2700 Potomac Mills Circle, Suite #707 | Prince William | VA | 22192 | ||||
4481 | 8090 NW 77th Court | Medley | FL | 33166 | ||||
4486 | 3000 Grapevine Mills Parkway, Suite #117 | Grapevine | TX | 76051 | ||||
4611 | 141 85th Avenue NW | Coon Rapids | MN | 55433 | ||||
4620 | 3467 Cleveland Ave. | Columbus | OH | 43224 | ||||
4482 | 822 Summit Ave. | Elgin | IL | 60120 | ||||
4617 | 1215 Marsh Lane, Suite #180 | Carrollton | TX | 75006 | ||||
4619 | 639 Gravois Bluff Blvd., Suite A | Fenton | MO | 63026 | ||||
4621 | 1357 Franklin Mills Circle | Philadelphia | PA | 19154 | ||||
4618 | 10347 Folsom Blvd. | Rancho Cordova | CA | 95670 | ||||
4330 | 1910 York Road | Timonium | MD | 21093 | ||||
4606 | 7415 South Cass Avenue | Darien | IL | 60561 | ||||
4328 | 960 Sherman St. | San Diego | CA | 92110 | ||||
4324 | 65 Holmes Rd. | Newington | CT | 06111 | ||||
4044 | 500 Eagle Run Rd. | Newark | DE | 19702 | ||||
4049 | 500 W. Warner Ave. | Santa Ana | CA | 92707 | ||||
4185 | 5251 110th Ave. N., #120 | Clearwater | FL | 33760 | ||||
4119 | 5401 6th Ave. Suite 515 | Tacoma | WA | 98406 | ||||
4113 | Shrewsbury Vlg Shpng Ctr. 1000 Boston Trnpk | Shrewsbury | MA | 1545 | ||||
4335 | 4600 Park St. North | St.Petersburg | FL | 33709 | ||||
4100 | Spdwy Spr Ctr., 6022 W. Crawfordsville Rd. | Speedway | IN | 46224 | ||||
4205 | Riverplace Shop Ctr, 11111 San Jose Blvd. Suite 1 | Jacksonville | FL | 32223 | ||||
4333 | 1051 Washington Pike | Bridgeville | PA | 15017 |
3
Store
Number |
Address | City | State | Zip | ||||
4099 | 492 N. Main St. | Corona | CA | 92880 | ||||
4823 | 133 Mariano S. Bishop Blvd. | Fall River | MA | 02721 | ||||
4601 | 322 S. Burnt Mill Rd. | Voorhees | NJ | 08043 | ||||
4958 | 2401 S. Vineyard Ave. | Ontario | CA | 91761 | ||||
4121 | 27 51st St. | Pittsburgh | PA | 15201 | ||||
4158 | 1936 W. 140th Ave. | San Leandro | CA | 94577 | ||||
4994 | 4100 Tomlynn St. - Suite A | Richmond | VA | 23230 | ||||
5230 | 12001 Sears Ave. | Livonia | MI | 48150 | ||||
4071 | 701 Osage St. | Denver | CO | 80204 | ||||
4356 | 642 Thompson Ln. | Nashville | TN | 37204 | ||||
4248 | 98-600 Kamehameha Hwy. | Pearl City | HI | 96782 | ||||
4345 | 3825 Forsyth Rd. | Winter Park | FL | 32792 | ||||
5640 | 2065 N. George St. | Melrose Park | IL | 60160 | ||||
4275 | 2301-A Mt. Industrial Blvd. | Tucker | GA | 30084 | ||||
4057 | 5901 Griggs Rd. | Houston | TX | 77023 | ||||
4001 | 3630 Front St. | Kansas City | MO | 64120 | ||||
1902 | 5000 Alpha Rd | Farmers Branch | TX | 75244 | ||||
1900 | 8585 S. Yosemite St. | Lone Tree | CO | 80124 | ||||
1910 | 44075 W 12 Mile Rd | Novi | MI | 48377 | ||||
1903 | 14453 Hall Rd | Sterling Heights (Shelby) | MI | 48315 |
4
Schedule 1.1(c)
PR DEALER LOCATIONS
Unit Number | Address | |
2707 | Carretera No. 2 Barrio Candelaria KM 18.3, Toa Baja, PR 00949 | |
3224 | Carretera No. 2 Km 110.3, Isabela, PR 00662 | |
3299 | Road 111 km. 15.6, Bo Hato Arriba, San Sebastian, PR 00685 | |
3714 | KM 2.8 Bo Quebradillas, RD # 152, Barranquitas, PR 00794 | |
6546 | Ferram Plaza, RD#2 KM125.1, Int RD#459, Aguadilla, PR 00603 | |
7735 | Carr. 167 Esq. 199, Rexville Town Center, Space 048, Bayamon, PR 00956 | |
7765 | El Trigal Plaza Shopping Center, Road #2 Int. Road 149, Manati, PR 00674 | |
9278 | Carr. PR-3 Int PR 956 KM 24.5, Barrio Guzman Abajo, Rio Grande, PR 00745 | |
9741 | Local #10 Quatro Calles Shop CTR 200Carretera 116 STE, Yauco, PR 00698 | |
9747 | 1000 Jesus T. Pinero Ave., Space #5, Cayey, PR 00736 | |
9976 | 475 Carr #3 Suite 6, Humacao, PR 00791 |
Schedule 1.1(d)
PR OUTLET LOCATIONS
Unit Number | Address | |
4595 | Carr. 176 K.M. 0.3, PR 00926 |
2
Schedule 1.1(e)
CERTAIN REAL ESTATE LOCATIONS
(i) Hometown Stores
Current S numbers and D
|
CITY |
STATE |
Tenant Entity under Lease |
Lease/Own/GL |
Manner of Transfer - A, S, NL, D/O |
|||||
S7363 (prior D7220) | Pell City | AL | KMART CORP. |
Dealer Inside Leased
Kmart # 4769 |
N/A | |||||
S1829 | Goodyear | AZ | SAHS | Leased | N/A | |||||
S7537 | Phoenix | AZ | SAHS | Leased | N/A | |||||
S9080 (prior D3008) | Chandler | AZ | SAHS | Leased | N/A | |||||
S5889 (prior D3499) | Freedom | CA | KMART CORP. |
Dealer Inside G/L
Kmart # 3725 |
N/A | |||||
S4718 | Chino | CA | SAHS | Leased | N/A | |||||
S9295 | Rancho Santa Margarita | CA | SAHS | Leased | N/A | |||||
S9286 | Alhambra | CA | SAHS | Leased | N/A | |||||
S5312 | Colorado Spgs | CO | KMART |
Dealer Inside Leased
Kmart # 7572 |
N/A | |||||
S7497 | Superior | CO | SAHS | Leased | N/A |
3
Current S numbers and D
|
CITY |
STATE |
Tenant Entity under Lease |
Lease/Own/GL |
Manner of Transfer - A, S, NL, D/O |
|||||
S1444 | Norwalk | CT | SAHS | Leased | N/A | |||||
S7703 | Stamford | CT | SAHS | Leased | N/A | |||||
S2202 | Washington (Tenleytown) | DC | SRC | Leased | SUBLEASE | |||||
S6581 (prior D3815) | Inverness | FL | KMART CORP. |
Dealer Inside Leased
Kmart # 9793 |
N/A | |||||
S5321 | Zephyrhills | FL | KMART CORP. |
Dealer Inside Leased
Kmart # 3761 |
N/A | |||||
S2566 | Largo | FL | SAHS | Leased | N/A | |||||
S2925 | Tampa (Carrollwood) | FL | SAHS | Leased | N/A | |||||
S2235 | Lake Worth | FL | SAHS | Leased | N/A | |||||
S7565 | Lauderhill | FL | SAHS | Leased | N/A | |||||
S7557 | Coral Springs | FL | SAHS | Leased | N/A | |||||
S2785 | Miami | FL | SAHS | Leased | N/A | |||||
S9073 (prior D3005) | Snellville | GA | SAHS | Leased | N/A |
4
Current S numbers and D
|
CITY |
STATE |
Tenant Entity under Lease |
Lease/Own/GL |
Manner of Transfer - A, S, NL, D/O |
|||||
S9242 (prior D3034) | Conyers | GA | SAHS | Leased | N/A | |||||
S9472 (prior D3096) | Lawrenceville | GA | SAHS | Leased | N/A | |||||
S9077 (prior D3015) | Cumming (Suwanee) | GA | SAHS | Leased | N/A | |||||
S9227 (prior D3004) | Cumming | GA | SAHS | Leased | N/A | |||||
S9504 (prior D3116) | McDonough | GA | SAHS | Leased | N/A | |||||
S7569 | Hiram | GA | SAHS | Leased | N/A | |||||
S1816 | Lilburn | GA | SAHS | Leased | N/A | |||||
S5498 (prior D3085) | Dekalb | IL | SAHS | Leased | N/A | |||||
S3099 | Macomb | IL | N/A |
Dealer Inside Owned
Kmart # 4781 |
N/A | |||||
S7860 | South Elgin | IL | SAHS | Leased | N/A | |||||
S1861 | North Aurora | IL | SAHS | Leased | N/A | |||||
S1860 | Oswego | IL | SAHS | Leased | N/A |
5
Current S numbers and D
|
CITY |
STATE |
Tenant Entity under Lease |
Lease/Own/GL |
Manner of Transfer - A, S, NL, D/O |
|||||
S7674 | St Charles | IL | SAHS | Leased | N/A | |||||
S5303 | Leavenworth | KS | N/A |
Dealer Inside Owned
Kmart # 9647 |
N/A | |||||
S2194 | Laurel | MD | SAHS | Leased | N/A | |||||
S4702 (prior D3232) | Manistee | MI | N/A |
Dealer Inside Owned
Kmart # 4845 |
N/A | |||||
S1931 | Woodbury | MN | SAHS | Leased | N/A | |||||
S1940 | Maple Grove | MN | SAHS | Leased | N/A | |||||
S1821 | Eagan | MN | SAHS | Leased | N/A | |||||
S2192 | Lino Lakes | MN | SAHS | Leased | N/A | |||||
S6908 | Crystal City | MO | SAHS |
Dealer Inside Leased
Kmart # 9353 |
N/A |
6
Current S numbers and D
|
CITY |
STATE |
Tenant Entity under Lease |
Lease/Own/GL |
Manner of Transfer - A, S, NL, D/O |
|||||
S1801 | Arnold | MO | SRC | Leased | SUBLEASE | |||||
S1806 | St Charles | MO | SAHS | Leased | N/A | |||||
S1803 | Manchester | MO | SAHS | Leased | N/A | |||||
S2930 | Wentzville | MO | SAHS | Leased | N/A | |||||
S1741 | Rock Hill | MO | SAHS | Leased | N/A | |||||
S2634 | Charlotte (Northlake) | NC | SAHS | Leased | N/A | |||||
S2713 | Huntersville | NC | SAHS | Leased | N/A | |||||
S2004 | Knightdale - Sears lease EXPIRED | NC |
Mecklenburg
Wireless LLC* |
Leased | N/A | |||||
S5455 (prior D3033) | Claremont | NH |
KMART
CORP. |
Dealer Inside Leased
Kmart # 3569 |
N/A |
7
Current S numbers and D
|
CITY |
STATE |
Tenant Entity under Lease |
Lease/Own/GL |
Manner of Transfer - A, S, NL, D/O |
|||||
S9668 | Clifton | NJ | SAHS | Leased | N/A | |||||
S4661 | S Plainfield | NJ | SAHS | Leased | N/A | |||||
S9666 | Brick | NJ | SAHS | Leased | N/A | |||||
S7172 | Turnesville | NJ | SAHS | Leased | N/A | |||||
S1483 | Mt Kisco | NY | SAHS | Leased | N/A | |||||
S1928 | Mansfield | TX | SAHS | Leased | N/A | |||||
S1936 | Flower Mound | TX | SAHS | Leased | N/A | |||||
S1937 | McKinney | TX | SAHS | Leased | N/A | |||||
S1819 | Rowlett | TX | SAHS | Leased | N/A | |||||
S7391 | Conroe | TX | SAHS | Leased | N/A | |||||
S7379 | Cypress | TX | SAHS | Leased | N/A | |||||
S7403 (prior D7389) | Humble | TX | SAHS | Leased | N/A |
8
Current S numbers and D
|
CITY |
STATE |
Tenant Entity under Lease |
Lease/Own/GL |
Manner of Transfer - A, S, NL, D/O |
|||||
S1859 | Houston (Wallisville Rd) | TX | SAHS | Leased | N/A | |||||
S1938 | Pearland | TX | SAHS | Leased | N/A | |||||
S1858 | Burleson | TX | SAHS | Leased | N/A | |||||
S1808 | Houston (Katy Hwy) | TX | SAHS | Leased | N/A | |||||
S1965 | Pasadena | TX | SAHS | Leased | N/A | |||||
S1857 | League City | TX | SAHS | Leased | N/A | |||||
S1811 | Euless | TX | SAHS | Leased | N/A | |||||
S1809 | Tomball | TX | SAHS | Leased | N/A | |||||
S7567 | Cedar Hill | TX | SAHS | Leased | N/A | |||||
S1856 | Ft. Worth | TX | SAHS | Leased | N/A | |||||
S7178 | Sugar Land | TX | SAHS | Leased | N/A | |||||
S2426 | Woodbridge | VA | SAHS | Leased | N/A |
9
Current S numbers and D
|
CITY |
STATE |
Tenant Entity under Lease |
Lease/Own/GL |
Manner of Transfer - A, S, NL, D/O |
|||||
S7693 | Stafford | VA | SAHS | Leased | N/A | |||||
S6856 | Plymouth | WI | KMART CORP. |
Dealer Inside Leased
Kmart # 3831 |
N/A | |||||
S9291 | Delafield | WI | SAHS | Leased | N/A | |||||
S9292 | Mequon | WI | SAHS | Leased | N/A |
10
(ii) Outlet Stores
City |
State |
Own/Lease/
|
Type of Unit |
Ownership of Embedded Unit |
Tenant Entity
|
Manner of
|
||||||
Holyoke |
MA | Embedded | Kmart | Owned | N/A | LEASE | ||||||
Cudahy |
WI | Embedded | Kmart | Owned | N/A | LEASE | ||||||
Shoreline |
WA | Embedded | FLS | Owned | N/A | LEASE | ||||||
Henderson |
NV | Embedded | Kmart | Owned | N/A | LEASE | ||||||
Raleigh |
NC | Embedded | Kmart | Owned | N/A | LEASE | ||||||
Greensboro |
NC | Embedded | Kmart | Owned | N/A | LEASE | ||||||
Concord |
NC | Embedded | Kmart | Owned | N/A | LEASE | ||||||
Norfolk |
VA | Embedded | Kmart | Owned | N/A | LEASE | ||||||
St. Petersburg |
FL | Embedded | PRS | Owned | N/A | LEASE | ||||||
Jacksonville |
FL | Embedded | PRS | Owned | N/A | LEASE | ||||||
Nashville |
TN | Embedded | PRS | Owned | N/A | LEASE |
11
City |
State |
Own/Lease/
|
Type of Unit |
Ownership of Embedded Unit |
Tenant Entity
|
Manner of
|
||||||
Sparks |
NV | Embedded | PRS | Owned | N/A | LEASE | ||||||
San Juan |
PR | Embedded | RRC | Owned | N/A | LEASE | ||||||
San Diego |
CA | Embedded | SLS | Owned | N/A | LEASE | ||||||
Santa Ana |
CA | Embedded | SLS | Owned | N/A | LEASE | ||||||
Newington |
CT | Embedded | SLS | Owned | N/A | FEE TRANSFER | ||||||
Winter Park |
FL | Embedded | SLS | Owned | N/A | LEASE | ||||||
Pittsburgh |
PA | Embedded | SLS | Owned | N/A | LEASE | ||||||
Richmond |
VA | Embedded | SLS | Owned | N/A | LEASE | ||||||
Melrose Park |
IL | Embedded | SLS | Owned | N/A | LEASE | ||||||
West Haven |
CT | Embedded | SLS | Owned | N/A | FEE TRANSFER | ||||||
Minneapolis |
MN | Embedded | SLS | Owned | N/A | LEASE |
12
City |
State |
Own/Lease/
|
Type of Unit |
Ownership of Embedded Unit |
Tenant Entity
|
Manner of
|
||||||
Houston |
TX | Embedded | SLS | Owned | N/A | LEASE | ||||||
Denver |
CO | Embedded | SLS | Owned | N/A | LEASE | ||||||
Pearl City |
HI | Embedded | SLS | Owned | N/A | LEASE | ||||||
Tucker |
GA | Embedded | SLS | Owned | N/A | LEASE | ||||||
Newark |
DE | Embedded | SLS | Owned | N/A | LEASE | ||||||
Phoenix |
AZ | Embedded | UUP | Owned | N/A | LEASE | ||||||
San Leandro |
CA | Embedded | UUP | Owned | N/A | FEE TRANSFER | ||||||
Woodstock |
IL | Embedded | UUP | Owned | N/A | FEE TRANSFER | ||||||
Hayward |
CA | Embedded | UUP | Owned | N/A | LEASE | ||||||
Wauwatosa |
WI | Embedded | Kmart | Leased |
KMART CORP.;
licensed to S.O.S. |
SUBLEASE | ||||||
West Covina |
CA | Embedded | Kmart | Leased |
KMART CORP.;
licensed to S.O.S. |
SUBLEASE |
13
City |
State |
Own/Lease/
|
Type of Unit |
Ownership of Embedded Unit |
Tenant Entity
|
Manner of
|
||||||
Portland |
OR | Embedded | Kmart | Leased |
KMART CORP.;
licensed to S.O.S. |
SUBLEASE | ||||||
Tampa |
FL | Embedded | Kmart | Leased |
KMART CORP.;
licensed to S.O.S. |
SUBLEASE | ||||||
Bridgeview |
IL | Embedded | Kmart | Leased |
Kmart Stores of
Illinois, LLC; licensed to S.O.S. |
SUBLEASE | ||||||
Chesapeake |
VA | Embedded | Kmart | Leased | KMART CORP. | SUBLEASE | ||||||
N Miami Beach |
FL | Embedded | Kmart | Leased |
KMART CORP.;
licensed to S.O.S. |
SUBLEASE | ||||||
Miami |
FL | Embedded | Kmart | Leased |
S.O.S., license
agreement |
SUBLEASE | ||||||
Bloomfield Hills |
MI | Embedded | Kmart | Leased |
KMART CORP.;
assigned to Kmart of Michigan, Inc. , short form assignment |
N/A | ||||||
Sacramento |
CA | Embedded | RRC | Leased |
SRC; licensed to
S.O.S. (document not in Live Link - See 9/7/08 assignment) |
SUBLEASE | ||||||
Kansas City |
MO | Embedded | SLS | Leased |
S.O.S., license
agreement |
SUBLEASE | ||||||
Livonia |
MI | Embedded | SLS | Leased |
SRC; licensed to
S.O.S. |
FEE TRANSFER | ||||||
Hendersonville |
TN | Embedded | UUP | Leased |
SRC; licensed to
S.O.S. |
SUBLEASE |
14
City |
State |
Own/Lease/
|
Type of Unit |
Ownership of Embedded Unit |
Tenant Entity
|
Manner of
|
||||||
Marietta |
GA | Embedded | UUP | Leased | KMART CORP. | SUBLEASE | ||||||
Perrysburg |
OH | Embedded | UUP | Leased | KMART CORP. | SUBLEASE | ||||||
Lenexa |
KS | Embedded | UUP | Leased | KMART CORP. | SUBLEASE | ||||||
Norristown |
PA | Embedded | UUP | Leased | KMART CORP.; | SUBLEASE | ||||||
Brea |
CA | Embedded | UUP | Leased |
SRC; licensed to
S.O.S. |
SUBLEASE | ||||||
Torrance |
CA | Embedded | UUP | Leased | SRC | SUBLEASE | ||||||
Baltimore |
MD | Embedded | UUP | Leased | SRC | SUBLEASE | ||||||
Deptford |
NJ | Leased | SEARS | LEASED | SRC | SUBLEASE | ||||||
West Babylon |
NY | Embedded | Kmart | GL | N/A | SUBLEASE | ||||||
Portage |
IN | Embedded | Hdw | GL | SRC |
N/A -
LOCATION IS CONTROLLED BY HARDWARE |
||||||
Tucson |
AZ | Embedded | Kmart | GL | KMART CORP. | SUBLEASE | ||||||
Engelwood |
CO | Embedded | Kmart | GL | KMART CORP. | SUBLEASE |
15
City |
State |
Own/Lease/
|
Type of Unit |
Ownership of Embedded Unit |
Tenant Entity
|
Manner of
|
||||||
Corona |
CA | Leased | | |
S.O.S., license
agreement |
SUBLEASE | ||||||
Tacoma |
WA | Leased | | | SRC | SUBLEASE | ||||||
Clearwater |
FL | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Bridgeville |
PA | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Grapevine |
TX | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Tempe |
AZ | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Prince William |
VA | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Voorhees |
NJ | Leased | | | SRC | SUBLEASE | ||||||
Darien |
IL | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Coon Rapids |
MN | Leased | | |
SRC, assigned to
S.O.S., short form assignment |
N/A | ||||||
Carrollton |
TX | Leased | | |
S.O.S., short form
assignment |
N/A |
16
City |
State |
Own/Lease/
|
Type of Unit |
Ownership of Embedded Unit |
Tenant Entity
|
Manner of
|
||||||
Rancho Cordova |
CA | Leased | | | SRC | SUBLEASE | ||||||
Fenton |
MO | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Columbus |
OH | Leased | | |
SRC; assigned to
S.O.S. , short form not used |
N/A | ||||||
Franklin Mills |
PA | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Hazelwood |
MO | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Milpitas |
CA | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Fall River |
MA | Leased | | |
SRC; assigned to
S.O.S. , short form assignment |
N/A | ||||||
Ontario |
CA | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Reynoldsburg |
OH | Leased | | | S.O.S., lease | N/A | ||||||
McHenry |
IL | Leased | | | SRC | SUBLEASE | ||||||
Hixson |
TN | Leased | | |
S.O.S., short form
assignment |
N/A |
17
City |
State |
Own/Lease/
|
Type of Unit |
Ownership of Embedded Unit |
Tenant Entity
|
Manner of
|
||||||
Corona |
CA | Leased | | |
S.O.S., license
agreement |
SUBLEASE | ||||||
West Orange |
NJ | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Deland |
FL | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Gilbert |
AZ | Leased | | | S.O.S., lease | N/A | ||||||
Oceanside |
CA | Leased | | | S.O.S., lease | N/A | ||||||
Willoughby |
OH | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
North Olmsted |
OH |
Leased
(Subleased) |
| | SRC | SUBLEASE | ||||||
Rome |
NY | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Orem |
UT | Leased | | | SRC | SUBLEASE | ||||||
Greenville |
SC | Leased | | |
SRC; assigned to
S.O.S. , short form assignment |
N/A | ||||||
Westminster |
CO | Leased | | | S.O.S., lease | N/A | ||||||
Morrow |
GA | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Taylor |
MI | Leased | | |
SRC; assigned to
S.O.S. , short form assignment |
N/A |
18
City |
State |
Own/Lease/
|
Type of Unit |
Ownership of Embedded Unit |
Tenant Entity
|
Manner of
|
||||||
Charlotte |
NC | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Dublin |
OH | Leased | | | S.O.S., lease | N/A | ||||||
Cincinnati |
OH | Leased | | | S.O.S., lease | N/A | ||||||
Florence |
KY | Leased | | | S.O.S., lease | N/A | ||||||
Arlington |
TX | Leased | | | S.O.S., lease | N/A | ||||||
Louisville |
KY | Leased | | | S.O.S., lease | N/A | ||||||
River Grove |
IL | Leased | | | S.O.S., lease | N/A | ||||||
Spring |
TX | Leased | | | S.O.S., lease | N/A | ||||||
Speedway |
IN | Leased | | | SRC | SUBLEASE | ||||||
Shrewsbury |
MA | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Jacksonville |
FL | Leased | | |
S.O.S., short form
assignment |
N/A |
19
City |
State |
Own/Lease/
|
Type of Unit |
Ownership of Embedded Unit |
Tenant Entity
|
Manner of
|
||||||
Timonium |
MD | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Miami |
FL | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Elgin |
IL | Leased | | | SRC | SUBLEASE | ||||||
Lawrenceville |
GA | Leased | | |
S.O.S., short form
assignment |
N/A | ||||||
Wheaton |
MD | Leased | | | S.O.S., sublease | N/A | ||||||
Naperville |
IL | Leased | | | S.O.S., lease | N/A | ||||||
Plainfield |
NJ | Leased | | | S.O.S., sublease | N/A | ||||||
Clackamas |
OR | Leased | | |
SRC; assigned to
Homelife Corporation, short form not used |
SUBLEASE | ||||||
San Antonio |
TX | Leased | | | SRC | SUBLEASE | ||||||
Austin |
TX | Leased | | | S.O.S., sublease | N/A | ||||||
Monroeville |
PA | Leased | | | S.O.S., lease | N/A |
20
City |
State |
Own/Lease/
|
Type of Unit |
Ownership of Embedded Unit |
Tenant Entity
|
Manner of
|
||||||
Tinley Park |
IL | Leased | | | S.O.S., lease | N/A | ||||||
Carmel Mountain |
CA | Leased | Kmart |
Sublease to Outlet
at no rent but w/ 6 month termination right |
||||||||
El Monte |
CA | Leased | Kmart |
Sublease to Outlet
at no rent but w/ 6 month termination right |
||||||||
Sterling Hts/Shelby Township |
MI | Embedded | UUP | GL | SRC |
1 YEAR
LICENSE AGREEMENT |
||||||
Novi |
MI | Leased |
1 YEAR
LICENSE AGREEMENT |
|||||||||
Lone Tree |
CO | Leased |
1 YEAR
LICENSE AGREEMENT |
|||||||||
Farmers Branch |
TX | Leased |
1 YEAR
LICENSE AGREEMENT |
21
(iii) Hardware Stores
Unit |
CITY |
ST |
SHC Format |
Owned / Leased |
Tenant Entity
|
Manner of Transfer
|
||||||
S5044 | Vernon | CT | Hardware | LEASED | SRC |
closing 8/19/12;
lease exp 11/5/12 SUBLEASE |
||||||
S5154 | Wallingford | CT | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5484 | Shelton | CT | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5814 | Bristol | CT | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5843 | Newark | DE | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5472 | Batavia/Windmill lakes | IL | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5130 | Edwardsville | IL | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5320 | Collinsville | IL | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5371 | Belleville | IL | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5351 | Orland Park | IL | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5360 | Alsip | IL | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5702 | Bolingbrook | IL | Hardware | LEASED | SRC | SUBLEASE |
22
Unit |
CITY |
ST |
SHC Format |
Owned / Leased |
Tenant Entity
|
Manner of Transfer
|
||||||
S5772 | Lake Zurich | IL | Hardware | LEASED | SRC | SUBLEASE | ||||||
S7073
5050 |
Downers Grove | IL | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5157 | Portage | IN | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5291 | Schererville | IN | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5340 | Fishers | IN | Hardware | LEASED | SRC | SUBLEASE | ||||||
S7053 | Beech Grove (S#5031) | IN | Hardware | LEASED | SRC | SUBLEASE | ||||||
S7072
5041 |
Valparaiso | IN | Hardware | LEASED | SRC | SUBLEASE | ||||||
S8794 | Avon | IN | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5274 | Fairhaven | MA | franchise | LEASED | SRC | SUBLEASE | ||||||
S5353 | Ashland | MA | franchise | LEASED | SRC | SUBLEASE | ||||||
S7242 | North Reading | MA | Hardware | LEASED | SRC | SUBLEASE | ||||||
S8971 | Chelmsford | MA | Franchise | LEASED | SRC | SUBLEASE | ||||||
S9522 | Holland | MI | Franchise | LEASED | SAHS | SUBLEASE | ||||||
S5171 | Florissant | MO | Franchise | LEASED | SRC | SUBLEASE |
23
Unit |
CITY |
ST |
SHC Format |
Owned / Leased |
Tenant Entity
|
Manner of Transfer
|
||||||
S5900 | St Louis Telegraph | MO | Franchise | LEASED | SRC |
Landlord exercised
early termination option/store closing SUBLEASE |
||||||
S5392 | High Ridge | MO | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5331 | OFallon | MO | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5124 | Newton | NJ | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5134 | Cedar Knolls | NJ | franchise | LEASED | SRC | SUBLEASE | ||||||
S5173 | West Caldwell | NJ | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5243 | Glassboro | NJ | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5344 | Berlin | NJ | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5394 | Bergenfield | NJ | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5473 | Roselle | NJ | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5804 | West Milford/Hewitt | NJ | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5874 | Howell | NJ | Franchise | LEASED | SRC | SUBLEASE |
24
Unit |
CITY |
ST |
SHC Format |
Owned / Leased |
Tenant Entity
|
Manner of Transfer
|
||||||
S5902 | Midland Park | NJ | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5133 | Queens Village | NY | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5153 | Patchogue | NY | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5183 | Lindenhurst | NY | Hardware | LEASED | SRC | closed 6/5/12 | ||||||
S5403 | Hauppauge | NY | Hardware | LEASED | SRC |
closed 5/13/12; lease
exp 9/12/12 |
||||||
S5483 | Deer Park/North Babylon | NY | Hardware | LEASED | SRC |
closed 5/13/12; lease
exp 8/23/12 |
||||||
S5523 | Port Jefferson | NY | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5873 | Tonawanda | NY | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5904 | Oneida | NY | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5914 | Shirley | NY | Hardware | LEASED | SRC | SUBLEASE | ||||||
S8798
5003 |
Westvale/Syracuse | NY | Hardware | LEASED | SRC | closing 8/12 | ||||||
S8927
5073 |
Lockport | NY | Hardware | LEASED | SRC | SUBLEASE | ||||||
S8978
5104 |
Lake Ronkonkoma | NY | Hardware | LEASED | SRC | closing 9/21/12 SUBLEASE |
25
Unit |
CITY |
ST |
SHC Format |
Owned / Leased |
Tenant Entity
|
Manner of Transfer
|
||||||
S5210 | Macedonia | OH | Franchise | LEASED | SRC | Lease expired | ||||||
S5354 | Medina | OH | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5871 | Parma | OH | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5341 | Bainbridge | OH | Franchise | LEASED | SRC | SUBLEASE | ||||||
S8955 | Canton (5081) | OH | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5810 | Austintown (Youngstown) | OH | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5091 | Lorain | OH | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5120 | Sheffield/Elyria | OH | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5301 | Henderson | OH | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5401 | Westerville | OH | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5411 | Fairlawn | OH | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5481 | Hilliard | OH | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5502 | Landen (Loveland) | OH | Hardware | LEASED | SRC | SUBLEASE | ||||||
S7051
/ 5022 |
North Olmsted | OH | Franchise | LEASED | Leased | Sublease |
26
Unit |
CITY |
ST |
SHC Format |
Owned / Leased |
Tenant Entity
|
Manner of Transfer
|
||||||
S5564 | Pickerington | OH | Hardware | LEASED | SRC | SUBLEASE | ||||||
S8921
5062 |
Kettering | OH | Hardware | LEASED | SRC | SUBLEASE | ||||||
S8952
5080 |
Fairfield | OH | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5474 | Allison Park | PA | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5083 | Easton | PA | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5113 | City Line Ave/Philly | PA | Hardware | LEASED | SRC |
closing 8/19/12;
lease exp 12/31/12 |
||||||
S5123 | Quakertown | PA | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5164 | Trexlertown | PA | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5213 | Kennett Sq | PA | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5284 | Doylestown | PA | franchise | LEASED | SRC | SUBLEASE | ||||||
S5293 | Huntingdon Vally | PA | franchise | LEASED | SRC | SUBLEASE | ||||||
S5604 | Collegeville | PA | franchise | LEASED | SRC | SUBLEASE | ||||||
S5923 | Morrisville | PA | Hardware | LEASED | SRC | SUBLEASE |
27
Unit |
CITY |
ST |
SHC Format |
Owned / Leased |
Tenant Entity
|
Manner of Transfer
|
||||||
S5934 | Kenhorst | PA | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5980 | Phoenixville | PA | franchise | LEASED | SRC | SUBLEASE | ||||||
S5033 | Fairless Hills | PA | franchise | LEASED | SRC | SUBLEASE | ||||||
S5247 | Sugarland | TX | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5246 | Katy | TX | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5457 | Houston/Hwy 6 N | TX | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5086 | Fuqua Rd/Houston | TX | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5195 | Houston/Jones Rd | TX | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5196 | Spring | TX | Franchise | LEASED | SRC | SUBLEASE | ||||||
S8925 | Pasadena | TX | Franchise | LEASED | SRC |
Lease expired -
franchise has a direct deal with landlord |
||||||
S5087 | Kingwood | TX | Hardware | LEASED | SRC | Sublease | ||||||
S5736 | The Woodlands | TX | franchise | LEASED | SRC | SUBLEASE | ||||||
S5184 | Herndon | VA | franchise | LEASED | SRC | SUBLEASE |
28
Unit |
CITY |
ST |
SHC Format |
Owned / Leased |
Tenant Entity
|
Manner of Transfer
|
||||||
S5774 | Centreville | VA | Franchise | LEASED | SRC | SUBLEASE | ||||||
S5471 | Germantown | WI | Hardware | LEASED | SRC | SUBLEASE | ||||||
S5223 | Norristown | PA | Hardware | OWNED | OWNED |
SRC leasing to
SAHS till June 2015; SRC assigning to SAHS the right to enter into ground leases for the property after 6/2015. |
||||||
S5954 | Windham/Willimantic | CT | Hardware | OWNED |
OWNED
AS OF 6/30/2000 |
DEED |
29
Exhibit 10.5
Execution Copy
TRADEMARK LICENSE AGREEMENT
August 8, 2012
This Trademark License Agreement ( Agreement ) is made between Sears, Roebuck and Co., a New York corporation located at 3333 Beverly Road, Hoffman Estates, IL 60179 ( Sears ), and Sears Hometown and Outlet Stores, Inc., located at 3333 Beverly Road Hoffman Estates, Illinois 60179 ( SHO ).
WHEREAS, Sears has a license to use (and to further sublicense the use of) the SEARS trademark (the Licensed Trademark );
WHEREAS, Sears has a license to use (and further sublicense the use of) the searshometownandoutlet.com, ownasearsstore.com, searssho.com, and sears-sho.com domain names (collectively the Domain Names );
WHEREAS, SHO wishes to use the Licensed Trademark as part of SHOs corporate name; and
WHEREAS, SHO wishes to use the Domain Names to promote the businesses of Sears Authorized Hometown Stores, LLC ( SAHS ), Sears Outlet Stores, L.L.C. ( Outlet Stores ) and Sears Home Appliance Showrooms, LLC ( SHAS , together with SAHS and Outlet Stores, the Businesses );
THEREFORE, in consideration of the mutual promises hereinafter set forth, the parties agree as follows:
1. Duration . The term of this Agreement will begin immediately following the Rights Closing Effective Time specified in the Separation Agreement (the Separation Agreement ) to be executed and delivered by SHO and Sears Holdings Corporation (the date on which the Rights Closing Effective Time occurs, the Effective Date ) and will end, unless terminated earlier, at 5:00 p.m. (Central Time) on the 17 th anniversary of the Effective Date (the Term ). The calendar day that becomes the Effective Date will be inserted on Appendix 1 after the Effective Date has occurred.
2. Grant of License to Sears Name . Sears hereby grants to SHO a royalty-free license to use the Licensed Trademark as part of the corporate name Sears Hometown and Outlet Stores, Inc. (the Corporate Name ) in the United States and to promote the Businesses. SHO shall not use the Licensed Trademark for any purpose other than for use in the Corporate Name and promotion of the Businesses without prior written consent of Sears.
3. Grant of License to the Domain Names . Sears hereby grants to SHO a royalty-free, fully-paid up license to use the Domain Names solely to promote the Businesses.
4. Sears Representations and Warranties . Sears represents and warrants that: (a) it has a license to use (and further sublicense the use of) the Licensed Trademark and the Domain
Execution Copy
Names; (b) to the best of its knowledge neither the Licensed Trademark nor any Domain Name infringes the intellectual property rights of any third party; and (c) it has the full authority to grant SHO the rights described herein.
5. Compliance with Laws . SHO shall comply with all applicable laws, regulations, standards and decrees of any governmental authorities in connection with its performance under this Agreement, including but not limited to commercial electronic mail communication laws and export control and anti-boycott laws, and shall obtain all governmental approvals, permits, licenses and other authorizations necessary or appropriate for SHO to perform its obligations under this Agreement.
6. Ownership . SHO recognizes the ownership of the Licensed Trademark and the Domain Names by Sears Brands, L.L.C. ( Sears Brands ). Nothing contained in this Agreement shall be construed as an assignment or grant to SHO of any right, title or interest in the Licensed Trademark or any Domain Name. SHOs use of the Licensed Trademark and the Domain Names shall inure to the benefit of Sears Brands. SHO shall not represent that SHO has any right, title or interest in and to the Licensed Trademark or the Domain Names or that Sears is a sponsor, partner or co-venturer of SHO.
7. Quality . SHO acknowledges that if the products or services offered by it are of inferior quality, design, material or workmanship, the substantial goodwill associated with the Licensed Trademark and the Domain Names will be impaired. Accordingly, all products and services offered by SHO shall be of such quality and of such style and appearance as is reasonably necessary to maintain the substantial goodwill associated with the Licensed Trademark and the Domain Names. The Products (as defined in the Merchandising Agreement dated August 8, 2012 between SHO and Sears, among others (the Merchandising Agreement )) shall be deemed to meet the standards prescribed in the preceding sentence.
8. Confidentiality . In connection with this Agreement, Sears and SHO each may have access to confidential information made available by the other. Each party shall protect such confidential information in the same manner as it protects its own confidential information of like kind, and shall not disclose or use such confidential information, except as necessary for performance of this Agreement; provided, however, that this provision shall not apply to: (a) information previously known to the receiving party; (b) information which is or has become available to the public in general through no fault of or breach of an agreement by the receiving party; (c) information received from a third party not subject to any confidentiality obligations; or (d) information which is independently developed by the receiving party.
9. Indemnification .
(a) Indemnification by Sears . Sears shall indemnify and hold harmless SHO from and against any and all third party claims, losses, liabilities, damages, penalties, costs or out-of-pocket expenses (including reasonable attorneys fees) asserted against or incurred by SHO and arising out of or resulting from any breach by Sears of this Agreement.
(b) Indemnification by SHO . SHO shall indemnify and hold harmless Sears and its Affiliates, partners, officers, directors, shareholders, employees, agents, representatives,
2
Execution Copy
successors and assigns (collectively, the Sears Indemnified Parties ), from and against any and all third party claims, losses, liabilities, damages, penalties, costs or out-of-pocket expenses (including reasonable attorneys fees) asserted against or incurred by the Sears Indemnified Parties and arising out of or resulting from any breach by SHO of this Agreement. Affiliates means any entity that, at the applicable time, directly or indirectly controls, is controlled with or by or is under common control with, a party. Notwithstanding the foregoing, only subsidiaries of Sears Holdings Corporation shall be deemed to be Affiliates of Sears for purposes of this Agreement.
10. No Implied Warranties; Limitation of Liability .
(a) Disclaimer of Warranty . Except as expressly set forth herein (and except as may be required by law), Sears expressly disclaims all representations and warranties, expressed or implied, in connection with the Licensed Trademark and the Domain Names and this Agreement, including, without limitation, the implied warranties of merchantability and fitness for a particular purpose. All materials provided hereunder are provided as is and with all faults.
(b) Limitation of Liability . Sears shall not be liable to SHO or its Affiliates, directors, officers, customers or employees for any indirect, special, consequential, incidental, or punitive damages, losses, or expenses (including, without limitation, lost or anticipated revenues, profits, or savings relating to the same) arising from any claim relating directly or indirectly to this Agreement, whether a claim for such damages is based on warranty, contract, tort (including, without limitation, negligence or strict liability), even if an authorized representative of Sears has been advised of the likelihood or possibility of the same.
11. Infringement . SHO shall advise Sears within a reasonable period of time of any infringement of the Licensed Trademark or any Domain Name of which it becomes aware. In any action instituted by Sears for claims relating to infringement, dilution or disparagement of the Licensed Trademark or any Domain Name, SHO agrees to cooperate with Sears at Sears expense.
12. Sublicensing . SHO shall not sublicense the rights licensed by Sears to SHO under this Agreement without Sears prior written consent, which Sears may withhold in its sole discretion.
13. Termination .
(a) Sears may terminate this Agreement effective immediately upon 10-days advance written notice to SHO if SHO for 12 consecutive months has not conducted business using the Corporate Name.
(b) Subject to the next sentence, Sears or SHO may terminate this Agreement in the event of a material breach of this Agreement by the other Party if the breach is curable by the breaching Party and the breaching Party fails to cure the breach within 30 days following its receipt of written notice of the breach from the non-breaching Party. If the breach is not curable by the breaching Party, the non-breaching Party may immediately terminate this Agreement following the non-breaching Partys delivery of notice to the breaching Party.
3
Execution Copy
(c) Sears may terminate this Agreement effective immediately upon 10-days advance written notice to SHO if a Stockholding Change occurs. Stockholding Change means the occurrence of any transaction or event, whether voluntary or involuntary, that results in a Sears Competitor becoming, or as a consequence of which a Sears Competitor becomes, directly or indirectly, at any time after the date of this Agreement and by whatever means, the beneficial owner of more than 50% of the total voting power of outstanding securities entitled to vote in, or carrying the right to direct the voting with respect to, directly or indirectly and by whatever means the election of the board of directors of SHO or any of its subsidiaries. Sears Competitor means, solely for purposes of this Agreement and for no other purpose, Amazon.com, Inc., Best Buy Co., Inc., hhgregg, Inc., The Home Depot, Inc., Lowes Companies, Inc., Target Corporation, Tractor Supply Co., Wal-Mart Stores, Inc., each other retailer that competes in any material respect with Sears major home appliance business or Sears power lawn and garden business, and the Sears Competitor Affiliates of each of them. Sears Competitor Affiliates means each individual or entity that directly or indirectly, and by whatever means, controls, is under common control with, or is controlled by, a Sears Competitor.
(d) Sears or SHO may terminate this Agreement (whichever party is entitled to terminate, the Terminating Party ) effective immediately upon 30-days advance written notice to the other party if (i) the Terminating Party or any of its Affiliates terminates the Separation Agreement as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Separation Agreement, (ii) the Terminating Party or any of its Affiliates terminates any of the License Agreements in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the License Agreement, (iii) the Terminating Party or any of its Affiliates terminates the Merchandising Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Merchandising Agreement, or (iv) the Terminating Party or any of its Affiliates terminates the Shop Your Way Rewards Retail Establishment Agreement dated August 8, 2012 between SHO and Sears Holdings Management Corporation (the SYW Agreement ) in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the SYW Agreement. License Agreements means the following, each dated August 8, 2012: the Store License Agreement between Outlet Stores and Sears; the Store License Agreement between SHAS and Sears; and the Store License Agreement between SAHS and Sears.
(e) If SHO does not elect to extend the Term of the Merchandising Agreement for the First Renewal Period or the Second Renewal Period (as those terms are defined in the Merchandising Agreement), Sears may terminate this Agreement effective immediately upon 10-days advance written notice to SHO.
14. Cessation of Use . Upon expiration or termination of this Agreement, SHO shall immediately amend the Corporate Name to remove the Licensed Trademark and record such amendment with the appropriate authorities. Upon expiration or termination of the Agreement,
4
Execution Copy
SHO shall not use any trademark, trade name, corporate name and/or domain name containing the Licensed trademark or any trademark, trade name, corporate name and/or domain name confusingly similar to the Licensed Trademark.
15. Waiver . No waiver of any of the terms of this Agreement shall be valid unless it is in writing. No waiver by either party of a breach hereof or a default hereunder shall be deemed a waiver by such party of any subsequent breach or default, whether of the same or similar nature.
16. Notice . All notices, demands, or other communications given or made under this Agreement shall be in writing and shall be effective: (a) upon delivery if delivered in person; (b) five business days after mailing if delivered by registered mail, addressed to the recipient, postage pre-paid with return receipt requested; (c) if given or made by fax, when dispatched subject to receipt of a machine-printed confirmation of error-free dispatch; and (d) upon transmission if sent via electronic mail, provided that a confirmation copy is sent via express mail or overnight courier service and confirmation of such delivery is received. Such notices, demands or other communications shall be sent to each party at the mailing addresses or facsimile numbers indicated below:
If to Sears: | Sears, Roebuck and Co. | |
3333 Beverly Road | ||
Hoffman Estates, Illinois 60179 | ||
Attn: Senior Vice President-Finance | ||
Facsimile: (847) 286-2735 | ||
With a copy to: | Sears Holdings Management Corporation | |
3333 Beverly Road | ||
Hoffman Estates, Illinois 60179 | ||
Attn: General Counsel | ||
Fax: (847) 286-2471 | ||
If to SHO: | Sears Hometown and Outlet Stores, Inc. | |
3333 Beverly Road | ||
Hoffman Estates, Illinois 60179 | ||
Attn: Senior Vice President and Chief Operating Officer | ||
Fax: (847) 286-7838 | ||
With a copy to: | Sears Hometown and Outlet Stores, Inc. | |
3333 Beverly Road | ||
Hoffman Estates, Illinois 60179 | ||
Attn: General Counsel |
5
Execution Copy
17. License Operating Committee; Dispute Resolution; Mediation .
(a) License Operating Committee . Sears and SHO shall form a committee (the License Operating Committee ) that shall address all day-to-day operational and other issues that may arise with respect to this Agreement and all Disputes (as defined in Section 17(b)(ii) below). The License Operating Committee shall discuss all of these issues and shall attempt to resolve informally all Disputes in accordance with Section 17(b). The License Operating Committee shall consist of three employees of each party as designated by the party. The initial employee designees are listed on Appendix 17(a) . Each party may replace one or more of its designees at any time upon notice to the other Party. Each party shall promptly fill all of its License Operating Committee vacancies as they arise by notice to the other party. Unless the members of the License Operating Committee unanimously agree otherwise, the License Operating Committee shall meet at least once every calendar month during the Term on the dates determined by the members of the License Operating Committee. If the members of the License Operating Committee cannot agree on a date or a time for a particular monthly meeting the meeting shall occur at 1:00 p.m. Central Time on the second Thursday of the month at the offices of SHC, 3333 Beverly Road, Hoffman Estates, IL 60179 B6-D. At all times one of the members of the License Operating Committee shall serve as the License Operating Committees Chairperson. The Chairperson shall rotate among the License Operating Committee members on a monthly basis. The initial Chairperson is listed on Appendix 17(a) and the other License Operating Committee members each shall serve thereafter as Chairperson, on a monthly basis, rotating between Sears members and SAHSs members. The Chairperson (i) shall request that License Operating Committee members provide meeting agenda items and (ii) shall distribute to members, at least two business days in advance of each License Operating Committee meeting, an agenda for the meeting. The License Operating Committee shall constitute the License Operating Committee for all purposes of the License Agreements and shall function accordingly.
(b) Dispute Resolution .
(i) License Operating Committees Attempt to Resolve Dispute . If a Dispute arises, neither party may cease to perform any of its obligations in this Agreement in accordance with their terms or take any formal legal action (such as seeking to terminate this Agreement, seeking mediation in accordance with Section 17(b)(iii), or instituting or seeking any judicial or other legal action, relief, or remedy with respect to or arising out of this Agreement) unless the party has first (i) delivered a notice of dispute (the Dispute Notice ) to all of the members of the License Operating Committee and (ii) complied with the terms and conditions of this Section 16. At the first monthly meeting of the License Operating Committee following the delivery of the Dispute Notice (the Dispute Resolution Meeting ) the License Operating Committee shall attempt to resolve all of the Disputes that are the subject of the Dispute Notice. Each party shall cause its designees on the License Operating Committee to negotiate in good faith to resolve all Disputes in a timely manner. If by the 10 th calendar day following the Dispute Resolution Meeting the License Operating Committee has not resolved all of the Disputes (the Resolution Failure Date ) the parties shall proceed to mediate the unresolved Disputes ( Unresolved Disputes ) in accordance with Section 17(b)(iii).
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(ii) Dispute Defined . Subject to the next sentence, Dispute means each claim, controversy, dispute, and disagreement between (A) on the one hand, SHO or any of its Affiliates, or any of their respective shareholders, officers, directors, agents, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, and (B) on the other hand, Sears or any of its Affiliates, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, in each case arising out of or relating to a partys performance, or failure to perform, one or more of its obligations in this Agreement. Disputes do not include claims, controversies, disputes or disagreements with respect to compliance with Section 6, Section 11 or payment obligations with respect to amounts due in accordance with the terms and conditions of this Agreement that are not reasonably in dispute.
(iii) Mediation of Unresolved Disputes . Sears and SHO shall in good faith attempt to resolve all Unresolved Disputes by non-binding mediation. Sears and SHO shall negotiate in good faith to determine the mediator, the mediators compensation and related costs, and the applicable rules for the mediation. If by the 15 th day following the Resolution Failure Date Sears and SHO have been unable to settle an Unresolved Dispute the obligations of Sears and SHO in this Section 17 shall end with respect to the Unresolved Dispute.
18. Injunctive Relief . Each party acknowledges that any breach by a party of this Agreement may cause the non-breaching party and its Affiliates irreparable harm for which the non-breaching party and its Affiliates have no adequate remedies at law. Accordingly, each party and its Affiliates, without complying with Section 17(b)(iii) and without the necessity to post a bond or other security, are entitled to seek injunctive relief for any such breach in any state or federal court in Chicago, Illinois, USA, and each party consents to the exclusive jurisdiction and venue in the state and federal courts in Chicago, Illinois, USA for injunctive relief purposes. Each party waives all claims for damages by reason of the wrongful issuance of an injunction and acknowledges that its only remedy in that case is the dissolution of that injunction.
19. Status of Parties . Nothing contained in this Agreement shall be deemed or construed as creating a joint venture or partnership between the parties. Neither party shall by virtue of this Agreement have the power to control the activities and operations of the other.
20. Assignment . The license granted in this Agreement is personal to SHO and may not be assigned by SHO without the prior written consent of Sears.
21. Force Majeure . Neither party shall be liable or responsible hereunder by reason of any failure or delay in the performance of its obligations hereunder (except for the payment of money) on account of strikes, shortages, riots, insurrection, fires, flood, storm, explosions, acts of God, war, governmental action, labor conditions, earthquakes, or any other cause which is beyond the reasonable control of such party.
22. Survival . The rights and obligations contained in Sections 4, 5, 6, 8, 9, 10, 11, 14, 17, 25 and 18 shall survive any termination or expiration of this Agreement, in addition to any provisions which by their nature should, or by their express terms do, survive or extend beyond the termination or expiration of this Agreement.
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23. Severability . If any provision hereof is held invalid or unenforceable by a court of competent jurisdiction, such invalidity shall not affect the validity or operation of any other provision and such invalid provision shall be deemed to be severed from the Agreement.
24. Entire Agreement . Except as provided in the Separation Agreement and the Ancillary Agreements (as defined in the Separation Agreement but excluding this Agreement), this Agreement contains the entire understanding of the parties. There are no representations, warranties, promises, covenants or undertakings other than those contained in this Agreement. No changes, amendments or modifications of this Agreement are valid or binding upon the parties unless made in writing and manually signed by a duly authorized representative of each party.
25. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original copy of the Agreement and all of which, when taken together, shall be deemed to constitute one and the same agreement. Facsimile, scanned or photocopy signatures shall be deemed original signatures.
26. Good Faith and Fair Dealing . Sears and SHO each shall exercise Good Faith in the performance of its obligations in this Agreement. Good Faith means honesty in fact and the observance of reasonable commercial standards of fair dealing in accordance with applicable law.
27. Condition Precedent to the Effectiveness of this Agreement . This Agreement shall not become effective until it has been approved by the Audit Committee of the Board of Directors of Sears Holdings Corporation.
29. Governing Law; Jurisdiction; Waiver of Jury Trial .
(a) Governing Law . This Agreement shall be construed in accordance with, and governed by, the federal laws of the United States, including but not limited to the Lanham Act, and the internal laws of the State of Illinois, other than its conflict of laws principles and the Illinois Franchise Disclosure Act. This Agreement shall not be subject to any of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.
(b) Jurisdiction . Each of the Parties submits, for itself and its property, to the exclusive jurisdiction of all Illinois state courts and federal courts of the United States of America sitting in Cook County, Illinois, and all appellate courts to each thereof, in all actions and proceedings arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of all judgments relating thereto, and each of the Parties (i) shall commence all such actions and proceedings only in such courts, (ii) shall cause all claims in respect of all such actions and proceedings to be heard and determined in such Illinois state court or, to the extent permitted by law, in such federal court, (iii) waives, to the fullest extent it may legally and effectively do so, all objections that it may now or hereafter have to the laying of venue of all such actions and proceedings in any such Illinois state or federal court, and (iv) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such actions and proceedings in all such Illinois state and federal courts. A final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party irrevocably consents to service of process in the manner provided for notices in Section 16. Nothing in this Agreement shall affect the right of any Party to serve process in any other manner permitted by law.
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(c) Waiver of Jury Trial . Each Party acknowledges that each controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, it irrevocably and unconditionally waives all rights it may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party certifies and acknowledges that (i) it understands and has considered the implications of such waivers, (ii) it makes such waivers voluntarily, and (iii) it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 29.
[signature page follows]
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SEARS, ROEBUCK AND CO. By Sears Holdings Management Corporation, its Agent |
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By: |
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William Phelan | ||||
Senior Vice President-Finance |
SEARS HOMETOWN AND OUTLET STORES, INC. | ||
By: |
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W. Bruce Johnson | ||
Chief Executive Officer and President |
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APPENDIX 1
TO LICENSE AGREEMENT
EFFECTIVE DATE
The Effective Date referred to in Section 1 is September , 2012.
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APPENDIX 17(a)
TO LICENSE AGREEMENT
SHO LICENSE OPERATING COMMITTEE
SHO
Keri Durkin
Brandon Gartman
Guy Reda
Sears
Roger Teal
Timothy Hickey
Andrew Stein
Initial Chairperson: Roger Teal
Exhibit 10.7
Execution Copy
SERVICES AGREEMENT
Between
SEARS HOLDINGS MANAGEMENT CORPORATION
And
SEARS HOMETOWN AND OUTLET STORES, INC.
August 8, 2012
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Table of Contents
Page | ||||||
ARTICLE I. SERVICES |
1 | |||||
1.01 |
Services to be Provided. |
1 | ||||
1.02 |
Quantity and Nature of Service. |
1 | ||||
1.03 |
Transition Plan. |
2 | ||||
1.04 |
Standard of Care. |
2 | ||||
1.05 |
Responsibility For Errors; Delays. |
2 | ||||
1.06 |
Good Faith Cooperation; Alternatives. |
2 | ||||
1.07 |
Use of Third Parties. |
2 | ||||
1.08 |
Assets of SHO. |
2 | ||||
1.09 |
Ownership of Data and Other Assets. |
2 | ||||
1.10 |
Contact Person. |
3 | ||||
ARTICLE II. CHARGES AND PAYMENTS FOR SERVICES |
3 | |||||
2.01 |
Compensation. |
3 | ||||
2.02 |
Payments. |
4 | ||||
2.03 |
Taxes. |
4 | ||||
ARTICLE III. TERMINATION |
4 | |||||
3.01 |
Termination of an Individual Service for Convenience by SHO. |
4 | ||||
3.02 |
Termination of the Agreement. |
5 | ||||
3.03 |
Obligations on Termination. |
5 | ||||
3.04 |
Termination of an Individual Service by SHMC. |
5 | ||||
ARTICLE IV. CONFIDENTIALITY |
6 | |||||
4.01 |
Confidentiality. |
6 | ||||
4.02 |
Third-Party Contractor Confidentiality Terms. |
7 | ||||
ARTICLE V. INDEMNIFICATION; LIMITATION OF LIABILITY |
8 | |||||
5.01 |
Indemnification by SHO. |
8 | ||||
5.02 |
Indemnification by SHMC. |
8 | ||||
5.03 |
Procedure. |
8 | ||||
5.04 |
Limitation of Liability. |
9 | ||||
ARTICLE VI. MISCELLANEOUS |
9 | |||||
6.01 |
Expenses. |
9 | ||||
6.02 |
Waiver of Compliance. |
9 | ||||
6.03 |
Amendment. |
9 | ||||
6.04 |
Assignment. |
9 | ||||
6.05 |
Notices. |
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6.06 |
Survival. |
11 | ||||
6.07 |
Headings. |
11 | ||||
6.08 |
No Third Party Rights. |
11 | ||||
6.09 |
Counterparts. |
11 | ||||
6.10 |
Severability. |
11 | ||||
6.11 |
Entire Agreement. |
11 | ||||
6.12 |
Force Majeure. |
11 | ||||
6.13 |
Fair Construction. |
11 | ||||
6.14 |
No Agency. |
12 | ||||
6.15 |
Services Operating Committee; Dispute Resolution; Mediation. |
12 | ||||
6.16 |
Definitions. |
13 | ||||
6.17 |
Good Faith. |
15 | ||||
6.18 |
Condition Precedent to the Effectiveness of this Agreement. |
15 | ||||
6.19 |
Governing Law; Jurisdiction; Waiver of Jury Trial. |
15 |
Appendices
APPENDIX 1.01-A |
Schedule of Services |
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COMPLIANCE |
29 | |||||
EMPLOYEE COMMISSION ADMINISTRATION SUPPORT SERVICES |
25 | |||||
FACILITIES |
29 | |||||
FINANCE & ACCOUNTING |
4 | |||||
HOME SERVICES (Installation & Repair) |
65 | |||||
HUMAN RESOURCES |
1 | |||||
IT SERVICES |
63 | |||||
LOGISTICS & DISTRIBUTION |
32 | |||||
LOSS PREVENTION |
21 | |||||
MARKETING SERVICES |
18 | |||||
ONLINE SERVICES |
11 | |||||
PAYMENT CLEARING AND RELATED FINANCIAL SERVICES |
57 | |||||
REAL ESTATE |
73 | |||||
SEARS DE PUERTO RICO |
76 | |||||
STORE LEVEL LABOR PLANNING AND STAFFING SUPPORT |
24 |
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Exhibits to Appendix 1.01-A |
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APPENDIX 1.01-B | Effective Date | |||
APPENDIX 1.10 | Contact Persons |
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SERVICES AGREEMENT
August 8, 2012
This Services Agreement (this Agreement ) is between Sears Holdings Management Corporation , a Delaware corporation ( SHMC ), and Sears Hometown and Outlet Stores, Inc. , a Delaware corporation ( SHO ). SHMC and SHO each are sometimes referred to as a Party and together sometimes are referred to as the Parties. Section 6.16 of this Agreement, which begins on page 13, includes a glossary of defined terms used in this Agreement.
Terms and Conditions
For good and valuable consideration, the receipt of which SHMC and SHO acknowledge, SHMC and SHO agree as follows:
ARTICLE I.
SERVICES
1.01 Services to be Provided . During the Service Period SHMC will provide to SHO the services described on Appendix 1.01-A to the extent not prohibited by Applicable Law (together, the Services ). Service Period means the period commencing immediately following the Rights Closing Effective Time specified in the Separation Agreement (the Separation Agreement ) to be executed and delivered by SHO and SHLD (the date on which the Rights Closing Effective Time occurs, the Effective Date ) and continuing until 5:00 p.m. (Central Time) on the last day of the 66 th full month following the Effective Date. The calendar day that becomes the Effective Date will be inserted on Appendix 1.01-B after the Effective Date has occurred. All services that were provided prior to the Effective Date to the businesses operated by SHO after the Effective Date and that after the Effective Date constitute Services will be governed by this Agreement even if such services are not described on Appendix 1.01-A. If a Party identifies such a Service, it will notify the other Partys Contact Person (as provided for in Section 1.10 below), and the Parties will work together to address such services and respective pricing in an Amendment to this Agreement.
1.02 Quantity and Nature of Service . Except as otherwise provided in Section 1.01 or this Section 1.02, there will be no material change in the scope or level of, or use by, SHO of Services during the Service Period (including changes requiring the hiring or training of additional employees by SHMC) without the mutual written agreement of the Parties and adjustments, if any, to the charges for such Services; provided, however, SHMC may make changes from time to time in the manner of performing Services, notwithstanding that specific third party contractors (at times referred to as vendors) may be listed on Appendix 1.01-A), if SHMC is making similar changes in performing or the performance of the same or substantially similar services for itself or its Affiliates. SHO will not resell any Services, provide the Services to any joint-venture or non-wholly owned subsidiary, or otherwise use the Services in any way other than in connection with the conduct of SHOs internal business.
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1.03 Transition Plan . At least semi-annually, and in the event of a Stockholding Change, at least quarterly, throughout the Service Period, SHO will provide SHMC with current information and reasonable assistance concerning SHOs plans for transitioning the performance of all Services to SHO or its designees prior to the completion of the Service Period. SHMC will provide SHO with such information as is reasonably necessary to assist SHO with such transition.
1.04 Standard of Care . Except as otherwise set forth in this Agreement, SHMC does not assume any responsibility under this Agreement other than to render the Services in Good Faith, without willful misconduct or gross negligence. SHMC makes no other guarantee, representation, or warranty of any kind (whether express or implied) regarding any of the Services provided hereunder, and expressly disclaims all other guarantees, representations, and warranties of any nature whatsoever, whether statutory, oral, written, express or implied, including any warranties of merchantability or fitness for a particular purpose and any warranties arising from course of dealing or usage of trade. SHMC will only be obligated to provide Services in a manner consistent with past practice (including prioritization among projects for SHMC, SHMCs Affiliates, and SHO).
1.05 Responsibility For Errors; Delays . SHMCs sole responsibility to SHO for errors or omissions in Services caused by SHMC will be to furnish correct information, payment or adjustment in the Services, and if such errors or omissions are solely or primarily caused by SHMC, SHMC will furnish such corrections at no additional cost or expense to SHO if SHO promptly advises SHMC of such error or omission.
1.06 Good Faith Cooperation; Alternatives . SHMC and SHO will use Good Faith efforts to cooperate with each other in all matters relating to the provision and receipt of the Services, including acquisition of required third-party contractor consents (if any). If SHMC reasonably believes it is unable to provide any Service because of a failure to obtain third-party contractor consents or because of impracticability, SHMC will notify SHO promptly after SHMC becomes aware of such fact and the Parties will cooperate to determine the best alternative approach.
1.07 Use of Third Parties . SHMC may use any Affiliate or any unaffiliated third-party contractor to provide the Services to the extent the Affiliate or the unaffiliated third-party contractor provides comparable services to SHMC or, if not, if SHO gives its prior written consent (which consent SHO will not unreasonably withhold or delay).
1.08 Assets of SHO . During the Service Period, (i) SHMC and its Affiliates and third-party contractors may use, at no charge, all of the software and other assets, tangible and intangible, of SHO (together, the Assets ) to the extent necessary to perform the Services, and (ii) SHO will consult with SHMC prior to upgrading or replacing any of the Assets that are necessary for SHMC to provide the Services.
1.09 Ownership of Data and Other Assets . Neither Party will acquire any right, title or interest in any Asset that is owned or licensed by the other and used to provide the Services. All data provided by or on behalf of a Party to the other Party for the purpose of providing the
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Services will remain the property of the providing Party. To the extent the provision of any Service involves intellectual property, including software or patented or copyrighted material, or material constituting trade secrets, neither Party will copy, modify, reverse engineer, decompile or in any way alter any of such material, or otherwise use such material in a manner inconsistent with the terms and provisions of this Agreement, without the express written consent of the other Party. All specifications, tapes, software, programs, services, manuals, materials, and documentation developed or provided by SHMC and utilized in performing this Agreement, will be and remain the property of Service Provider and may not be sold, transferred, disseminated, or conveyed by SHO to any other entity or used other than in performance of this Agreement without the express written permission of SHMC.
1.10 Contact Person . Each Party will appoint a contact person (each, a Contact Person ) to facilitate communications and performance under this Agreement. The initial Contact Person of each Party is set forth on Appendix 1.10. Each Party will have the right at any time and from time to time to replace its Contact Person by written notice to the other Party.
ARTICLE II.
CHARGES AND PAYMENTS FOR SERVICES
2.01 Compensation .
(a) Fees . As consideration for the provision of Services, SHO will pay SHMC for the first three years commencing on the Effective Date, ( First Three Years ) the annual, quarterly, monthly, and hourly fees for the Services specified on Appendix 1.01-A (the Fees ), payable in equal installments in advance as provided on Appendix 1.01-A. Upon termination of an individual Service, SHO will pay a pro rata portion of the applicable Fee specified on Appendix 1.01-A, calculated based on the portion of the individual Service actually performed, or expense actually incurred, through the date SHMC performs the Service. Transition Fees, if any are specified on Appendix 1.01-A, will be paid with the last monthly installment payment of the Fees under the Agreement. If a Fee constitutes a Charge (as that term is defined in the Merchandising Agreement dated August 8, 2012 between (1) SHO, and others, and (2) Sears, Roebuck and Co. ( SRC ) and others (the Merchandising Agreement )), SHO will have no obligation to pay the Fee in accordance with this Agreement to the extent SHO is paying it as a Charge in accordance with the terms and conditions of the Merchandising Agreement. If a Fee duplicates another Fee to any extent, including due to SHMCs performance of a Service that duplicates to any extent SHMCs performance of another Service, SHO will have no obligation to pay the portion of the Fee that is duplicative. If the Fees include charges for Services performed by a third party contractor and the third party contractor fees increase during the First Three Years, then SHMC may pass through the increased charges as an increase in the Fees. The Parties will negotiate in Good Faith the Fees for the fourth and fifth years of the Term and the six-month period following the fifth year, which revised fees will be reflected in one or more amendments to this Agreement.
(b) Expenses . In addition to the Fees, SHO will reimburse SHMC for (i) COBRA expenses advanced by SHMC with respect to SHOs and its Affiliates employees who
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incur a qualifying event (as defined under COBRA) prior to the Effective Date, (ii) COBRA expenses advanced by SHMC with respect to SHOs and its subsidiaries employees who incur a qualifying event (as defined under COBRA) on or after the Effective Date until such COBRA liability is transferred to a SHO-sponsored group health plan, and (iii) all other reasonable out-of-pocket expenses actually incurred in its performance of the Services, that are not included in the Fees ( Expenses ). To the extent reasonably practicable, SHMC will provide SHO with notice of such Expenses prior to incurring them. (COBRA expenses and Expenses are together referred to as Expenses ). If directed by SHMC, SHO will pay directly any or all third-party contractors providing Services to or for the benefit of SHO.
2.02 Payments . SHO will pay Fees in accordance with Section 2.01(a). SHO will pay all Expenses and Transaction Taxes within 10 days of SHMCs valid invoice to SHO. Unless otherwise mutually agreed in writing, all amounts payable under this Agreement will be payable by electronic transfer of immediately available funds to a bank account designated by SHMC from time to time. All amounts remaining unpaid for more than 15 days after their respective due date(s) will accrue interest at a rate of the lesser of one and one-half percent (1.5%) per month or the highest rate allowed by law, until paid.
2.03 Taxes . Fees do not include applicable taxes. SHO will be responsible for the payment of all taxes payable in connection with the Services including sales, use, excise, value-added, business, service, goods and services, consumption, withholding, and other similar taxes or duties, including taxes incurred on transactions between and among SHMC, its Affiliates, and third-party contractors, along with any related interest and penalties ( Transaction Taxes ). SHO will reimburse SHMC for any deficiency relating to Transaction Taxes that are SHOs responsibility under this Agreement. Notwithstanding anything in this Section 2.03 to the contrary, each Party will be responsible for its own income and franchise taxes, employment taxes, and property taxes. The Parties will cooperate in Good Faith to minimize Transaction Taxes to the extent legally permissible. Each Party will provide to the other Party any resale exemption, multiple points of use certificates, treaty certification and other exemption information reasonably requested by the other Party.
ARTICLE III.
TERMINATION
3.01 Termination of an Individual Service for Convenience by SHO . Subject to the next sentence, SHO, upon 60-days prior written notice to SHMC, may terminate for SHOs convenience any individual Service at the end of a SHO fiscal month. SHO may not terminate an individual Service if the termination would adversely affect SHMCs ability to perform another Service.
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3.02 Termination of the Agreement .
(a) Subject to the next sentence, SHO or SHMC may terminate this Agreement in the event of a material breach of this Agreement by the other Party if the breach is curable by the breaching Party and the breaching Party fails to cure the breach within 30 days following its receipt of written notice of the breach from the non-breaching Party. If the breach is not curable by the breaching Party, the non-breaching Party may immediately terminate this Agreement following the non-breaching Partys delivery of notice to the breaching Party.
(b) SHO or SHMC may terminate this Agreement (whichever party is entitled to terminate, the Terminating Party ) effective immediately upon 30-days advance written notice to the other party if (i) the Terminating Party or any of its Affiliates terminates the Separation Agreement as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Separation Agreement, (ii) the Terminating Party or any of its Affiliates terminates a License Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the License Agreement, (iii) the Terminating Party or any of its Affiliates terminates the Merchandising Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the Merchandising Agreement. or (iv) the Terminating Party or any of its Affiliates terminates the Shop Your Way Rewards Retail Establishment Agreement dated August 8, 2012 between SHO and SHMC (the SYW Agreement ) in accordance with its terms as a result of a material breach of, or a material default by, the other party or its Affiliates of their obligations in the SYW Agreement. License Agreement means each of the following, each dated August 8, 2012: the Store License Agreement between Sears Authorized Hometown Stores, LLC and SRC; the Store License Agreement between Sears Home Appliance Showrooms, LLC and SRC; the Store License Agreement between Sears Outlet Stores, L.L.C. and SRC; and the Trademark License Agreement between SHO and SRC.
(c) SHMC may terminate this Agreement if a Stockholding Change occurs.
3.03 Obligations on Termination . Upon termination of this Agreement (a) each Party will promptly return or destroy all Confidential Information received from the other Party in connection with this Agreement without retaining a copy thereof, other than one copy for record keeping purposes, (b) SHO will return to SHMC, as soon as reasonably practicable, all equipment or other property of SHMC, whether owned, leased, or licensed, and (c) SHO will pay all outstanding Fees for Services rendered and Expenses incurred through the date this Agreement is terminated in accordance with its terms and for all Transition Fees.
3.04 Termination of an Individual Service by SHMC .
(a) If an Affiliate of SHMC that provides a Service is unwilling or unable to provide the Service, (i) the Affiliate of SHMC does not provide a similar service to SHMC or its other Affiliates on terms that are comparable to the terms of this Agreement, and (ii) SHMC is unable to retain a replacement service provider to provide the Service on terms that are comparable to the terms of this Agreement, SHMC, upon providing 90-days prior written notice to SHO, may terminate the Service, but the termination of the Service will have no effect upon the provision of the other Services to SHO. If an unaffiliated third-party contractor of SHMC or an Affiliate that provides a Service is unwilling or unable to allow SHO to use the Service under the existing (or comparable) terms, and SHMC is unable to retain a replacement service provider to provide the Service on terms that are comparable to the terms of this Agreement, SHMC, upon providing 90-days prior written notice
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to SHO, may terminate the Service, but the termination will have no effect upon the provision of the other Services to SHO. If SHMC is unable to give SHO 90-days prior written notice to SHO due to such third-party contractors refusal to allow SHO to use the Service for 90 days, then SHMC will provide as much notice as possible.
(b) If the Parties fail to agree upon and execute an amendment regarding a Fee for one or more individual Services for the fourth or fifth year of the Term or the six-month period following the fifth year, SHMC may terminate the individual Service or Services upon 60-days prior written notice to SHO.
ARTICLE IV.
CONFIDENTIALITY
4.01 Confidentiality .
(a) Confidential Information means all non-public information received by a Party, its Affiliates, and their respective Representatives (together, the Receiving Party ) relating to the other Party, its Affiliates, and their respective Representatives (together, the Disclosing Party ), in connection with this Agreement, including information concerning pricing, service history, customer information and lists (except to the extent that these may be shared under privacy laws and regulations), employee information, sourcing and third party contractor information, costs, product specifications and methods of operations, business plans, strategies, financial information, information technology information, and other proprietary information, regardless of the manner or medium in which it is furnished to or otherwise obtained by the Receiving Party; provided , that the term Confidential Information does not include information which (i) is or becomes generally available to the public other than as a result of a disclosure by the Receiving Party in violation of this Agreement, (ii) is or was available to the Receiving Party on a non-confidential basis prior to its disclosure to the Receiving Party by the Disclosing Party, provided that such information did not become available to the Receiving Party, from a Person who, to the Receiving Partys knowledge and at the time of receipt by the Receiving Party of the relevant information, is bound by a confidentiality agreement with respect to such information with (or other confidentiality obligation to) the Disclosing Party or another Person or (iii) was or becomes available to the Receiving Party on a non-confidential basis from a source other than the Disclosing Party, provided that such source is or was (at the time of receipt of the relevant information) not, to the Receiving Partys knowledge, bound by a confidentiality agreement with respect to such information with (or other confidentiality obligation to) the Disclosing Party or another Person.
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(b) The receiving Party will not disclose, and will cause its Affiliates and Representatives not to disclose, any Confidential Information of the Disclosing Party to any Person; provided , however, that each Party will be responsible in any event for the acts or omissions of its Affiliates and Representatives to whom it discloses the Disclosing Partys Confidential Information; and provided , further, that Confidential Information may be disclosed only:
(i) to the receiving Partys Affiliates and Representatives in the normal course of performance of Receiving Partys obligations under this Agreement;
(ii) by the Receiving Party to the extent required by Applicable Law, rule or regulation (including complying with any oral or written questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process to which such Party is subject), with prior notice, if legally permitted, to the Disclosing Party;
(iii) by the Receiving Party, if such Person determines in Good Faith that such disclosure is required in order to comply with such Persons obligations under the federal or state securities laws, rules or regulations, the rules of the NASD or the Nasdaq Stock Market or any other similar body), with prior notice, if legally permitted, to the Disclosing Party; or
(iv) with the prior written consent of the Disclosing Party.
(c) Nothing contained herein will prevent the use (subject, to the extent possible, to a protective order) of Confidential Information in connection with the assertion or defense of any claim by or against the other Party.
(d) Each Party acknowledges that if it breaches this Agreement, the other Party may be irreparably and immediately harmed and may not be made whole by monetary damages. Accordingly, the Disclosing Party, in addition to any other remedy to which it may be entitled in law or equity, is entitled to pursue any injunction or injunctions to prevent breaches of this Agreement and to compel specific performance of this Agreement, without the need for proof of actual damages.
4.02 Third-Party Contractor Confidentiality Terms . If SHMCs agreement with an unaffiliated third-party contractor performing Services ( TP Agreement ) includes confidentiality terms that are less restrictive than this Article IV (i.e., the TP Agreement permits broader sharing or disclosure of confidential information than permitted in this Article IV), then, notwithstanding anything in this Article IV to the contrary, the less-restrictive confidentiality terms of the TP Agreement will (i) control over this Article IV and (ii) govern SHMCs rights and obligations in this Article IV regarding the sharing of SHO Confidential Information with the unaffiliated third-party contractor, but in each circumstance only to the extent necessary to permit the unaffiliated third-party contractor to perform the Services.
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ARTICLE V.
INDEMNIFICATION; LIMITATION OF LIABILITY
5.01 Indemnification by SHO . SHO will defend, indemnify, and hold harmless SHMC and its Affiliates and their respective Representatives from and against any and all costs, liabilities, losses, penalties, expenses and damages (including reasonable attorneys fees) of every kind and nature arising from third-party claims, demands, litigation, and suits related to or arising out of this Agreement (together SHO Claims ), except to the extent that such SHO Claims are found by a final judgment or opinion of an arbitrator or a court of appropriate jurisdiction to be caused by: (i) a breach of any provision of this Agreement by SHMC; or (ii) any negligent act or omission, or willful misconduct of SHMC, its Affiliates, or their respective Representatives in performance of this Agreement.
5.02 Indemnification by SHMC . SHMC will defend, indemnify, and hold harmless SHO and its Affiliates, and their respective Representatives, from and against any and all costs, liabilities, losses, penalties, expenses and damages (including reasonable attorneys fees) of every kind and nature arising from third-party claims, demands, litigation, and suits, that: (i) relate to bodily injury or death of any person or damage to real and/or tangible personal property directly caused by the negligence or willful misconduct of SHMC or its Affiliates during the performance of the Services, or (ii) relate to the infringement of any copyright or trade secret by an Asset owned by SHMC or its Affiliates and used by SHMC in the performance of the Services (together, SHMC Claims ). Notwithstanding the obligations set forth above in this Section 5.02, SHMC will not defend or indemnify SHO, its Affiliates, or their respective Representatives to the extent that such SHMC Claims are found by a final judgment or opinion of an arbitrator or a court of appropriate jurisdiction to be caused by: (a) a breach of any provision of this Agreement by SHO; (b) any negligent act or omission, or willful misconduct of SHO, its Affiliates, or their respective Representatives in performance of this Agreement; or (c) with respect to infringement claims: (I) SHOs use of the Asset in combination with any product or information not provided by SHMC; (II) SHOs distribution, marketing or use for the benefit of third parties of the Asset; (III) SHOs use of the Asset other than as contemplated by this Agreement; or (IV) information, direction, specification or materials provided by or on behalf of SHO. SHO Claims and SHMC Claims are each individually referred to as a Claim.
5.03 Procedure . In the event of a Claim, the indemnified Party will give the indemnifying Party prompt notice in writing of the Claim; but the failure to provide such notice will not release the indemnifying Party from any of its obligations under this Article except to the extent the indemnifying Party is materially prejudiced by such failure. Upon receipt of such notice the indemnifying Party will assume and will be entitled to control the defense of the Claim at its expense and through counsel of its choice, and will give notice of its intention to do so to the indemnified Party within 20 business days of the receipt of such notice from the indemnified Party. The indemnifying Party will not, without the prior written consent of the indemnified Party, (i) settle or compromise any Claim or consent to the entry of any judgment that does not include as an unconditional term thereof the delivery by the claimant or plaintiff to the indemnified Party of a written release from all liability in respect of the Claim or (ii) settle or compromise any Claim in any manner that may adversely affect the Indemnified Party other than
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as a result of money damages or other monetary payments that are indemnified hereunder. The indemnified Party will have the right at its own cost and expense to employ separate counsel and participate in the defense of any Claim.
5.04 Limitation of Liability . Except for (i) each Partys indemnity and defense obligations as set forth in Sections 5.01, 5.02, and 5.03 and other liabilities to unaffiliated third parties, (ii) a partys breach of its confidentiality obligations, and (iii) breach of Section 1.09, in no event will either Party be liable for any consequential, incidental, indirect, special, or punitive damages, losses or expenses (including business interruption, lost business, lost profits, or lost savings) even if it has been advised of their possible existence. The sole liability of SHMC and its Affiliates for any and all claims in any manner related to this Agreement will be the payment of direct damages, not to exceed (for all claims in the aggregate) the Fees received by SHMC under this Agreement. Notwithstanding anything in this Agreement to the contrary, SHMC will not be liable for damages caused by SHMCs third-party contractors; however, to the extent permitted in a TP Agreement, SHMC will pass through to SHO applicable rights and remedies under the respective TP Agreement.
ARTICLE VI
MISCELLANEOUS
6.01 Expenses . Except as otherwise provided herein in connection with the provision of the Services, each Party will bear its own expenses with respect to the transactions contemplated by this Agreement.
6.02 Waiver of Compliance . Any failure of a Party to comply with any obligation, covenant, agreement or condition in this Agreement may be waived in writing by the other Party, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
6.03 Amendment . Subject to the next sentence, this Agreement may not be amended except by a written amendment signed by each Party.
6.04 Assignment . SHO may not assign its rights or obligations under this Agreement without the prior written consent of SHMC, to be withheld in SHMCs absolute discretion. A Stockholding Change will constitute an assignment of this Agreement by SHO for which assignment SHMCs prior written consent will be required. SHMC may freely assign its rights and obligations under this Agreement to any of its Affiliates without the prior consent of SHO; provided that any such assignment will not relieve SHMC of its obligations hereunder. This Agreement will be binding on, and will inure to the benefit of, the successors and assigns of the Parties.
6.05 Notices . All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement must be in writing and will be deemed to have been duly given (i) when delivered by hand, (ii) three business days after it is mailed, certified or registered mail, return receipt requested, with postage prepaid, (iii) on the same
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business day when sent by facsimile if the transmission is completed before 5:00 p.m. recipients time, or one business day after the facsimile is sent, if the transmission is completed on or after 5:00 p.m. recipients time or (iv) one business day after it is sent by Express Mail, Federal Express or other courier service, as follows:
(a) | if to SHMC: |
Sears Holdings Management Corporation
3333 Beverly Road B5-119A
Hoffman Estates, Illinois 60179
Attention: Senior Vice President-Finance
Telephone: (847) 286-8991
Facsimile: (847) 286-1699
with a copy to:
Sears Holdings Management Corporation
3333 Beverly Road, B6-210B
Hoffman Estates, Illinois 60179
Attention: General Counsel
Telephone: (847) 286-5933
Facsimile: (847) 286-2471
(b) | if to SHO: |
Sears Hometown and Outlet Stores, Inc.
3333 Beverly Road B4-150A
Hoffman Estates, Illinois 60179
Attention: Senior Vice President and Chief Operating Officer
Telephone: (847) 286-9741
Facsimile: (847) 286-7838
with a copy to:
Sears Hometown and Outlet Stores, Inc.
3333 Beverly Road
Hoffman Estates, Illinois 60179
Attention: General Counsel
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or such other address as the person to whom notice is to be given has furnished in writing to the other Parties. A notice of change in address will not be deemed to have been given until received by the addressee.
6.06 Survival . The provisions of Articles II (Charges and Payments for Services), III (Termination), IV (Confidentiality), V (Indemnification; Limitation of Liability), and VI (Miscellaneous) will survive any termination or expiration of this Agreement.
6.07 Headings . The article and section headings contained in this Agreement are inserted for reference purposes only and will not affect the meaning or interpretation of this Agreement.
6.08 No Third Party Rights . Except for the indemnification rights under this Agreement of any SHMC or SHO indemnitee in their respective capacities as such, this Agreement is intended to be solely for the benefit of the Parties and is not intended to confer any benefits upon, or create any rights in favor of, any person other than the Parties.
6.09 Counterparts . This Agreement may be executed by facsimile and in any number of counterparts, each of which will be deemed to be an original, and all of which together will be deemed to be one and the same instrument.
6.10 Severability . If any provision of this Agreement is declared by any court of competent jurisdiction to be illegal, invalid, void or unenforceable, such provision will (to the extent permitted under applicable law) be construed by modifying or limiting it so as to be legal, valid and enforceable to the maximum extent compatible with, and possibly under, applicable law, and all other provisions of this Agreement will not be affected and will remain in full force and effect.
6.11 Entire Agreement . This Agreement (including the Schedules hereto) constitutes the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof.
6.12 Force Majeure . Neither Party will be responsible to the other for any delay in or failure of performance of its obligations under this Agreement, or under any order placed pursuant to this Agreement, to the extent such delay or failure is attributable to any act of God, act of terrorism, fire, accident, war, embargo or other governmental act, or riot; provided, however, that the Party affected thereby gives the other Party prompt written notice of the occurrence of any event which is likely to cause any delay or failure setting forth its best estimate of the length of any delay and any possibility that it will be unable to resume performance; provided, further, that said affected Party will use its commercially reasonable efforts to expeditiously overcome the effects of that event and resume performance.
6.13 Fair Construction . This Agreement will be deemed to be the joint work product of the Parties without regard to the identity of the draftsperson, and any rule of construction that a document will be interpreted or construed against the drafting Party will not be applicable.
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6.14 No Agency . Nothing in this Agreement creates a relationship of agency, partnership, or employer/employee between SHMC and SHO and it is the intent and desire of the Parties that the relationship be and be construed as that of independent contracting parties and not as agents, partners, joint venturers or a relationship of employer/employee.
6.15 Services Operating Committee; Dispute Resolution; Mediation .
(a) Services Operating Committee . SHO and SHMC will form a committee (the Services Operating Committee ) that will address all day-to-day operational, financial, and other issues that may arise with respect to the Agreement, including its interpretation, the Parties intent reflected in this Agreement, and the policies and practices between SHMC and its Affiliates and the businesses comprising SHOs businesses in effect immediately prior to the Effective Date, and all Disputes. The Services Operating Committee will discuss all of these issues and will attempt to resolve informally all Disputes in accordance with Section 6.15(b)(ii). The Services Operating Committee will consist of three employees of each Party that the Party designates. The initial members are listed on Appendix 1.10. Each Party may replace one or more of its members at any time upon notice to the other Party. Each Party will promptly fill all of its Service Operating Committee vacancies as they arise by notice to the other Party. Unless the members of the Services Operating Committee unanimously agree otherwise, the Services Operating Committee will meet at least once every calendar month during the Term on the dates determined by the members of the Services Operating Committee. If the members of the Services Operating Agreement cannot agree on a date or a time for a particular monthly meeting the meeting will occur at 1:00 p.m. Central Time on the second Thursday of the month at the offices of SHLD, 3333 Beverly Road, Hoffman Estates, IL 60179 B6-D. At all times one of the members of the Services Operating Committee will serve as the Services Operating Committees Chairperson. The initial Chairperson is listed on Appendix 1.10 and the other Services Operating Committee members each will serve thereafter as Chairperson, on a monthly basis, rotating between SHMCs designees and SHOs designees. The Chairperson (i) will request that Services Operating Committee members provide meeting agenda items and (ii) will distribute to members, at least two business days in advance of each Services Operating Committee meeting, an agenda for the meeting.
(b) Dispute Resolution by the Services Operating Committee .
(i) If a Dispute arises, neither Party may take any formal legal action (such as seeking to terminate this Agreement, seeking mediation in accordance with Section 6.15(c), or instituting or seeking any judicial or other legal action, relief, or remedy with respect to or arising out of this Agreement) unless the Party has first (i) delivered a notice of dispute (the Dispute Notice ) to all of the members of the Services Operating Committee and (ii) complied with the terms of this Section 6.15. At the first monthly meeting of the Services Operating Committee following the delivery of the Dispute Notice (the Dispute Meeting ) the Operating Committee will attempt to resolve all of the Disputes that are the subject the Dispute Notice. Each Party will cause its members on the Services Operating Committee to negotiate in Good Faith to resolve all Disputes in a timely manner. If by the 10 th day following the Dispute Meeting the Services Operating Committee has not resolved all of the Disputes (the Resolution Failure Date) the Parties will proceed to mediate the unresolved Disputes ( Unresolved Disputes ) in accordance with Section 6.15(c) .
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(ii) Subject to the next sentence, Dispute means each claim, controversy, dispute, and disagreement between, on the one hand, SHO or any of its Affiliates, or any of their respective shareholders, officers, directors, agents, employees, legal representatives (including attorneys in their representative capacity), successors and assigns and, on the other hand, SHMC or any of its Affiliates, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, in each case arising out of or relating to a Partys performance, or failure to perform, one or more of its obligations in this Agreement. Disputes do not include disagreements with respect to compliance with Article IV or payment obligations with respect to amounts due in accordance with the terms and conditions of this Agreement that are not reasonably in dispute.
(c) Mediation of Unresolved Disputes . SHMC and SHO will in good faith attempt to resolve all Unresolved Disputes by non-binding mediation. SHMC and SHO will negotiate in Good Faith to determine the mediator, the mediators compensation and related costs, and the applicable rules for the mediation. If by the 15 th day following the Resolution Failure Date SHMC and SHO have been unable to settle an Unresolved Dispute the obligations of SHMC and SHO in this Section 6.15 will terminate with respect to the Unresolved Dispute.
6.16 Definitions . The following defined terms include the singular and the plural form of the terms.
(a) Affiliates means (solely for purposes of this Agreement and for no other purpose) (i) with respect to SHO, its subsidiaries, and (ii) with respect to SHMC, SHLD and the subsidiaries of SHLD.
(b) Applicable Law means all applicable laws, ordinances, regulations, rules, and court and administrative orders and decrees of all national, regional, state, local and other governmental units that have jurisdiction in the given circumstances.
(c) Stockholding Change means the occurrence of any transaction or event, whether voluntary or involuntary, that results in a Competitor becoming, or as a consequence of which a Competitor becomes, directly or indirectly, at any time after the date of this Agreement and by whatever means, the beneficial owner of more than 50% of the total voting power of outstanding securities entitled to vote in, or carrying the right to direct the voting with respect to, directly or indirectly and by whatever means the election of the board of directors of SHO or any of its subsidiaries. Competitor means, solely for purposes of this Agreement and for no other purpose, Amazon.com, Inc., Best Buy Co., Inc., hhgregg, Inc., The Home Depot, Inc., Lowes Companies, Inc., Target Corporation, Tractor Supply Co., Wal-Mart Stores, Inc., each other retailer that competes in any material respect with the major home appliance business or the power lawn and garden business operated by subsidiaries of SHLD, and the Competitor Affiliates of each of them. Competitor Affiliates means each individual or entity that directly or indirectly, and by whatever means, controls, is under common control with, or is controlled by, a Competitor.
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(d) COBRA means Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
(e) Governmental Authority means any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other legislative, judicial, regulatory, administrative or governmental authority.
(f) Person means an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability company, any other entity and any Governmental Authority.
(g) Representatives means employees, partners, members, directors, officers, counsel, investment advisors, third-party contractors, and other representatives.
(h) SHLD means Sears Holdings Corporation.
Additional Defined Terms:
Term |
Section Where Defined |
|
Assets | 1.08 | |
Stockholding Change | 6.16(c) | |
Claim | 5.02 | |
Confidential Information | 4.01(a) | |
Contact Person | 1.10 | |
Disclosing Party | 4.01(a) | |
Disputes | 6.15(b)(ii) | |
Dispute Notice | 6.15(b)(i) | |
Effective Date | 1.01 | |
Expenses | 2.01(b) | |
Fees | 2.01(a) | |
First Three Years | 2.01(a) | |
Good Faith | 6.19 | |
Initial Chairperson | 6.15(a) | |
Merchandising Agreement | 2.01(a) | |
Party | Introductory paragraph | |
Receiving Party | 4.01(a) | |
Separation Agreement | 1.01 | |
Service Period | 1.01 |
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Term |
Section Where Defined |
|
Services | 1.01 | |
Services Operating Committee | 6.15(a) | |
SHMC | Introductory paragraph | |
SHO Claims | 5.01 | |
SHO | Introductory paragraph | |
Transition Fees | 2.01(a) | |
TP Agreement | 4.02 | |
Transaction Taxes | 2.03 | |
Unresolved Disputes | 6.15(a) |
In this Agreement (i) include , includes , and including are inclusive and mean, respectively, include without limitation, includes without limitation, and including without limitation, (ii) or is disjunctive but not necessarily exclusive, (iii) will expresses an imperative, an obligation, or a requirement, (iv) numbered section and article references refer to sections and articles, respectively, of this Agreement unless otherwise specified, (v) unless otherwise indicated all references to a number of days will mean calendar days unless otherwise specified and all references to months or years will mean calendar months or years, and (vi) $ or Dollars will mean U.S. Dollars.
6.17 Good Faith . SHMC and SHO each will exercise Good Faith in the performance of its obligations in this Agreement. Good Faith means honesty in fact and the observance of reasonable commercial standards of fair dealing in accordance with Applicable Law.
6.18 Condition Precedent to the Effectiveness of this Agreement . This Agreement will not become effective until it has been approved by the Audit Committee of the Board of Directors of SHLD.
6.19 Governing Law; Jurisdiction; Waiver of Jury Trial .
(a) This Agreement will be governed and construed in accordance with the laws of the State of Illinois, without regard to any choice or conflicts of law provision that would cause the application of the laws of any other jurisdiction. This Agreement will not be subject to any of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.
(b) Each of the Parties irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any Illinois state court or Federal court of the United States of America, in either case sitting in Cook County, Illinois, and any appellate court to any thereof, in any action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of any judgment relating thereto, and each of the Parties irrevocably and unconditionally (i) agrees not to commence any such action or proceeding except in such courts, (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such Illinois state court or, to the extent
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permitted by law, in such Federal court, (iii) waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any such action or proceeding in any such Illinois state or Federal court, and (iv) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such Illinois state or Federal court. A final judgment in any such action or proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party irrevocably consents to service of process in the manner provided for notices in Section 6.05. Nothing in this Agreement will affect the right of any Party to serve process in any other manner permitted by law.
(c) Each Party acknowledges that each controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, it irrevocably and unconditionally waives all rights it may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party certifies and acknowledges that (i) it understands and has considered the implications of such waivers, (ii) it makes such waivers voluntarily, and (iii) it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 6.19.
[signature page follows]
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SEARS HOLDINGS MANAGEMENT CORPORATION | ||
By: |
|
|
William Phelan | ||
Senior Vice President-Finance | ||
SEARS HOMETOWN AND OUTLET STORES, INC. | ||
By: |
|
|
W. Bruce Johnson | ||
Chief Executive Officer and President |
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
||
HUMAN RESOURCES | All Human Resources services will be provided by SHMC on an as-requested basis by SHO, upon reasonable advance notice to start or discontinue services. If less than all of the services described under any heading are requested, or if services are requested for fewer than all employees of SHO, the parties will negotiate reasonable adjustments to the stated monthly fees to reflect the reduced level of effort required. | |||
Payroll Administration:
Manage the associate time and attendance system and process.
Manage the creation and reporting of payroll payment processing regardless of method electronic, paper, paycard, etc. This includes exempt and non-exempt associate population.
Administer garnishment process.
Calculate associate commission income and administer the reporting for commission payments.
Manage payroll taxes and related deductions.
Manage the processing and distribution of W-2 statements, both for 1/1/12 through 8/31/12 and for 9/1/12 through 12/31/12. |
$52,400 per month | |||
Benefits administration:
Support management in maintaining relationships with insurance benefits providers (healthcare, dental, life, STD/LTD).
Manage 2013 associate benefit enrollment and open enrollment for new hires and incumbents.
Administer pension plan, 401K plan, retirement savings plan, WorkLife solutions.
Manage voluntary benefits programs and maintain company programs for service anniversaries and associate purchase discount cards.
Maintain administrative processes for associate communications and HR Policy development. |
$4,200 per month |
Appendix 1.01-A Page A - 1
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
||
Talent Acquisition:
Manage recruiting for salaried and hourly associates.
Utilize applicant tracking system to mine, recruit and hire exempt and non-exempt associates.
Recruit via college/campuses, military programs, community engagement.
Administer job postings and search management activities.
Conduct market searches and utilize data to source and recruit talents.
Administer referral programs.
Perform assessment, background check, drug screening and I9 verification for exempt and non exempt candidates.
Conduct on-boarding activities (orientation, training, relocation management, etc.) for newly-hired associates.
Administer the transfer of Sears, Roebuck and Co. associates and Sears Holdings Management Corp. associates to appropriate SHO entity, including issuing offer letters, transferring payroll, tax records, and benefits records and collecting employee acknowledgements of SHOs Code of Conduct, Handbook, and Policy. |
$26,000 per month | |||
Talent Management:
Maintain business processes for management to conduct performance reviews bi-annually for exempt and non-exempt associates
Transfer data of SHO associates who were on a Performance Improvement Plan prior to Separation.
Provide management with various tools to manage and assess associates and assist them in developing succession plans.
Manage the reporting and analytics of talent development data for all corporate and field associates.
Manage labor relations, fair employment and other employment compliance issues. |
$3,700 per month |
Appendix 1.01-A Page A - 2
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
||
Compensation:
Assist management in developing strategy, execution and compliance of executive, salary and hourly compensation programs.
Administer corporate incentive (LTIP, AIP, etc.) and field commission programs.
Transition SHC stock and cash rights (vested and unvested) of eligible associates to SHO, as authorized by appropriate corporate action and SHMC legal direction.
Track eligibility, and payment of retention awards (issued pre-Separation).
Transfer Long-Term Incentive Program (LTIP) payments information to SHO (for Q2 2012 performance, payable in 2013) (SHMC to bear cost for performance before Separation, SHO for performance after Separation). Provide information to track associates quarterly data under the LTIP plan to SHO.
Transfer new-hire sign-on bonus information to SHO, including retention requirements.
Transfer Executives Severance Agreements and associated data to SHO. |
$3,000 per month | |||
Talent Development and Learning:
Assist management in defining and implementing a strategy for talent development and learning.
Assist management in developing the learning curriculum and content for both salaried and hourly associates.
Offer instructor-led (at the Hoffman Estates Support Center) and eLearning training for associates.
Manage and conduct LEAD program, merchant academy, compliance course management and leadership development programs (BUILD, BA, TLP, BAP)
Maintain processes to track learning and compliance. |
No Charge |
|||
Associate Relations
Provide use of call center to receive associate inquiries.
Manage the reporting and support of associate change requests and other employment-related questions.
Assist management in managing employee relations cases.
Assist management in establishing an associate termination process including termination decision matrix and termination process (return of assets, exit interview, final pay, data security, etc.).
Assist management in establishing an expense reimbursement process within SHO. |
$31,100 per month |
Appendix 1.01-A Page A - 3
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
||
Diversity/Associate Networks:
Assist management in creating processes to welcome the efforts of associates to establish diversity and associate networks |
Included in Talent Acquisition | |||
Analytics and Reporting:
Perform ad-hoc and cyclical reporting and Workforce Analytics (WFA) administration.
Conduct human capital analytics projects. |
$2,900 per month |
|||
Compliance
Assist management in using various tactics to promote the adherence to associate relations policies and programs
Assist management in managing and negotiating collective bargaining contracts.
Assist management in developing programs for leave administration; fair employment and affirmative action support, as may be needed.
Offer counseling, training and support on all labor-related matters and employment practices compliance. |
$2,100 per month |
|||
Support Center Benefits
SHC benefits provided to Support Center employees |
$39,900 |
|||
FINANCE & ACCOUNTING |
||||
Finance and Accounting |
||||
General Ledger |
Provide SHO access to the SHMC finance general ledger system to process all accounting related activities for SHO business. This includes, but is not limited to, the Peoplesoft system for recording all financial transactions along with all necessary systems that feed data into the general ledger such as NAI, Accounts Payable, Mechanized R&D, Point-of-Sale, Inventory Systems, Markdown Management Systems, SOLAR payroll processing, Waste Recon, and other external feeds. |
Maintain PeopleSoft accounting system and Stock Ledger (SL) merchandise and margin systems: $12,000 per year |
Appendix 1.01-A Page A - 4
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
||
Accounting Services |
Perform daily, weekly and monthly transaction processing of all entries and feeds into the general ledger system. Compile and load general ledger information for SHO into Essbase financial reporting databases, EIS and Financial Transaction Databases to be used for internal reporting and analysis by SHO. SHMC will inform SHO of any processing errors or data feed issues which would impact the financial results of SHO.
Accounts Payable access to SHMC finance Accounts Payable system to process all invoices and purchase orders for SHO.
Fixed Asset Management maintain all SHO fixed assets in the SHMC finance fixed asset system. Also provide necessary support to add new locations or assets into the system as new stores are opened or assets are procured by current locations. |
|||
Cash Management
Cash settlement as currently handled by SHMC
Cash clearing accounts
Daily investment
Cash forecasting
Cash flow |
$164,000 annually. | |||
Physical Inventory/Shrink Process Reporting
Contract with RGIS or similarly qualified vendor for physical inventory process
Perform inventory shrink reconciliations and reporting |
||||
AP Processing and Accounting
Reporting
Prepare/distribute statements which summarize results and financial position
Data extraction (FTD) financial transaction data base and financial,management and external reporting
Maintain PeopleSoft accounting system and SL (stock ledger) merchandise and margin systems
Maintain Essbase reporting databases which warehouse financial information
Data extraction for general ledger (PS), Fixed Assets and Capital tracking.
Maintain general ledger and supporting record as necessary |
Appendix 1.01-A Page A - 5
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
||
Disbursements
Process accounts payable
Match merchandise receipt to invoice
Approve invoices
Cutting checks to and receiving checks from vendors
Correspond with vendors
Retain records
AP write-offs by vendor by department
Receivable collection related to AP accounts
Import reconciliation
Process other disbursements
Pay approved disbursements
Process travel and entertainment
Lease Payment System(LPS)
Data Extraction for Invoice Processing System (IPS), payment processing (NAP), mechanized R&D (NDJ), Purchase Order Writing System (POWS) and LPS
General Ledger
Process journal entries
Maintain integrity of balances
Monthly reconciliation of balance sheet accounts
Annual recording of book-to-physical inventory adjustments
Variance analysis of unit income statement balances and identify potential errors
Maintain fixed asset records |
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Reporting Services | Compile and produce Monthly, Quarterly, and Annual External financial statements for SHO including, but not limited to Income Statements, Balance Sheets, and Statement of Cash Flows. In addition, the Quarterly and Annual financial statements will include all notes, tables and supplemental information necessary for external audit and SEC filing requirements. | $150,000 per year. | ||
Vendor Allowance Reporting
SHMC will process all SHO vendor allowance agreements and provide a monthly report of the vendor allowances that are paid to SHO and reporting to show non-shared vendor allowances as determined by the Service Level Agreements between SHO and SHMC. At the request of SHO, SHMC will conduct periodic audits of SHMC allowances collected to confirm that the Service Level Agreements are in compliance. |
$25,000 per year. |
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Fees |
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Peoplesoft Projects Module
Provide SHO with access to SHMC finance Peoplesoft Projects Module to set up new capital and/or expense projects including all necessary feeds to create purchase orders, feeds to the SHMC finance A/P and feeds to the SHMC finance Fixed Asset System. |
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Tax |
Tax Returns and Certain Other Filings :
Required Tax Services
1. Federal income tax a. Prepare return and remit tax due
b. Prepare estimated tax and extension filings and remit tax due
c. Prepare LIFO tax calculations (if business adopts LIFO)
d. Prepare supporting workpapers
e. Prepare tax elections
f. Foreign tax credit calculations
g. If SHMC stops providing applicable HR services to SHO, SHO will be responsible for providing SHMC with data necessary to report any available employment-related tax credits (e.g., WOTC) either directly or through a third party
2. State income tax
a. Prepare returns and remit tax due
b. Prepare estimated tax and extension filings and remit tax due
c. Prepare supporting workpapers
d. Prepare tax allocations for periods when part of SHLD unitary returns
3. Financial Accounting
a. Quarterly tax provision, effective tax rate calculations, tax accounting journal entry support
b. Analysis of uncertain tax positions and quarterly tax reserve calculations and journal entry support (if necessary)
c. Tax footnote disclosures for Form 10-K and Form 10-Qs
d. Return-to-accrual calculations and necessary journal entry support
4. Sales and use tax
a. Prepare tax returns and remit taxes due
b. Maintain tax tables in POS system (if continue to use Sears POS system) |
Required Tax Services
$239,800 per year
As-Needed Tax Services
$55/hour
Service Level Increases
If service levels increase due to change in business or change in legal requirements, cost to be adjusted to reflect increase in SHMC costs to provide Services (if any)
Out-of- Pocket Costs
Travel and other expenses and third party fees charged-through at cost |
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2. Purchase Order handling and processing of requests entered by SHO or SHMC within the Peoplesoft system, Purchase Order Writing System, Enterprise Contract Management and/or when available Ariba system. Included is the Schwarz Supplies order entry and IMA tool for consumables supplies ordering for the term of its deployment and use of the DocuSign system to electronically execute agreements. (In the event that rights must be secured, they will be scoped, determined and shared with SHO for approval to acquire and pass all costs involved). DocuSign use by SHO is limited to the number of envelopes remaining after the Effective Date from the 1500 envelopes purchased by the Sears Hometown Stores business prior to the Effective Date. SHMC will also perform resolution assistance with suppliers related to purchases or payables matters, when requested. If SHMC must perform additional Services to re-configure or revise SHMC (owned or licensed) systems SHO will be charged at cost for any and all Services required to make these accommodations (including IT efforts).
3. Use of SHMC agreements (if permitted in the respective agreements) for (non-merchandise) goods and services. If rights from third party contractors need to be secured, they will be scoped, evaluated, costed and passed to SHO for approval. Any costs associated with acquiring rights will be passed to SHO at cost. Travel Services provide access to the Concur travel system and American Express travel services along with all preferred pricing for airfare, hotels and car rentals that may be made available to SHO employees. Use of FBU Procurement credit cards and Travel credit cards to be made available to all current SHO employees (if provider banks agree and such use is not in conflict with governance and policy). New employees to SHO can be added to the travel card program with the prior written approval of SHO. SHMC will provide quarterly reporting of travel expenses from Concur. |
Hourly rate for special projects and additional procurement Services not set forth in this Agreement: $62.00 per hour | |||
Travel Services: | ||||
4. Associate Lease Vehicle program Vehicle leasing through SHMCs lease company provider, lease vehicle maintenance programs and fuel buy programs (if not in conflict with governance and policy) for all SHO employees in the program as of the Effective Date. SHO may allow additional SHO employees to participate in the program, upon SHMC receipt of SHO approval of the respective employees. Any additional effort involved and changes to administration or processing required by SHO may trigger additional cost effort which will be identified, agreed and passed to SHO at cost. |
Third party contractor cost for each transaction (i.e. time and expense report processed), which as of the Effective Date is $2.35 per transaction. |
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5. Temporary labor Services handling and processing.
6. Other Assistance Such other procurement Services as is requested and defined by SHO, which will be scoped, costed and agreed upon by the Parties prior to proceeding. |
Travel Services (American Express), which as of the Effective Date is $62,500 per year; | |||
Risk Management & Insurance |
Risk Management and Insurance :
1. Data Extraction and Tracking and Administration of:
Workmens Comp
Auto Insurance
General Liability
Property Insurance
D&O Insurance
2. Claims review
3. Consultation in connection with the purchase of insurance
4. Maintain insurance claims records and provide access to tools for viewing this information, for the following types of insurance:
General Liability
Workers Compensation
Auto Liability
Property Insurance
D&O Insurance |
1. $100/hr. if SHO cannot get information direct from third-party contractor (e.g., Sedgwick, Liberty)
2. $75/hr.
3. $150/hr.
4. $100/hr. if SHO cannot get information direct from third-party contractor (e.g., Sedgwick, Liberty) |
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Treasury |
1. Cash Management Services:
Cash Management services, including but not limited to, establish banking structure, opening and maintaining new and existing bank accounts, daily consolidation of funds, calculation of daily cash position, movement of funds as necessary, reconciliation of accounts and maintenance of balances, development of funding forecasts and future cash needs, support for banking and armored car services for the Outlet Stores and company operated Hometown stores, administration of users access to Treasury website and banking software, ordering deposit slips and stamps from service providers, approving armored car purchase orders |
Monthly Fees
1238 stores |
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$7,169 | ||||
Note: In the event the store count doubles (2476 stores), the projected monthly fees are $10,744 | ||||
2.Credit Facility Administration | $3,403 |
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Advise on credit facility structure implementation or renewals and obtain lenders. Execute borrowings, provide monthly bank reporting and validate facility compliance and fees. | Note: In the event the store count doubles (2476 stores), the projected monthly fees are $3,403 | |||
Total | $10,572 | |||
Note: In the event the store count doubles (2476 stores), the projected monthly fees are $14,147 | ||||
ONLINE SERVICES | ||||
Online Business Unit |
SHMC will assign a Senior Account Management Executive to be the primary point of contact for SHO and provide the following:
Work directly with SHO to plan/support/prioritize new initiatives and business requirements
Provides escalation support for day to day activities |
No cost to SHO provided the annual spend with Online is greater than $3M. (refer to Exhibit 1 for details regarding pricing structure for SearsOutlet.com account support.) |
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E-Mail Support |
SHMC will continue to provide for support for distributing promotional and trigger e-mails
1. Promotional E-Mails (Non-SYWR)
a. SHMC will continue to provide Sears.com standard promotional e-mails to SHO customers including specific business line/category promotional offers
E-mails will continue to be distributed to SHO customers at SHOs discretion
SHO will be provided the opportunity to opt-out of the e-mail distribution (or to alter creative at SHOs expense per the rate card documented in the SYWR agreement) when an offer/e-mail is not in the best interest of SHO
b. SHMC will provide SHO with promotional space in Sears.com e-mails in both the hero banner and/or promotional slices
c. SHMC will continue to provide support for the following promotional e-mails:
SearsOutlet.com Deal of the Day E-Mail |
Sears.com standard promotional e-mails will continue to be provided to SHO customers at no cost to SHO
Rates for promotional banner placement within sears.com promotional e-mails charged per the SYWR Service Agreement
SearsOutlet.com Deal of the Day e-mail will continue to be provided to SHO at the rate of $3.50 CPM |
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2. Trigger emails
a. SHMC will continue to provide support for the following trigger e-mails:
Shopping Cart abandonment e-mails on SearsOutlet.com
Post Order e-mails on SearsOutlet.com
Shopper Recap E-Mails generated via DBC
Digital receipt e-mail
Post order emails for in store purchases (e.g. thank you for your purchase) |
Trigger e-mails will continue to be provided to SHO customers at the rate of $3.50 CPM All rates for other e-mail related services will be set forth in the SYWR Service Agreement |
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Sears.com Banner Ads | Placement of promotional banner advertisements on sears.com home page and category pages | Rates will be provided based on inventory availability at the time of request, based on the 2012 Display Ad Rate card provided in Exhibit 1. | ||
Fraud Solutions | All prices/rates are performed by a 3 rd party contractor. Current price is noted below: | |||
1. RSA Retail Services Agreement*
Store Pick-Up Order is picked up by another person. Customer has the online capability of having a 3 rd party pick up their order at a store.
* unable to determine if expenses were incurred for these services |
RSA: $1.00 per order | |||
2. RED (Retail Decisions) is a service provider that reviews every order via systemic rules
Review potential fraud orders for outlet
Hometown $612 in RED costs; 24,480 orders in 2011
Outlet $1,575 in RED costs; 63,000 orders in 2011
Hardware $578 in RED costs; 23,139 orders in 2011 |
RED: $0.025 per transaction | |||
3. Fraud outsorts triggered by RED rules and the orders are reviewed by OBUs fraud team in Tempe, AZ.
Fraud outsort cost applies only to outsorted orders (about 3.6% of orders on average)
Hometown $6,372 in fraud/outsort costs; 24,480 orders in 2011
Outlet $16,398 in fraud/outsort costs; 63,000 orders in 2011
Hardware $6,023 in fraud/outsort costs; 23,139 orders in 2011 |
Fraud / outsorts: $7.23 per order |
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Sears.com Functionality |
1. Store-to-Home (S2H) Web Order Fulfillment
a. SHMC will provide SHO ability to enter customer orders on in-store kiosks, point of sale systems and Facebook ecommerce pages to be fulfilled using existing S2H functionality and business rules.
b. SHMC will recognize the sale and assume responsibility for order fulfillment.
c. SHMC will pay SHO SPRS margin for all Sears.com S2H orders originated in Sears Hometown Stores, Sears Appliance & Hardware, and Sears Appliance Showroom formats, excluding those products sold via Sears.com Marketplace.
d. SHMC will pay SHO a 30% commission on all Sears.com S2H orders originated in the Sears Outlet format stores excluding those products sold via Sears.com marketplace.
e. SHMC will pay SHO a 13% commission on all S2H home orders fulfilled via marketplace
f. SHO will pay SHMC for 3% commission for S2H orders that originated on Sears.com.
g. SHO will pay SHMC a 3% commission on hybrid delivery sales.
2. Web-To-Store (W2S) Fusion Sales Functionality
a. SHMC will continue to display SHO store locations on Sears.com as pickup points for orders placed online for in-store pick-ups
b. Revenue and associated margin will transfer to SHO and SHO will be responsible for order fulfillment
c. SHO will pay SHMC for 3% commission for W2S orders that originated on Sears.com.
e. SHO will reimburse SHMC for any hybrid delivery that originated on sears.com.
3. Store Locator
a. SHMC will maintain all SHO store locations on the Sears.com store locator functionality
4. SHMC Web Property Integration |
No cost to SHO |
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a. SHMC will provide current linkage to all SHO websites allowing customers to navigate from sears.com to SHO websites through existing display banner/ribbon in sears.com header
b. SHMC will maintain functionality for single sign-on and shared customer profile database
5. SHMC will continue to provide existing support/functionality via all mobile (phone or tablet) websites or applications. |
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SearsOutlet.com Functionality and Support |
SHMC will continue to provide the following design, development, project management, QA and system/functionality support services for SearsOutlet.com:
1. Full development and engineering resource support as outlined in the FY12 Sears Outlet: Retainer Services Agreement (included as Exhibit 1).
2. Full order and post-order management support via OMS including financial reporting (via a daily tranfile) that is generated by OMS and fed into SHMC core financial systems.
3. Full online customer profile support accessed via CAS
4. Full support of existing Single Sign-on functionality and related databases which allows customers to migrate freely between existing SHMC websites
5. Provide product data and related content from SPIN (Sears.com content management system) as well as existing access rights to SPIN for SHO employees
6. Support existing employee discount functionality in online shopping cart/checkout
7. Provide product and customer review information and content currently managed by ViewPoints (3 rd party provider). Support should continue at current levels if provider changes or SHMC develops proprietary/internal customer/product review functionality.
8. Provide full support credit card authorization, fraud checks, and tax calculation
9. Continue to support (a) integration with critical SHMC system infrastructure and (b) access to all production databases housing critical online inventory, fulfillment, and order information including (but not limited to): |
See Exhibit 1 for FY12 fee structure as outlined in the FY12 Sears Outlet: Retainer Services Agreement
Future engineering, development, project management, & design support will be priced at FTE hourly rates commensurate with the fee structure included in Exhibit 1.
Future hosting/maintenance fees will be priced commensurate with the fee structure included in Exhibit 1.
Beyond January 2013, SHO and SHMC must agree in writing on the number of FTEs and hours required for all future projects.
SHMC will be responsible for providing SHO with a monthly report detailing the monthly expense, number of supporting FTEs, and hours worked on a monthly basis. |
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SCIM/DOS systems for fulfilling online delivery orders. Functionality includes scheduling deliveries, ordering installation services, and fulfilling protection agreements.
NPOS for 991 inventory and price feed
RIM for non-991 inventory feed
PMS non-991 price and Vendor Direct price feed
CORE for accessory and protection agreement details, Hierarchy details
DOS for details regarding zip code and MDO mapping data
Home Services for delivery charge price feed
RTI for inventory/order management and non-991 shipping items quantity feed
Ciboodle Guest user address validation service
SHMC Customer Data Warehouse (CDW) Promotional email feed (CDW integrates with UNICA to validate and create email distribution lists)
10. Continue to provide hosting, production, and database support on servers located in the Sears Data Center.
11. Continue to provide QA and testing environments as in todays environment.
12. Continue to provide full issue escalation support via ESOC and other supporting groups/units within SHMC
13. Continue to provide full integration with Shop Your Way Rewards platforms to allow for earning and redemption of points
14. SHMC will continue to provide full integration support for all third-party vendors:
Commission Junction affiliate marketing network provider Omniture
Responsys for production/distribution of all trigger and promotional e-mails order e-mails
UNICA integration with CDW to generate promotional e-mail lists
PSIGEN support of integration to manage, store, retrieve merchandise images station images for display on searsoutlet.com
SCENE7 product images (data is provided by SPIN and the S7 URL is used for displaying image on website) |
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Commerce Hub vendor direct orders/functionality
Skava mobile/tablet website provider for SearsOutlet.com
Bloomreach dyanamic onsite content creation to optimize paid & organic search programs
Monetate software as a service platform to enhance onsite merchandising
Channel Intelligence product information data feeds for inclusion in online shopping engine sites |
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SearsOutlet.com Online Sales Commissions |
If SHMC business units elect to have their products available for sale on SearsOutlet.com, a commission will be paid to SHO according to the below rate table for the length of this agreement for all sales originating from SearsOutlet.com.
This commission rate will be charged monthly based upon fusion sales reporting by SHO
SHO has the option, after review with SHMC Business Unit, to remove product from the Outlet website. |
Business Unit |
CommissionRate | |||
Consumer Electronics |
10 | % | ||
Home Appliances |
15 | % | ||
Sears/Kmart Apparel |
n/a | |||
Home Fashions, Mattress, SKA |
15 | % | ||
Lawn & Garden |
15 | % | ||
Outdoor Living |
15 | % | ||
Sporting Goods |
15 | % | ||
Tools |
15 | % | ||
Toys |
15 | % |
Vendor Direct on SearsOutlet.com | SHMC will provide support of online vendor direct to customer fulfillment channel on SearsOutlet.com |
Connection fee is $3,300 per month.
Every setup / change is $400 each
Monthly vendor fees are $25 per month, per vendor
Transportation expenses would be billed at calculated expense |
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Currently, this business is not in place and SHMC would need to secure staffing to support any growth this business creates. SHO would need to reimburse SHMC. |
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Sears.com Marketplace |
SHMC will provide support of SearsOutlet.com integration with Sears.com marketplace:
1. SearsOutlet.com selling merchandise via Sears.com Marketplace as a Marketplace Seller.
2. SearsOutlet.com is in the process of developing the functionality to onboard third-party vendors onto SearsOutlet.com. Engineering / development required to complete will be funded by SHO |
Engineering/development support required to complete integration funded by SHO at a rate agreed upon in writing prior to the implementation of services.
SHO does not currently leverage the marketplace platform to onboard third-party vendors |
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Digital Business Card and Shopper Recap |
SHMC will continue to provide full support and access to Digital Business Card (DBC) and Shopper Recap e-mail functionality
1. SHMC will continue provide maintenance/support of DBC/Shopper Recap functionality as needed
2. SHMC will continue to provide supporting analytics and reporting for DBC/Shopper Recap performance
3. SHMC will reimburse SHO for all DBC purchases made on Sears.com originated by SHO in accordance with the Sears.com Store-to-Home rate structure provided above.
4. SHO will pay a 30% commission to SHMC for all DBC purchases made on Sears.com |
No cost to SHO for use of Digital Business Card
E-Mail rates commensurate with those outlined previously in this schedule of services |
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TEC Recommendations |
Continue to provide personalization and product recommendations across multiple channels including Shopper Recap e-mails, Abandoned Cart e-mails, Digital receipt and future integration to SearsOutlet.com.
Currently TEC is only providing recommendations through email to SHO customers. TEC is not providing recommendations on SHO websites. This could change in the future, which SHO would incur the costs. |
2% of sales attributed to the TEC Campaign Management System
Email sends will be billed at email rates.
Any future integration work to add TEC to SearsOutlet.com to be paid for by SHO |
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3 RD Party Support & Integration |
1. SHMC will continue to provide support/functionality via the following third-party service providers:
YEXT All SHO locations will be included within the facilities feed updates to aggregators who publish store listings within their network of online search directories. This is an annual update which includes the Name, Address, Phone, and URL for each location. A content worksheet will be sent separately that will populate store description, hours of operation, and photos
Omniture Site Catalyst (Adobe) full website site analytics platform
Bright Tag onsite pixel management technology
Akamai content delivery network
|
No charge to SHO | ||
SHOP Sears Service |
SHMC will continue to provide full support of SHOP Sears functionality including any necessary maintenance/changes to supporting systems or hardware.
|
No charges to SHO | ||
Community Support & Integration | SHMC will continue to provide support for SHOs full integration with ManageMyHome and SearsCommunity platforms. | No charges to SHO | ||
MARKETING SERVICES |
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Marketing |
Print placement and analytics .
Currently provided through NSA/Alliance media and Valassis, SHMC will continue to provide ongoing support for the following functions: Vendor management including contract negotiations, coordinating placement and quantities, development, implementation and communication of run sheets with newspapers and printers, cost estimations, distribution analytics and recommendations, invoice reconciliation, development of new store profiles, and conflict resolution for non performance between media vendors and SHO. |
HTS=$592,764 per year AHS=$56,448 per year HAS=$0 OUT =$0
* If SHMC changes to another vendor for these Services, then fees may be either directly billed to SHO or billed by SHMC to SHO. |
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Fees and expenses will be billed by SHMC directly to SHO. Fees are for 2012 and are estimated based on planned volume. | ||||
Other media placement and analytics .
Currently provided primarily through MPG and Digitas, SHMC will continue to provide ongoing support for MPG and Digitas. |
No charge by SHMC* MPG & Digitas HTS=$0 AHS=$0 HAS=$0 OUT =$0
* If SHMC changes to another vendor for these Services, then fees may be either directly billed to SHO or billed by SHMC to SHO. |
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Point of Purchase (POP) and Offset Signing Procurement :
Planned Offset Signing & POP Elements: SHMC will provide visibility to storewide offset signing and POP elements, to the extent applicable to SHO. SHMC will provide advance notice of pricing inclusive of shipping to FastPak, creative proofs, and specifications. SHO may purchase these items at cost.
SHO exclusive signing projects: SHMC will assist SHO in the competitive bidding process for signing projects exclusive to SHO. |
Total = 50K Annually
Ad-Hoc support and/or unique support requested by SHO will be provided by SHMC at a cost of $45/hr.
Plus Procurement Support |
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Print vendor management : SHMC will continue to coordinate execution of printed materials for the SHO preprint program, including execution from the receipt of completed files to the delivery to each newspaper vendor including freight/freight execution, and quality control to established SHMC standards, including a review of final Epson proofs prior to printing. |
$82,500 per year
Plus Procurement Support |
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Financial Reconciliation for preprint program . Provide estimated and actual costs to execute each marketing event on a job by job basis. |
Included above |
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3 rd party and internally available marketing analytics .
Provide SHO with regular reporting, access to systems or fulfillment of ad hoc requests for marketing related data including, but not limited to, internal and external CSAT data on a weekly basis, market share data on a quarterly basis and ad tracking reports. Reporting will include SHO specific reporting as agreed upon in writing by the Parties. |
CSAT (CLASS) $135,000 per year for SHO
Other market share reports have no incremental cost for SHO |
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POS offer execution . This includes creation and execution of barcodes, offers at POS (on receipt), and any updates to marketing functionality (e.g. offers based on market basket). |
No incremental cost for SHO |
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Fees |
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Need further details on all services provided under this category and the requirements needed from SHO (with lead times) in order to perform/execute these POS activities. | ||||
APT (Applied Predictive Technologies) Test and Learn Tool (service provided by APT) Access to APT Test and Learn Tool with all HTS data.
SHMC to bill SHO directly for all services provided by APT |
$30,000 per year |
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Access and Maintenance of Systems:
SHMC will continue to maintain functionality and provide SHO access to dependent marketing systems. If SHMC modifies or replaces existing SHO dependent systems, then SHMC must provide notice in writing 180 days prior.
Note: PMI and AdPlan are replaced by IMPACT
These systems include: |
System Support-(price support/training/coaching/holiday support/problem resolution)$88K annually. If SHO desires its own dedicated line for support, it will cost more |
System |
Function |
|
PMI | Legacy Pricing System | |
RES/ Sign Riter | Item level signage | |
Deal Management | Supports creating and maintenance of Sears coupons and barcodes | |
Aprimo | Soft-proofing system for reviewing, annotating and approving pages. Creation of activities in Aprimo supports future pricing out of IMPACT and accounting. | |
Deal Management | Supports creating and maintenance of Sears coupons and barcodes | |
Digital Asset Management (DAM) | Photography, logos and finished pages library | |
MARS | Accounting | |
IMPACT | Marketing Planning/Production /Financial Management tool | |
Ad Plan | Pricing information |
Access to Digital Asset Management (DAM) , FTP sites or any system which may host images. SHO will have access and rights to use all product level images and branding images/treatments. The same access will be made available for franchisees of SHO. | $12,000 annually for self-serve access. | |||
Access to Aprimo soft proofing functions in IMPACT . SHO will continue to use IMPACT as a soft proofing system until the point where IMPACT interfaces with all internal & external vendors. SHO needs will be supported by enhancements to IMPACT, however until IMPACT can fully support the needs of SHO access will be provided to all legacy systems including PMI and AdPlan. |
On-going access to all IMPACT related systems$1.33 million (5% of total assessed IT costs for base and support based on 2012 costs) |
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Service or Business Area |
Services |
Fees |
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Local Ad
Online digital circular |
$170,000 per year | |||
LOSS PREVENTION
General Inventory Safety |
Provide inventory Services for SHO including but not limited to:
Initial physical inventory scheduling
Consecutive rescheduling requests will be handled at a rate of $62/hour
Inventory service provider management
Physical inventory process management (data feeds to/from vendor/store/corp/)
Point of contact for inventory related questions, rescheduling requests, concerns
Disaster related inventory assistance |
$ 35,000 /year |
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Provide Technology, Merchandise Protection & Physical Security Management including but not limited to:
Update of merchandise protection standards for various store formats
Planning, management and deployment assistance of third party contractor guard coverage as needed (limited to third party contractors retained by SHMC)
Manage third party contractors for repairs, upgrades as needed
Manage burglar alarm & fire alarm systems (BA/FA) maintenance agreement and facilitate needed repairs
Manage electronic article surveillance (EAS) systems maintenance and facilitate needed repairs
Administration and processing services for payment of SHMC Loss Prevention business unit related invoices
Provide Close Circuit TV consultation & solutions for new store construction, existing site improvements/retrofits ($55/hour rate) |
$ 35,000 /year |
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Provide Crisis & Emergency Management Services
Weather monitoring and notification Services
Crisis response and planning Services
Risk assessment models
Mitigation strategies
Consultative services as needed ($65/hr)
Manage public sector partnerships (FEMA/Department of Homeland Security)
Critical incident reporting and management system |
$ 30,000 /year |
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Service or Business Area |
Services |
Fees |
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General Safety Management
Access to safety & health manuals, training and procedures
Access to hazmat shipping manual, training, and procedures
Regulatory agency (OSHA, Fire Department, and Department Of Transportation (DOT)) issue management
Core safety processes development and management
Accident prevention plan,
Safety team,
Safety inspection
Identification and management of personal protective equipment and safety supply lists
Accident reporting and investigation training programs
Return to work
Customer handling processes
Food safety training for storage, transportation, and recall handling.
Manage pest control service contract and inspections
Administration and management of awareness program and material
Management of hazardous materials
Identification
Storage and handling Classification |
$ 65,000 /year | |||
Critical Safety Management ($62/hour per SHMC employee as needed for Services, third party contractor resources at actual contractor fees plus expenses). SHMC will determine, in its discretion, when a SHMC or third party contractor resource is used.
Critical accident management (amputations, fatalities, etc.)
Communication
Investigations
Management and guidance
Critical Health Management
Bed bugs
TB, other infectious diseases
Regulatory Agency Activity Management
Citation review
Investigations
Informal conference, negotiation and settlement |
$ T&M |
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Fees |
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Ongoing Safety Expenses by SHO businesses: ($62/hour per SHMC employee as needed for Services, third party contractor resources at actual contractor fees plus expenses). SHMC will determine, in its discretion, when a SHMC or third party contractor resource is used.
Personal protective equipment procurement (gloves, apron, eyeglasses, shoes, etc.)
Associate Employee training
Equipment repair (compactor, motorized material handling equipment (MMHE), ladders, etc.)
Safety Equipment Purchase (ladders, MMHE. etc)
OSHA settlement payments
Fire department citation payments
DOT settlement payments
Hazmat permits and license fees
Miscellaneous safety purchases, fees, equipment, etc.
Annual fire and extinguisher inspections |
$ T&M | |||
Provide Loss Mitigation and Resolution Services to SHO including but not limited to:
Awareness program and training material to mitigate exposure to losses (limited to SHMC program material, may require third party contractor resources at actual contractor fees plus expenses )
Cycle shrink reporting (additional analysis and research will be at $62 hour rate)
Civil demand & restitution collection management.
Provide chain loss prevention support for investigative purposes (Detail Control Center (DCC) support for research, analytics, case resolution)
Investigative system usage:
Aspect usage
Lexis, phone trace, etc
Hierarchy updates for Wazagua and Aspect
Background / social network investigations ($62/hour rate)
Business / owner investigations ($62/hour rate)
Theft investigation management to resolve and apprehend dishonest customers and employees ($62/hour rate) |
$ 50,000 /year |
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Provide Loss Prevention (LP) Database Administration and LP System Support Services to SHO including but not limited to:
Case/incident management
Refund management support
Content management for LP related materials |
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Management of LP audit solution
Fraud mitigation & investigation of SHMC supported e-commerce and payment systems
Reporting and application environments for LP related content
New applications or system enhancement will be at $71/hour rate |
$ 30,000 /year | |||
Total LP Services | $245,000 /year | |||
STORE LEVEL LABOR PLANNING AND STAFFING SUPPORT
Outlet and Hardware stores formats (non-franchised) |
Basic Support Services
1. Annual Labor hours/dollars plans developed by a Store staffing unit and Store location
a. Annual plan by month by staffing unit and by Store
b. Plans based on sales and relevant planning assumptions provided by SHO
c. Plans delivered by SHMC within 20 business days of receipt of final sales and assumptions provided by SHO
2. Monthly plan hours/dollars reporting
a. Excel file current state plan provided to SHO business leaders
3. Weekly labor utilization/expense reporting
a. Excel file provided to SHO business leaders
b. Information provided by store and staffing unit within store
4. Weekly Employee Overtime reporting
a. Excel file provided to business leaders
5. At the point when SHMC no longer actively maintains the HR management system for SHO, which contains all up-to-date employee information needed by SHMC to perform the store level labor planning and staffing support Services, SHO will be responsible for either arranging and paying for the necessary consents to permit SHMC to access SHOs HR management system, or timely providing the necessary employee data as requested by SHMC.
Franchised locations are excluded from the Services above.
Post-Annual event Re-Plan
6. Store labor plan development for Store locations added during the plan year
a. Plans delivered by SHMC within 10 business days of receipt of final sales and assumptions
b. On a per-request basis |
Service Level Increases
If SHO requires a change in basic support services and/or frequency of services beyond what is outlined in the Agreement, costs may be adjusted to reflect increase in costs to provide services (if any). All requests for additional services or change in frequency must be provided in writing and cost for such services must be mutually agreed upon by both parties before a change in services will be instituted. |
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As Requested Services
7. Additional services as mutually agreed upon in writing by the Parties. Each additional service priced individually based on mutually agreed-upon scope of work and requested delivery time |
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EMPLOYEE COMMISSION ADMINISTRATION SUPPORT SERVICES |
Basic Support services all SHO Store location types as of the Effective Date
1. Maintain record of current store population by store type for proper commission compensation
a. Franchised, non-franchised, Hometown, Outlet, Hardware, Home Appliance Showroom
b. Store location moves to/from franchised status require 4 business days lead time* |
If SHO requires a change in basic support services and/or frequency of services beyond what is outlined in the Agreement, costs may be adjusted to reflect increase in costs to provide services (if any). All requests for additional services or change in frequency must be provided in writing and cost for such services must be mutually agreed upon by both parties before a change in services will be instituted. |
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Franchised and non-franchised locations |
Basic Support services non-franchised locations
2. Maintain record of employee compensation plans in place by format, location and scheduling unit
a. Moves between compensation plans require 4 business day lead time*
3. Provide commission rate reporting in excel file format (or other format agreed upon by the Parties) for SHO use in communicating to selling employees (updated when rates changed)
4. Based on business decisions communicated by SHO, set up commission rates / fixed dollar amounts by product category and/or line, by store location |
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a. As of the Effective Date, non-franchise Hometown format store commission rates currently follow the Sears Full Line Stores structure for Home Appliances.
b. Commission Administration support team is not responsible for developing new commission rate/fixed dollar amount values
5. Provide bi-monthly commission expense tracking (excel file format (or other format agreed upon by the Parties))
6. Research / respond to commission help ticket issues/questions
Basic Support services franchised locations
7. Commission rate set up and maintenance (for SADI system)
New/changed rates require 2 business day lead time*
As Requested Services
8. Additional services as mutually agreed upon in writing by the Parties. Each additional service priced individually based on mutually agreed-upon scope of work and requested delivery time |
Out-of- Pocket Costs
Travel expenses and third party fees charged-through at cost |
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Coordinate shipment of merchandise with RRC/DDC contacts. Ask for release of code 6 and break packs as coded for new stores. Have regular shipments begin the following week. |
Assigned PMM Support | |||||
All damages must be reported to the appropriate RRC/DDC within 48 hours |
Assigned PMM Support | |||||
Unload, unbox and deluxe all appliances for display on sales floor |
Assigned PMM Support | |||||
Position all merchandise according to plan-o-grams / floor plan |
Assigned PMM Support | |||||
Supply power to appliances where applicable for display purposes- (coordinate with Construction PM) |
Assigned PMM Support | |||||
Item number should be written on back of all appliances with permanent marker. |
Assigned PMM Support | |||||
SIGNING
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Track new store signing package for delivery to store |
SHO Store Mgr OR District Mgr | |||||
Apply all sign holders per HAS Presentation Guide |
Assigned PMM Support | |||||
Print basic and promotional SignRiter price signs |
SHO Store Mgr OR District Mgr | |||||
Hang Sears HAS and promotional overhead signing packages |
Assigned PMM Support | |||||
Apply basic and promotional SignRiter price signs |
Assigned PMM Support | |||||
GENERAL
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Install selling solution station computers |
Assigned PMM Support |
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Computer require separate high speed service (coordinate with Construction PM and SHMC Telecom) |
SHO Store Mgr OR District Mgr | |||||
Three phones lines required one with rollover capability, the other for fax (coordinate with Construction PM) |
SHO Store Mgr OR District Mgr | |||||
Floors should be waxed prior the fixture assembly and touched up after merchandising complete. (Coordinate with Construction PM) |
SHO Store Mgr OR District Mgr | |||||
Arrange for dumpster to accommodate cardboard from initial trucks. Approx.200 appliance boxes. (Coordinate with Construction PM) Someone needs to contact landlord so that the dumpsters arrive in a timely manner. Contract usually calls for (3) 40 yd dumpsters to be provided |
SHO Store Mgr OR District Mgr | |||||
Utility Management |
ECOVAs services include:
Bill consolidation and payment services for each facility
Utility rate monitoring and optimization
Financial reporting including accruals
13 Month Rolling Budget Development including a detailed site level budget for Electric, Gas, Water, and Sewer services
Energy procurement services |
$158,000 |
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In-Store Music |
As allowed under applicable agreements, SHMC will continue to provide in-store music services for all locations requested by SHO. |
SHO will be charged the lower of the following rates:
Current annual charge per unit prior to separation
Any renegotiated rate with in-store music providers |
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3. Regulatory report preparation and submittal,
4. Review and Processing environmental permitting and reporting fees,
5. Spill response and cleanup,
6. Addressing regulatory issues (such as, Notices of Violation of Environmental Requirements),
7. Coordination of hazardous and special waste removal and disposal/recycling,
8. Addressing property owner inquiries regarding environmental issues (such as, environmental due diligence requests related to refinancing or real estate transactions),
9. Work to assess and address environmental risks during store leasing activities (such as, Phase I environmental assessments or other environmental investigations)
10. Support for other environmental issues that may arise (e.g. wastewater, storm water, hazardous waste),
11. Hazardous and Special Waste Removal and Disposal/Recycling,
12. Environmental Hotline and Material Safety Data Sheet Support,
13. Environmental Management System Maintenance and Usage
14. Engineering Consultant Support (when necessary to assist with complex issues), |
1. Third party contractor costs.
2. Third party contractor costs.
3. Applicable regulatory fees. If no regulatory fees apply, $200 per event plus all third party contractor costs and out of pocket expenses.
4. Applicable regulatory fees. If no regulatory fees apply, $200 per event plus all third party contractor costs and out of pocket expenses
5. Third party contractor costs.
6. Fixed fee of $500 per event plus all third party contractor fees and out of pocket expenses.
7. Third party contractor costs.
8. Fixed fee of $1,000 per event plus all third party contractor fees and out of pocket expenses.
9. Fixed fee of $1,200 per event plus all third party contractor fees and out of pocket expenses. |
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15. Asbestos Abatement Contractors (as needed to support renovation and maintenance activities). |
10. Fixed fee of $500 per event plus all third party contractor fees and out of pocket expenses.
11. Third party contractor costs.
12. $2.50 per month/store
13. $1.50 per month/store
14. Third party contractor costs.
15. Third party contractor costs. |
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Product Safety |
1. Routine notifications of stop sale/recall information for SHLD branded product |
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SHMC uses a tiered approach to product reviews, technical advice and consultation. |
Tier 1 | |||
2. Direction on applicable standards and regulatory issues |
Consultation, data review | |||
3. Review and interpret technical data and/or laboratory testing reports (including #2) |
0-5 reviews $150 6 or more reviews $250 |
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4. Product testing and review (including #s 2 and 3 in this Section above) |
Tier 2
Product testing/review (includes contact with third party test facilities, vendors etc)
0-5 reviews $250 6 or more reviews $300 |
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Corporate Compliance | Assist SHO General Counsel in transition, development and implementation of SHO Code of Conduct, key corporate policies, and SHO Ethics Hotline and continuing support of SHO offsite records management program. | $20,000 per year. | ||
Global Compliance | Monitor and enforce compliance by vendors and manufacturers with applicable local law, SHLD internal standards, and other SHLD social compliance requirements with respect to child labor, wages, hours, benefits, pay, discrimination, harassment, environment, and health, and safety. To the extent SHO or its Affiliates may sell any products that are labeled or marketed under an SHLD-owned brand, SHO agrees to perform its own factory audits for these products through a third party, at SHOs own cost, and a program approved by SHLD, and will provide the results of those audits to SHLD. | No charge | ||
LOGISTICS & DISTRIBUTION | Services performed in accordance with the Merchandising Agreement dated , 2012 between SHO, Sears, Roebuck and Co., and others, including those set forth in Section 6 of the Merchandising Agreement. | |||
Transportation |
1. International Transportation: Ocean Carriers
SHMC manages the shipment of goods on ocean vessel from foreign port to US destination.
If final destination of the shipment is inland US, this service also includes the truck or rail transportation movement and cost to deliver the goods from the US port of arrival to the Distribution Center (DC) destination.
Optimizes routing to minimize transit times and costs, negotiate contracts with carriers, provide volume forecasts, oversee performance and timely delivery of shipments to deconsolidation centers and distribution centers.
Expedites shipments as necessary using alternate transportation modes, carriers and routing. |
Transportation Services: Freight Charges will be passed through to SHO at cost.
Ad Hoc Services $75 per man hour
Transportation Overhead: SHO will be billed for Transportation Overhead based upon the percentage of total DC handling expenses (fixed and variable) attributed to SHO.
Fee Adjustments: On each anniversary of the Effective Date of this Agreement, SHOs fees are subject to an annual adjustment per SLSs cost structure. |
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Freight Cost Allocation: SLS will allocate freight costs to SHO as follows: The total transportation cost of each shipment is allocated to SHO based on the percentage of each SHO destinations shipping volume to the total volume shipped in that transport.
Rates and costs are subject to change based on rate negotiations with SLSs carriers as outlined in the carrier contracts and as warranted by changing market conditions. |
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2. Freight Forwarding. Services provided by Forwarders :
SHMC serves as liaison between vendors and ocean carriers to create booking (reservation) for goods to ship on designated vessels.
Manages exceptions and obtain approval from SHMC for shipments outside tolerance
Freight Forwarders provide consolidation services overseas to optimize container loading utilization.
Forwarder verifies the shipment quantity and provides the Advance Ship Notice (ASN) to alert SHMC systems of the shipment details
Oversees performance, ensuring optimal container loading, timely and accurate data transmissions
Provides shipment tracking tools to SHMC users
Creates transit matrix which establishes lead time from vendor delivery to store delivery |
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3. Customs :
Brokerage Services: SHMC provides the services of customs agents who file Customs entry for import merchandise shipments on behalf of SHO, following all of the applicable rules and regulations for US Customs and other Government Agencies to allow goods to enter the commerce of the United States |
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4. Costs incurred :
SHMC pays taxes due the US Government, including Duty, Harbor Maintenance Fees, Merchandise Processing Fees, etc.
SHMC pays the fees for Customs Broker services |
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5. Other costs incurred for import shipments reported to US Customs :
SHMC pays royalty fees for SHO to have the right to sell goods with a brand or trademark which is owned by another company
SHMC pays commissions due to Buying and Selling agents who have assisted with the purchase of foreign goods, usually a percent of the cost
SHMC declares classification according to the US Harmonized Tariff Schedule for every imported item
SHMC determines the duties owed and establishes costs that must be reported to US Customs
Oversight of Customs Broker performance: on time filing, accuracy (including annual audit), and timely clearance |
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6. Deconsolidation
SHMC provides processes and facilities to break down (deconsolidate) large imported shipments into quantities that can be distributed efficiently to the various distribution centers that serve SHO retail locations and then ships them to those distribution facilities. At SHMCs Third Party Operated Flow-Through facilities, SHMC:
Takes in ocean containers shipped from multiple countries and use the Inventory Allocations to build outbound loads to inland distribution centers, optimizing US freight costs, acting as deconsolidation and consolidation center
Moves full truckloads of merchandise from Deconsolidation center to distribution centers or stores
Cost includes the facility handling costs as well as domestic transportation cost from Decon center to inland DC
Provides direction and forecasts to ensure efficient and timely flow of goods, continuously monitor performance
Expedites shipments as necessary by prioritizing cargo, employing alternate transportation modes, carriers and routing |
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7. Domestic Transportation :
Inbound. SHMC transports vendor freight collect merchandise to the various distribution centers that serve SHO retail locations. As part of this service, SHMC:
Manages all vendor freight collect to DC transportation
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Establishes vendor routing guides and monitor compliance
Dynamically optimizes daily freight movements using the Transportation Management System to determine the least cost flow alternative to meet the specified dates
Tracks, traces and expedites individual shipments to meet desired specified business needs
Manages claims asserted by or against carriers, such as cargo damage, demurrage, etc.
Manages and ensures consistent evaluation of carrier performance
Outbound. SHMC transports goods from its distribution centers to stores. This service includes:
Contracting for domestic inbound/ outbound transportation through a sequential combinatorial bid process using historical lane volumes and store clusters. Lanes awards to carriers take into account the least cost alternative that meets the service requirements
Managing flow of merchandise from DC to all SHO locations
Managing a 24/7 operation for load planning, tracking and tracing of home delivery from Direct Delivery Centers (DDC) to store and to Market Delivery Operations (MDOs)
Establishing store delivery schedules from DCs to store based on historical volumes. |
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8. Special Services
Provided upon request at an agreed to rate |
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9. IT System
System integration
Network security and system access |
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Inventory Management |
See description of services and processes set forth in Appendix 6 of the Merchandising Agreement . |
$121,000 for each FTE associate dedicated 100% to serving SHOs business. | ||
New Merchandising Implementations
1. Submit new unique items to Flow Path Team that require DC stocking following established Flow Path process |
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Submit items before the items are entered in IMA.
A SKU count of 5% or more will materially change productivity service costs and storage expectations.
SHO must provide 90 day advance notice regarding SKU additions of more than 5% over SKU count Plan.
SHO must provide volume forecast of new SKUs at time of submittal (inbound, outbound, storage as described under forecasting requirements
2. Contact Manager of Supply Chain Operations (single point of contact) for planning assistance with new product launches seasonal sets, new or closing stores, flow path decisions and operational issues.
3. Provide feedback via digital Load Quality Surveys
4. Provide complete and proper build of online items with all necessary artifacts
5. Provide competent inventory management to drive inventory productivity and space utilization |
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Space Management |
1. Planogram Support
SHMC will provide Planogram support to the Hardware store format at the same level as performed before Separation (not more than 525 planogram changes per year and support of not more than 500 active planograms). Prior to Separation, this planogram work has been driven by assortment changes in the Sears FLS format, which then affect the Hardware store format. These planogram changes are first developed for Sears FLS, then will be passed over to SHO Hardware stores for review/modification, and approval before assignment to stores.
A new requirement for Hardware stores is to support planogram changes specific to Hardware stores only in the same capacity. This planogram work is independent of Sears FLS.
In either of the above cases, the SHO planogram team will modify planograms as necessary and provide to the SHMC team for quality review and import to the SHMC Space Management systems.
SHMC will assign a incremental dedicated Space Planning person to support the Hardware format. This resource will manage the incremental demand of the SHO driven planogram changes, guarantee responsiveness to demand, and ensure quality deliverables/service levels according to this SOW. |
$38.50 per hour |
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SHMC Planogram services:
Facilitation of weekly Merchandise Transition Calendar project meetings.
Monitoring and reporting of merchandise transition critical milestones.
Receive/cascade Sears FLS assortment changes to the Hardware store merchant teams for review/adjustment/additions/changes.
Create, update, quality review planograms as necessary to support assortment decisions from by the merchants.
Provide assortment grids for approval to ensure item/planogram/store assignments are in alignment.
Address any rework or changes as requested by SHO.
Review planogram quality controls and import planograms to the corporate SHC database.
Maintain the Merchandise Transition Calendar and any other necessary systems to support the current SHMC level of service.
Maintain/update planogram groups and store models to ensure accurate store/planogram assignment.
Post planograms to the SHMC Store Plot Planogram system.
Generate planogram PDF and incorporate to the Days to Check applications.
Note : Planogram support is provided for the SHO Hardware store format only. Other SHO formats are currently out of scope of this unit of services. |
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2. Floor Plan Support
Floor planning services were not provided for any SHO format prior to Separation. Should future Floor Planning services be desired, a new statement of work will be developed at that time. |
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3. Transition Management
The SHMC Merchandise Transition Calendar is utilized to schedule and manage every planogram group transition in Hardware stores. Critical milestones will be monitored and reported to the SHO Hardware Transition project team each week. |
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SHMC Transition Management services include:
Coordination of project planning with stakeholders during reset planning and execution including (but not limited to) business unit merchants, inventory planning, procurement, and signing.
Establishing and leading weekly project meetings as appropriate for scope of the reset ensuring all stakeholders are involved and accountable.
Providing weekly project critical milestone tracking/reporting to all stakeholders
Monitoring all approval points within the project timelines escalating as appropriate
Providing access to the Merchandise Transition Calendar and any reporting available within this system. |
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4. System Support Services
SHMC will provide SHO system support services through SHMCs IT support function (and under its support services requirements), not through SHMCs Space Management staff.
SHO may participate in regularly scheduled SHMC Space Management training services. Scheduling of training sessions specifically for SHO will be billed as appropriate.
SHO will continue to have access to the SHMC Days to Check suite of applications.
No direct user access to the SHMC Space Management JDA Intactix Knowledge Base (IKB) will be granted.
SHO has access to no more than 8 JDA Space Planning desktop user licenses. SHO will need to separately procure any additional licenses directly from JDA Software, Inc. SHMC will cooperate reasonably with SHOs efforts to do so.
SHO will continue to have access to the SHMC product library to support SHOs internal planogram development efforts. This product library is supported by SHMC I&TG. |
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5. Special Services-Store AutoCAD projects
The SHMC Space Management team offers store plan (AutoCAD) drafting services for store sales floor/fixture plans. This service is specifically for those requests that involve the design in AutoCAD of new stores or changes/updates to fixtures, sales floor space, and simple architectural elements within an existing building plan. Requests for this service will follow the below process. Charges will be based on time/materials and |
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Update on hand and on order
File OS & Ds on behalf of SHMC
Follow standard seal control process
Receive Goods and Advance Ship Notices (ASN) directly from a Vendor or customer.
Receive replenishment stock Goods as well as flow-through Goods
Receive via three inbound modes
Drop trailer/ container
Live unload appointment (minimum 24 hour advance notice)
Small package
Take delivery of shipments per SHMC requirements
Receiving vendor compliance
Pass receipt information to existing SHMC Vendor Compliance
Liquidate and dispose of problem receipt items per SHMC defined disposition rules
Carton inspection
Provided as a Special Services as SHO requests
Receive goods with priority given to age of trailer on lot and demand for product
Receiving documents retention
Maintain electronic data for receipt to PO visibility (At least 120 days for RRC; At least 180 days for DDC)
Keep hard copy Bills of Lading and Vendor Manifests for period specified by SHMC
Unload and Put-away
Unload and put away/ store SHMC items per recommended handling vendor packaging guidelines and SLS current operating processes. |
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2. Outbound Shipping
Fill Customer Orders by shipping on Point of Sale assigned date dependent on inventory availability.
Ship Customer orders as priority over store replenishment orders.
Receive Orders throughout the day, everyday
Fill Replenishment Orders dependent on inventory availability
Ship replenishment orders on requested ship date with ability of DCs to pull forward or push out based upon current parameters with SHMC
Ship Layaway orders if SHO elects Layaway when SHO removes layaway pend at Point of Sale. |
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Exception Handlings
At time of order filling, if item is not available to fulfill a customer order:
Customer orders we will pick except to backorder
Home delivery electronically notify Home Services/CCN to reschedule/ re-reserve order
Back to store electronically notify SHMC POS (SCIM)
RIM orders (store replenishment) we will pick except/cancel
Replenishment systems will reorder as needed
Place fulfilled orders onto outbound trailers
Generate an outbound ASN (EDI 856 Electronic Shipping Notice) which matches contents of the trailer to support store receiving process
Create a Bill of Lading which supports the Department of Transportation (DOT) requirements
Ship to the stores on regular delivery schedule and communicate any changes/ exceptions to the store
DC will provide Seal Control log with each shipment for Loss Prevention verification to ensure trailer integrity. For multi-stop trailers DC SHMC will provide the number of seals for each stop to ensure integrity between stores.
Support current Loss Prevention and Quality Assurance processes
Provide shipping services to the 50 US states, District of Columbia, Puerto Rico, Guam and Bermuda.
For export shipping, we will ship to selected offshore freight forwarder. SHO is responsible for providing necessary export documentation to their freight forwarder |
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3. Inbound Vendor Cross Docking
Cross dock cartons by 2 forms:
Cross dock Inbound Vendor cartons from upstream DCs and move cartons to stores while providing systemic information of contents (JIT, RIM Flow and Central Stocking processes)
Cross dock Vendor Direct to Store cartons via servicing RRC (EMP Expedited Merchandise Process)
RRC acknowledges the carton ID (no receipt) as arrived at RRC and ships out on next store delivery
RRC passes vendor provided information via ASN to store. Store receipt triggers payment to vendor.
Move cross dock cartons to stores on next outbound delivery. DCs do not stock cross dock product
Support stores that ship directly from SLS distribution centers (DDCs and RRCs). HAS (Home Appliance Showrooms) do not have cross dock services (break pack, EMP, JIT, multiple items/multiple stores per carton) available. |
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4. Storage
SHMC will provide the real estate footprint to accommodate DC planned inventory.
If SHO misses forecasts which results in exceeding available capacity SHMC will, at SHMCs discretion, obtain additional capacity whether it is storage trailers, short term leased space or 3 rd party providers.
Capacity available will be based on plan; rate will be dependent on rate addendum. If actual storage is 110% or more to plan, the rate will increase by 20%. Storage will be defined in cubic feet for RRCs and square feet for DDCs.
If SHO comes in under planned storage usage, the storage charges will reflect a reduction in the variable costs. Fixed costs will remain the same. |
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5. Physical Inventory Ownership : At no point in time will ownership of the inventory be transferred to SLS.
Title of Goods
Unless otherwise specified in an SOW, title to Goods and any proceeds of such Goods will remain at all times with SHMC and shall not pass to SLS under any circumstances. However, SLS through an SOW can facilitate acquisition of Goods by SHO.
It is agreed that title to such Goods will pass to SHO upon receipt at a Hometown Store or an Outlet store or appropriate SHO facility.
Physical Responsibility:
Inventory responsibility will not transfer from SHMC entity to SLS until Goods are identified and receipted in at point of unloading and confirmed receipts verified.
Inventory responsibility will be concluded as product is loaded and confirmed out of the facility via the printing of a trailer BOL by the DC.
Inventory Accuracy
Processes will be consistent with SHMC and continue as in past
Cycle count program will continue to follow current SHMC Audit Program
Cycle counting will be performed at a rate of 12% (locations) per month for nine consecutive months |
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Conduct an annual Sampling
An annual sampling is completed at each Distribution Center in the spring with a % of bins identified in advance which are counted on the designated date by an independent auditing team. Results are compared and verified.
Inventory shrink is calculated based on comparison of book (General Ledger) vs. perpetual (DOS). An inventory shrink/gain allowance is in effect with SHMC and current process will remain in place. SLS is not liable to SHO for inventory shrink/gain. |
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6. Special Services
Requests from SHO which are not part of our base Receiving, Order Filling or Shipping will be handled via a Special Project Request at Special Project rate.
All Special Project Requests will be handled through SLS assigned Manager of Supply Chain Operations for Hometown and Hardware Stores and through the SLS Director of Return Logistics for Outlet Stores.
Special Requests are defined as not normal day to day business of receiving, order filling and shipping which may include but are not limited to:
Product/ carton Inspection
Out of area shipping
Vendor or item specific on hand verification
QA Issues like product re-labeling, re-ticketing, re-cartoning etc.
On demand cycle counts
Stop Sale and/or Stop Shipping (lock bins)
Full Truckload special off-site store sales
Store Openings
Store Closings
Planned
Unplanned
Other services not specified in Logistics Services SOW |
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7. Disposition of Unsalable, Defective and Obsolete Goods
Process DC returns to Vendor via RA/RGI procedures (Return Authorization/Return Goods Invoice)
Provide liquidation service (sell to salvager, destroy/deface and dispose) per SHMC direction
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Manage the liquidation of damaged merchandise (assigned to damage bin) per SHMC guidelines
SLS manages store liquidation recoveries such as Craftsman Tool Returns and Store RA/RGI flowing via our reverse logistics network. |
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8. Facility Operations
Description of the facilities available to SHO and Facility hours of operations
These services are performed from SLSs network of approximately 37 distribution facilities in the U.S
Facilities operate year round with the exception of Holidays as per SLSs standard operating procedures.
Access to facilities will be accommodated in accordance with SLSs standard operating procedures |
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9. Logistics Administrative Services
Customer Service
SHMC will assign a Manager of Supply Chain Operations (MSCO) to act as single point of contact for Hometown and Hardware Stores. The following services are included:
Works with business on new initiatives and defining new requirements
Provides escalation support for day to day activities
Logistics Planning as described below.
Expedited Shipments (Inbound & Outbound)
Inventory Transfers
QA Issues, such as product re-labeling
Product Inspection
Vendor or item specific on hand verification
Out of area shipping
Vendor Support
Facilitate Vendor Returns |
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Support initial and seasonal sets, and new product launches
Participate in early planning sessions with Business
Assist in flow path decisions
Communicate volume and timing to Transportation/DC prior to product flowing
Act as conduit within the Supply Chain network
Identify cost/service impacts for business initiatives
Note: Vendor Inbound Shipment/ Tracking services are performed between order entry inventory management and transportation
Store Support Department (SSD)
Provide a single national contact phone # of the servicing distribution center - the Store Support Department (SSD)
Provide a load quality survey with every shipment to allow stores to provide electronic feedback to the Distribution Centers
Work on behalf of store:
For claims Overs/Shorts/Damages (OS & Ds)
Trailer damage to property
Transportation Management Visibility (OTM
Provide a Website link for stores to see their truck delivery time and current shipment planned ETA and summary of contents
DC/Store Support
Review specific business requirements with Managers of Supply Chain Operations and translate into a prioritized action plan for Logistics Services, Inventory Management, Transportation and Distribution Centers
Coordinate resolution with Corporate SHMC/SHO businesses for DC service issues
Provide corporate project management and process directions to the Distribution Centers
Develop and document business function operating policies
Assist with the development and implementation of strategic planning
Work with operations teams to determine optimal product placement and handling strategies |
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Manage and perform any special requests as required within the network
Execute Network Realignments as needed; communicate with various stakeholders; monitor so that necessary tasks are completed at correct times.
Approve all Reverse Flow (store back to DC) requests; execute properly for each retail format
Logistics IT System and Support
Provide distribution center warehouse management system to support, control and report inventory transactions such as receipts, order filling, storage and shipping
Provide Project Management for all distribution center IT initiatives
Provide 24x7 escalation support to DCs
Provide on-going support to DC network system infrastructure
WMS, YMS, Order Management software
Communicate details of installs, upgrades and changes
Communicate planned outages
Provide first level escalation for urgent help desk issues
Hardware for DCs
Assist with installation and set-up of IT approved hardware/devices
Assist with IT certification of new devices
Maintenance agreements / contingencies
Network
Assist with design of LAN to support DC devices and processes
DC System integration
Provide project creation and gather business requirements for requested IT enhancements
Participate in DC contingency planning exercises
DC System security
Coordinate and assist with Sarbanes Oxley audits
Network Design and Flow Path |
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Provide long term network plan based on the mid to long term corporate initiatives
Incorporate SHO stores (both Hometown and Outlet) into Network Planning Models for alignment to the Distribution Centers while keeping Home Delivery dependencies intact
Work on four-walls continuous improvement projects by simulating and mathematically modeling DC Operations
Work with Supply Chain Finance and Industrial Engineering to establish rates for activities performed
Approve SHO unique items under current SHMC approved product lines for stocking in the distribution centers following Flow Path New Item Review process.
Assist SHO with distribution options for new product lines.
Conduct Flow Path Analysis of distribution options. Provide feedback for expense and inventory levels. Analysis to be provided under terms of the Billing Methodology.
Import vs. Domestic Buy
Flow vs. DC Stock
Direct to Store vs. DC Stocking
Case Pack vs. Repack
Special Projects as requested will be provided under terms of LOS (Level of Service) Addendum
Project Management resources
Web Enabled Commerce Support
Manage and operate online fulfillment centers
Support online assortments
Project Management for SHO initiatives impacting the Logistics network
Approve items for stocking in online fulfillment centers
Support Inventory transfers
Provide inventory cycle counts, inventory sampling and/or physical inventory as prescribed.
Provide support for parcel and freight shipments |
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Out of Scope: Handling of Hazardous items
Provide reporting related to online fulfillment centers to business
Provide assessorial services (non-fulfillment related) for activities performed in online fulfillment centers at prescribed rate outlined in Schedule 2.
Support vendor return and product liquidation processes at the online fulfillment centers
Return Logistics (Central Return Centers)
Manage all Vendor return and product liquidation processes/ agreements
Third Party Warehouse Management
Procure and manage 3 rd party DC relationships and contracts as needed to meet SHO requirements.
Short-term and long-term project management |
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10. Home Delivery for Puerto Rico (Puerto Rico Warehouse)
Delivery services to customers homes in Puerto Rico market unless otherwise agreed upon as a Hybrid delivery market (same as mainland Home Delivery services).
Haul away of existing customer product (s) (as applicable)
Basic hook-up / overview of product in the customer home will be offered (as applicable)
Fly by and Fly Back
Pick up customer sold product at the store for delivery which is an additional stop charge expense.
Provide merchandise pick-up (MPU) from warehouse for customer orders
RORs (Record of Return)
ROR process in Puerto Rico will be consistent with SHMC mainland processes and rates. |
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11. Outlet store scope with SLS Central Return Centers :
SHMC (through the SLS Central Return Centers) will deliver Goods to SHOs Outlet Stores. Goods (non-hazardous) include:
(1) Non-resalable merchandise;
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(2) Merchandise that Sears, Roebuck and Co. ( Sears ) or Kmart Holding Corporation ( Kmart ) has received back from its customers or its stores; which excludes defective goods.
(3) End-of-season merchandise;
Perform facility management and data processing services for SHO at the CRC Facilities.
1. Acceptance of Goods : Receive and verify receipt of all Goods and scan or enter product information into the data processing system.
2. Loading and Handling : Direct the loading of the Goods so as to promote safety of the Goods in transit and ease of handling in delivery. SLS shall mark, stencil, apply bill of lading information (as applicable) and segregate all Goods and shall block, brace and/or gate the containers, trailers or trucks as appropriate.
3. Shipping Schedules and Load Factors : Adhere to the shipping and departure schedules mutually agreed upon by SLS and SHO. SHO agrees to provide shipment destination information on each completed load within 2 business days of being notified that the load is ready for shipping.
4. SLS Transportation : Maintain shipping schedules while achieving an acceptable load factor, in cooperation with SLS Carrier Management on all truckload shipments.
5. Documentation : Prepare and maintain bills of lading and other shipping documents. Bills of lading and other shipping documents shall be made available to carriers at the scheduled shipping or departure times, in a form that facilitates the receipt of Goods at the designated receiving location and the filing of claims by SHO or its vendors against carriers for Goods lost or damaged in transit, if necessary. |
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Global Sourcing
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1. Merchandising Support
SHO Merchant Support |
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Familiarize and remain up-to-date with SHOs sourcing, supply and merchandise needs, policies and requirements, including but not limited to a complete understanding of all information on SHOs website. |
Global Sourcing Services are offered as part of current Logistics Support. SHMCs |
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Market Trend & Country of Origin advantage: Provide up-to-date market information, trends competitor information and productivity by category by country to help SHO Merchant in identifying suitable products and Vendors.
Facilitate communications between SHO and the Vendors and, when necessary, act as a translator for SHOs representatives in meetings with Vendors and potential Vendors.
Use best efforts to assist SHO in the investigation and prosecution of any manufacturer, supplier or other party suspected of infringing upon SHOs proprietary rights.
If SHOs Merchant rejects delivery of any of the Merchandise for whatever reason, use its best efforts to enforce and monitor compliance with SHOs trademark guidelines and prevent the Vendor from disposing of such Merchandise without removing Trademarks, labels, brand names or other markings (e.g., logos) which may be attached to the Merchandise or collateral material (e.g., hangtags, packaging).
Vendor Qualification and Assessment
Vendor Qualifications: based on vendors product strength, production capacity, U.S. market and Retail direct experience, annual business volume, internal quality control, company terms including payment terms, defective policy, UTC, PLI, their service level in terms of communication and follow up, response time based on our request
Assist SHO in working with selected Vendors on product selection, price negotiations, packaging development and Order placement.
Procure from prospective Vendors the information required by SHOs applicable company or factory profile questionnaire.
Work with Vendors to comply with the applicable provisions of the manuals and vendor import guidelines.
Product Development
Product Development Stage based on SHOs need and requirements, source and designate the potential vendor matrix
Advance sample approval ensure the product being produced at the factory is the same level or higher standard per SHOs approval sample |
agent performing these services is Sears Holdings Global Sourcing (SHGS) Any change to the current services provided to SHO businesses will be billed based on an agreed upon rate. |
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Packaging approval ensure the packaging quality used on the product is per SHOs requirement
Use all commercially reasonable efforts to ensure that the Design Materials used in or obtained or ordered for the manufacture of Merchandise are not used for any purpose other than the production of Merchandise solely for the account of SHO Design Materials includes (without limitation) documents, designs, drawings, artwork, sketches, patterns, photographs, images, fabric and/or samples in whatever form, whether written, physical or electronic.
Costing
Costing Stage Solicit with vendors on quotation, sample preparation and align Cost vs. Design requirements as defined by SHO
In accordance with the SHO Merchants instructions, place Orders and use commercially reasonable efforts to negotiate and achieve the combination of price, quality and delivery most favorable to SHO for Merchandise which complies with the Merchandise Specifications, with the explicit understanding that SHOs Merchant shall have the right, but not the obligation, to directly participate in all such negotiations. |
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2. Production Management
Order Management Order processing, training vendor base on SHOs testing, inspection and factory audit requirements, monitor sample approval, packaging approval and vendors production and on-time performance
Regularly follow-up on production and shipments under Orders.
Keep close contact with all Vendors to ensure that production of the Merchandise is running according to the delivery schedule set by SHOs Merchant for each item.
After becoming aware of any delivery delays, other noncompliance with the applicable T&Cs or Order, or other problems, promptly inform SHOs Merchant, and use reasonable efforts to implement SHOs decisions regarding new delivery terms and/or cancellation of Orders.
Unless otherwise instructed by SHOs Merchant in writing, instruct vendors that Merchandise is not to be shipped to SHO after the shipment or cancellation date specified in the applicable Order without SHOs prior written consent.
In the event of claims, assist in negotiations with the Vendors and shippers on behalf of SHO to obtain settlement in the best interest of SHO. |
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Use all commercially reasonable efforts to ensure that the transshipment of Merchandise to conceal the true country of origin or the labeling of Merchandise with information that is deceptive as to the true country where the Merchandise was manufactured does not occur in the manufacture of Merchandise for purchase by SHO.
If specifically requested to do so by SHOs Merchant and agreed to by SHMCs agent, confirm that quota has been secured for Merchandise and, when requested by SHOs Merchant, SHMCs agent shall secure quota, if required, for the account of SHO and issue bills to SHO for the cost of said quota pursuant to this Agreement. |
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3. Quality Assurance and Technical Support
Testing & Inspection Product Specifications and requirements are verified through pre-production / production testing as well as in-line & final inspections.
Conduct reasonable sampling inspections of Merchandise procured for SHO (including at the Vendors facility, if SHOs Merchant so requests) to assure that the Merchandise meets the Merchandise Specifications and all fabric, quality, labeling, packaging and other standards and requirements prescribed by SHOs Merchant.
A certificate verifying the conduct of and results of the final inspection shall be submitted upon request by SHOs Merchant. SHO shall have the right to inspect those inspection records which relate to product ordered by and shipped to SHO.
Inspections will not relieve the Vendor of its responsibility to SHO for the quality and quantity of the products or services supplied and SHMCs agent shall instruct all Vendors of their responsibility in this regard.
Technical / Color Approval Support (For Apparel, Soft Home, Footwear, Fashion Accessories) ensure the measurement, fitting and colors are within tolerance set forth by SHOs Merchant. |
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4. Social Compliance factory audit
SHMCs SHGS compliance team monitored a total of 1,619 active factory base under Steton system, which provide factory audit history for merchandising team to understand up-to-date social compliance performance and corrective action plan and timeline by factory by vendor |
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Comply at all times with all laws applicable to the conduct of SHMCs agent, including those of the country in which the Merchandise is manufactured.
Encourage and monitor Vendors compliance with (i) legal requirements, including but not limited to, CPSIA safety testing requirements as it may relate to any product categories, and (ii) the terms of applicable Orders, T&Cs, Merchandise Specification and other contractual requirements.
Use all commercially reasonable efforts to ensure that no child, forced or convict labor in violation of the local laws of the country in which the Merchandise is manufactured, or to which the Merchandise is being exported, is used in the manufacture of Merchandise.
Immediately identify to SHOs Merchant any financial interest or family relationship that any employee or shareholder/owner of SHMCs agent has, had or may have with an existing or potential Vendor or export supplier.
If SHO purchases Merchandise from a Vendor or export supplier with whom the SHMCs agent, agents employee(s) and/or agents shareholder(s)/owner(s) have, had or may have a financial interest or family relationship, SHMCs agent shall provide written assurances to SHO that (i) such interest or relationship will not affect the agents ability to perform the services described herein and (ii) the agent shall not share profits or other proceeds with such Vendor or export supplier from any transaction resulting from the agents performance of its services. |
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5. Logistics Support
Facilitate the processing of export documentation necessary for customs clearance in the port of entry,
Monitor Merchandise shipping for compliance with Orders.
Monitor compliance with and advise SHOs Merchant as to shipping logistics and delivery terms required in Orders or otherwise specified by SHOs Merchant.
Promptly after becoming aware of the same, advise SHOs Merchant of any non-compliance with the above and obtain the written approval of SHOs Merchant for non-compliance or changes in requirements.
Prior to the exportation of the Merchandise to the United States (or such other country as SHOs Merchant shall designate), SHMCs agent shall facilitate the collection of and provide all documents, certificates, forms, statements and information appropriate or necessary for exportation to and importation into the United States, or other country of destination. |
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Analyze best flow path per SHOs target in-store dates and provide ocean freight and in-land shipping cost estimation / options
Secure Vessel bookings
ensure shipping documentations are reflecting the correct details per SHO purchase orders for smooth customs clearance
Others See details in Warehouse Distribution & Logistic services section of this Schedule |
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6. Finance Support
Statutory Reporting: External reporting to local statutory and tax authorities through filing of audited financials and tax returns.
Management Reporting: Internal management reporting to SHMC executives, branch managers and department heads.
Claims Processing
Creation of claims against vendors for SHGS local services
Creation of claims against vendors on behalf of SHO
Monitor offset of claims receivables against FOB payable
Implement routine and necessary collection efforts
Exercise hold payment if necessary as leverage
Resolve disputes through co-ordination with different SHMC business units.
Letter of Credit (LC) and payment processing
Processing steps leading to issuance of LC to vendors
Attend to all routine and ad hoc issues relating to LC processing
Process wire transfer payments
Product Liability Insurance Compliance
Monitor Product Liability Insurance applications
Ensure vendor compliance to Product Liability Insurance
Diligence and internal control Steps |
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Recording and exercise custody steps over cash and fixed assets
Ensure proper authorization over all expenditure
Maintain segregation of duties and promote internal control steps
BILLING METHODOLOGY
1. Logistics Billing Methodology
Variable handling billing
Rates for the RRCs are by flow path and by product size (Small, Medium, Large and Extra Large). Each Div-Line is placed into a size group at the beginning of the year based on last years average inbound carton cube for that Div-Line.
Rates for the DDCs are by flow path and division.
SHO will be billed based on disbursement volume out of the distribution centers.
Fixed handling billing
Fixed Handling represents the portion of logistics cost that does not vary with volume and that is not related to storing merchandise.
SHO will be charged the 2012 plan level for fixed handling (plan is based on the SHO 2011 actual charge for fixed handling by network).
Storage billing
Cost is based on usage of DC inventory space.
SHO will be billed based on cubic feet of RRC inventory space and square feet of DDC inventory space.
Cubic/Square foot space usage is allocated to SHO based on the % of total division level volume attributed to the business.
There are, as of the Effective Date, no charges for RDC services to SHO. SHO will be charged variable handling rates for RDC services for merchandise shipped directly from an RDC to a SHO store, if that service is requested.
2012 Storage and Handling Rates by Flow Path are listed in Exhibit 2- 2012 Logistics Rates.
2. CRC Handling and Transportation
CRC handling services are billed on a per scan basis.
Transportation rates are based on the average size of the item. SHO is assigned a rate based on the average cube per selling unit. |
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Salvage revenue is derived from recovery of salvageable merchandise. Rate is set in accordance with our agreement with third party(s).
Freight and handling planned revenue is based on 2011 average actual rate.
3. Billing of Overhead Expenses
SHO will be billed for other Logistics Overhead expenses based on the percentage of total DC handling expenses (fixed and variable) attributed to SHO. Other Overhead Expenses are defined as Supply Chain Management overhead minus Inventory Management, Space Management and Global Sourcing.
4. DC Markdowns
DC Markdowns include inbound damage, price change markdowns, price protection subsidy, and damage caused during storage and handling at the DC.
Allocation of charges to SHO for DC markdowns is based on the percentage of division level store markdowns attributed to SHO.
5. Online Fulfillment Services No Charge
6. Special Projects
Special requests for non-standard services, such as re-ticketing or re-cartonization, will be charged to SHO on a per project basis.
Amount of the charge will be equal to the number of hours worked on the project multiplied by $50 (the hourly special project rate).
The project must be pre-approved by submitting the Special Project request form. SHO should contact its MSCO if it requires a Special Project.
7. Third Party Warehouse Management
Third Party rates and billing will be agreed upon by SHO, SHMC and the Third Party where Third Party services are determined by SHO and SHMC to be the best option.
8. Supply Chain Charges will be billed monthly and trued-up to the actual expense at the end of each quarter. This will involve a comprehensive review of all supply chain charges.
9. Puerto Rico Warehousing No Charge |
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Consumer Credit Cards |
2.2 SFS manages lending relationships (currently with Citibank and Capital One) for the provision of Sears-branded credit to SHO through either a private label or a general purpose credit card. Provision of credit to SHO (1) reduces payment costs, (2) builds the business partner data warehouse of marketable households and transactional activity, (3) gives business partners access to financing to purchase goods from SHO, (4) offers merchants a vehicle for targeting promotional offers (including 0% financing), and (5) generates an incremental revenue stream from lending relationships.
The acquisition of and ongoing business partner use of Sears-branded consumer credit cards creates a number of benefits for SHO. Lending partnerships include a variety of revenue, expense and subsidy streams that can be tapped to help SHO grow sales, manage down its third party payments costs, and offset the expense of select promotional offers (when tied to credit).
The successful optimization of Sears consumer credit programs requires the alignment of incentives across Financial Services and SHO. To this end, SHMC will distribute the credit revenues associated with the Sears credit programs according to the following table: |
Financial
Services |
SHO | |||||||
Net New Account Revenue |
25 | % | 75 | % | ||||
Non-0% Credit Revenue |
25 | % | 75 | % | ||||
Associate Incentive |
100 | % | ||||||
Tied-to-Credit Subsidy |
100 | % |
Net New Account Revenue represents the fees paid by Citi and Capital One for a new approved, activated credit card account. For Citi and Capital One underwritten accounts, the fee paid to SHO is the per account amount paid by Citi and Capital One to SFS.
Non-0% Credit Revenue is earned only on Sears Cards issued by Citi. It is subject to a sliding rate schedule (outlined in the Citi-Sears Program Agreement) which is based on the Dollar Volume of SHO Merchandise sales and the Dollar Volume of 0% Sears Card sales. |
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SHMC pays for the $2 Associate Incentive earned by SHO associates for every credit card application generated. From time to time, SHMC will fund additional incentive contests where it will pay up to $4 for every credit card application generated
In addition, SHMC will work with SHO to design, develop, and execute merchant offers tied to credit that generate Non-0% credit revenue for SHO. These offers may be eligible for incremental Tied-to-Credit Subsid y from Citi which will be negotiated on a one-off basis based on the business case developed between SHMC, Citi and SHO.
0% Promotional Financing is another promotional tool that can be leveraged by SHO to incent merchandise sales. SHO will be assessed a Merchant Discount Rate (MDR) equal to the MDR that SHMC is assessed by Citi based on the duration of the promotion. |
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Payment Settlement
SHMC will provide payment settlement services for merchandise sales proceeds from Sears Card transactions (processed by Citibank) until such time as SHO establishes with Citibank a separate service agreement and fund flow. SHMC will pay SHO the Sears Card Merchandise Sales proceeds on the day following Citibanks settlement with SHC of Sears Card Merchandise Sales.
Upon establishment of a separate fund flow for SHO, payments by customers for Discover or Sears credit cards will be remitted by SHO to SHC the day following receipt into SHOs bank account. SHMC will also provide SHO payment settlement services for American Express, Visa, and MasterCard (First Data) transactions until such time as SHO has entered into agreements with these service providers.
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These activities will be performed at no charge to SHO. | |||
Gift Cards |
2.3 SHMC manages the product development, operational support, vendor management, marketing budget, and state-by-state compliance for Sears/SHO branded gift cards. Gift cards offer SHO a convenient gifting option to offer its customers when they cannot find or do not know what color/size/brand/style merchandise their recipient would like most. It gives Sears/SHO an opportunity to market Sears, Sears/SHO outside of stores through Gift Card Malls and Rewards programs nationwide. Plus Sears/ SHO gift cards carry no fees and never expire.
The interchange rate on Sears/SHO gift cards will be 200bps of gift card value redeemed. This Gift Card Fee covers the cost of running the gift card program, i.e., ValueLink processing costs, plastics, B2B discounts (associated with third party sales of Sears/SHO gift cards outside Sears and SHO stores), etc.
Requesting custom gift cards for specific promotions will incur direct fees associated with custom card production. These will vary by promotional requirements and volumes and will be executed according to terms that will be mutually agreed to by the parties separately.
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Gift Card Acceptance |
2.4 SHC and SHO will accept each others gift cards as a tender type and will be reimbursed for the same as cash value of the gift card redemption regardless of where the gift card originated.
Sears Financial Services and SHO will agree to partner on the development and implementation of periodic Spend and Get promotions which will be offered to consumers in Sears/SHO as a means of driving incremental traffic and revenue. |
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Financial Summary of Spend & Get Promotions: |
Accounting Activity/Description |
Account |
Timing |
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At time of reward card issuance, SHO is charged 100% of reward card value | Gross Margin Adj 50181 | At Activation | ||
SHO receives 25% discount on reward card issuance expense | Gross Margin Adj 50181 | At month end close for the month in which promotion was run | ||
SHO receives 75% of breakage benefit for expiring states | Gross Margin Adj 50181 | The month following the promotional expiration date | ||
SHO receives 75% of breakage benefit for non- expiring states | Gross Margin Adj 50181 | The month following the promotional expiration date | ||
SHO Receives 25% charge on any redemptions taking place within their Format | Gross Margin Adj 50181 | The month following the promotional expiration date |
Requesting custom Spend & Get cards for specific promotions will incur
direct fees associated with custom card production. These will vary by promotional requirements and volumes and will be executed according to terms that will be mutually agreed to by the parties separately. |
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Installment Loans | 2.5 SHMC manages the lending relationship with GE who provides the capability for our business partners to buy our product and services over a fixed term with equal monthly payments. Installment loans provides our associates with a tool that allows them to promote the low monthly payment option as a vehicle to increase sales ticket, improve attachment and grow accessory sales. Provision of installment loans gives SHO and its merchants a unique advantage over its major hardline competitors as they do not currently offer this product | . |
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Similar to the utilization of 0% promotional financing in section 3.2,
Installment Loans are another promotional tool that can be leveraged by SHO to incent merchandise sales. SHO will be assessed a Merchant Discount Rate (MDR) based on the duration and consumer interest rate of the promotion. The expense table for Installment Loans is included below. By way of example, the 2012 MDR table is listed below. |
36 Month
Term |
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APR |
MDR |
Monthly
Payment on $1,000 Purchase |
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4.99% | 10.42 | % | $ | 29.97 | ||||
7.99% | 7.37 | % | $ | 31.33 | ||||
9.99% | 5.24 | % | $ | 32.26 | ||||
12.99% | 3.23 | % | $ | 33.69 | ||||
48 Month
Term |
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APR |
MDR |
Monthly
Payment on $1,000 Purchase |
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4.99% | 13.42 | % | $ | 23.02 | ||||
7.99% | 9.40 | % | $ | 24.41 | ||||
9.99% | 6.72 | % | $ | 25.36 | ||||
12.99% | 4.00 | % | $ | 26.82 |
Layaway |
2.6 SHO will continue to have available at point of sale and be able to
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Reporting & Support |
SHMC will provide SHO with a month by month forecast for annual Financial Services revenue and expense items by product (e.g. Sears Credit, Third Party Payments, Layaway, Gift Card).
SHMC will provide weekly reporting of SHO sales by tender type for the purposes of enabling your organization to forecast monthly revenues, expenses, opportunities and risks.
SHMC will provide a single point of contact for SHO to address questions that it may have as well as assist SHO in the design and execution of promotional programs for optimizing benefits and reducing expenses. |
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Service or Business Area |
Services |
Fees |
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Retail Services:
Core Retailing Transaction Support
Customer Facing Transaction Support
Hardware Support Services |
$310,871
$68,673
$377 |
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Retail Services Total | $379,921 | |||
Service Management:
Administration
Business Continuity
IT&G Service Quality Management
IT&G Service Support
I&TG Service Support Corporate Desktop Support
Learning & Development
Performance & Service Management |
$959
$27,439
$14,416
$2,254
$168,341
$1,720
$11,784 |
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Service Management Total | $226,913 | |||
BASE OFFERING GRAND TOTAL | $8,796,557 | |||
IT Support Services |
Business Strategy & Operations
Development & Support Services:
Fixed team minimum to support and maintain services, multiple enhancements, external variable charged, as needed |
$811,200 |
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BUSINESS STRATEGY & OPERATIONS SUPPORT SERVICES TOTAL |
$811,200 | |||
IT Service Costs Base Components |
Service costs of Base Components for SHO will not exceed $9.6M for 2012, assuming SHO usage and requirements are consistent with that experienced in 2011. Services will be billed according to plan as reflected in the fees column in the Schedule of Services and Fees, with an exception for Mainframe computing, Cloud computing, Teradata data, and Hadoop data services for which SHO will be billed actual expenses.
Annual increases to the Base Component and Systems Access/Maintenance service costs will be capped at five-percent (5%) with the exception of increases to 3 rd Party services which will be passed through to SHO.
Any additional increases will be subject to negotiation and agreement by both parties in advance of any applicable increase.
Labor Rates actual spend is based on the time and materials cost associated with Service Requests determined on a project-by-project basis, as well as by the skill sets required to deliver the Services. |
Appendix 1.01-A Page A - 64
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
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I&TG Standard Rates for Sears Holdings Corporation (SHC) and Sears IT & Management Services India Private Limited (SHI) Associates for Fiscal Year 2012: |
Labor Type |
Skill Set |
Hourly Rate | ||||
SHC Associate |
Associate |
$ | 65.00 | |||
SHI Associate |
Off-shore Engineer |
$ | 35.00 | |||
SHI Associate |
On-site Engineer |
$ | 65.00 | |||
3 rd Party Contractor |
Variable |
TBD | * |
* Hourly rates will be reviewed with and approved by SHO |
HOME SERVICES (Installation & Repair) |
Services performed in accordance with the Merchandising Agreement dated , 2012 between SHO, Sears, Roebuck and Co., and others, including those set forth in Section 11 of the Merchandising Agreement.
1. Home Delivery
Delivery Services will be made available to all SHO markets unless a market is otherwise agreed upon as a Hybrid delivery market.
Haul Away of existing customer product(s) (as applicable)
Basic hookup / overview of product in the customer home will be offered (as applicable)
Pickup of returned goods (RORs) from consumer
The rates cover all carrier and 4-wall MDO expenses and related carrier management, carrier negotiation, site management, routing, customer engagement and containment, infrastructure costs and all Customer Care Network (CCN) costs.
The Customer Care Network (CCN) costs cover the services related to customer engagement and satisfaction.
The rate is per stop - if multiple products are delivered on a single retail customer stop, only 1 charge will be incurred.
The Delivery rates stated for SHO Store locations do not include a potential fuel surcharge (see fuel surcharge table). |
Delivery Fee
SHO (Outlet) Customer Standard Delivery Charge is based on the Outlet Market Delivery Rate Table. Home Services will reimburse SHO (Outlet) for any Market Delivery Rates that exceed $69.99 on a store-by-store basis.
SHO (Hometown HTS, HAS or AHS) Standard Delivery Charge is based on Market Delivery Rate Table. |
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
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The Delivery rates for SHO (HTS, Outlet) are included in the Outlet Market Delivery Rate Table and Hometown Market Delivery Rate Table. Both Market Delivery Rate Tables are included in Exhibit 4 to this Appendix 1.01-A Schedule of Services and Fees.
Rates as shown in the Market Delivery Rate Tables are for the first year of this Agreement, and then reviewed and agreed upon annually by SHMC and SHO during the length of the agreement.
Hybrid Delivery Market Process
A Hybrid Delivery Market is a market that is either serviced out of a Sears, Roebuck and Co. full-line department store (SDO) or out of a SHO Store (by the SHO Store owner).
SHO and Home Services Delivery will review and agree on the customer location zip codes that identify Hybrid Delivery Markets.
SHO will assign the Delivery Rate for each zip code and transmit the completed zip code file with the rates to Home Services Delivery for entry into the POS (Point of Sale) system.
When a Sears full-line store sells merchandise for delivery into a Hybrid Delivery Market zip code that is assigned to a SHO store, the delivery service revenue is transferred from the Sears full-line store to the SHO store performing that delivery. |
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Home Delivery Fuel Surcharge
In addition to the fees for Home Delivery services set forth in the Agreement, SHO agrees to pay to SHMC an additional amount to compensate SHMCs Home Services business unit for increases in the retail cost of fuel for trucks used to provide the Services (a Fuel Surcharge) when such cost equals or exceeds $4.40 per gallon (National Averages), calculated as follows:
On the last day of each calendar month, SHMC shall establish the retail cost of its truck fuel by reviewing average price for the month based on the Gasoline and Diesel Fuel Update as published by the U.S. Department of Energys Information at: http://www.eia.gov/petroleum/gasdiesel/ .
When the Gasoline and Diesel Fuel Update average price for any calendar month is equal to or greater than $4.40 per gallon, SHMC shall charge and SHO agrees to pay SHMC a Fuel Surcharge as described in the chart below. |
Fuel Surcharge table is included. |
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
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Home Delivery Fuel Surcharge Table
|
Monthly Average Diesel Price |
Fuel surcharge per
billed stop |
|||||||||
At Least |
But Less Than | |||||||||
$ | 2.40 | $ | 4.40 | |||||||
$ | 4.40 | $ | 4.60 | $ | 0.36 | |||||
$ | 4.60 | $ | 4.80 | $ | 0.72 | |||||
$ | 4.80 | $ | 5.00 | $ | 1.08 | |||||
$ | 5.00 | $ | 5.20 | $ | 1.44 | |||||
$ | 5.20 | $ | 5.40 | $ | 1.80 | |||||
$ | 5.40 | $ | 5.60 | $ | 2.16 | |||||
$ | 5.60 | $ | 5.80 | $ | 2.52 | |||||
$ | 5.80 | $ | 6.00 | $ | 2.88 | |||||
$ | 6.00 | $ | 6.20 | $ | 3.24 | |||||
$ | 6.20 | $ | 6.40 | $ | 3.60 | |||||
$ | 6.40 | $ | 6.60 | $ | 3.96 | |||||
$ | 6.60 | $ | 6.80 | $ | 4.32 | |||||
$ | 6.80 | $ | 7.00 | $ | 4.68 |
In the event the fuel cost increases above $7.00 per gallon, an additional Fuel Surcharge of $.36 will be added for each $.20 increment. |
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
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When the Gasoline and Diesel Fuel Update average price for any calendar month is equal to or less than $2.40 per gallon, SHMC shall rebate SHO a Fuel Surcharge as described in the chart below. |
Monthly Average Diesel Price |
Fuel surcharge per
billed stop |
|||||||||
At Least |
But Less Than | |||||||||
$ | 2.20 | $ | 2.40 | ($ | 0.36 | ) | ||||
$ | 2.00 | $ | 2.20 | ($ | 0.72 | ) | ||||
$ | 1.80 | $ | 2.00 | ($ | 1.08 | ) | ||||
$ | 1.60 | $ | 1.80 | ($ | 1.44 | ) | ||||
$ | 1.40 | $ | 1.60 | ($ | 1.80 | ) | ||||
$ | 1.20 | $ | 1.40 | ($ | 2.16 | ) | ||||
$ | 1.00 | $ | 1.20 | ($ | 2.52 | ) |
In the event the fuel cost decreases below $1.00 per gallon, an additional Fuel Surcharge of $.36 will be rebated for each $.20 increment. | ||||
Merchandise Pick-Up (MPU)
Merchandise Pick-Up (MPU) represents Home Appliances product picked up at an MDO for delivery or installation by anyone other than a Home Services Delivery carrier.
This MPU fee will be billed by division to the selling unit. MPU does not qualify as a billable stop. |
Merchandise Pick-Up Fee
The rate for MPU service will be a flat rate of $10.00 per deliverable unit. Home Delivery Services will rebate $5.00 for each Retail Installation contractor pickup (excluding Outlet Stores). |
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
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MDO Concessions / Damage Charges
Charges are related to:
Customer Accommodation Costs (Gift Cards) related to concealed damage.
Merchandise Depreciation / Markdowns on Concealed Damages for Saleable and Non-Saleable items.
Depreciation rates on saleable items are set between the SHMC BUs and SHO (Outlet business).
Hard Inventory Markdowns on Merchandise in the MDO Inventory.
Charges to SHO are based on percentage of SHO ROR stops to total ROR stops by merchandise division. |
For SHO (HTS/HAS/AHS only), SHMC has agreed to rebate $5.00 per Home Appliance MPU related to a Retail Installation contractor pickup. The installation must be sold at POS as that data is used to determine the rebate. | |||
2. Installation Services
Retail Installation Services provided include: Garage Door Opener, Garbage Disposal, Hot Water Heater and Built In Appliance |
Retail Installation Services Fees are market specific and loaded in the SHO POS system. |
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Commission Rate:
SHMC (through its Retail Installation Services unit) will pay 15% commission on the Net Revenue (after cancellations) of the installation sale sold in SHO locations.
Fee Basis is per Installation order sold net of cancelled customer orders.
SHO receives a Sell Short chargeback at month end for installations sold below the set installation price at POS. |
Commission Rate is 15% on the Net Revenue |
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Take the Lead Program (Installation):
SHMC will pay a commission to SHO from Installed Net Sales generated from the qualified leads at SHO locations through the Take the Lead Program. Installed Net Sales are the total sales proceeds received from the homeowner on sold jobs that have been completed less allowances, cancellations and credit rejections as settled by SHMC. The SHO (HTS owner) commission is 7.5% of Installed Net Sales and will be listed on Line 12 of their current commission statement. SHMC will pay SHO an additional 1% of installed Net Sales as a corporate commission. |
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
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3. Product Repair Service
SHMC will provide product repair services for Collect (customer paid) and In-Warranty repair customers via In-Home repairs, Carry-In repairs and repairs at SHO locations.
Home Services services include, and SHOs damaged rate covers: all costs incurred for each service event including:
All tech, management and support labor and all parts supply
All CCN services related to customer engagement and satisfaction
All parts sourcing and related management
All truck expense, including lease, maintenance, fuel and insurance
All Supply chain / distribution services related to parts
All Product Quality Management and Overhead expenses
All claims management services
All capital investment to support In Home and Carry-In Operations
Store Stock Repair Fees
SHMC will perform SHO (Outlet) Store Stock repairs at the rates listed below for each completed service call |
Store Stock Repair Fees |
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ON-SITE SERVICE COSTS |
|
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Division |
Rate | |||||
HO |
Div 3 |
$ | 184.79 | |||
REC |
Div 6 |
$ | 144.31 | |||
HW |
Div 9 |
$ | 113.97 | |||
HA |
Div 20 |
$ | 113.30 | |||
HA |
Div 22 |
$ | 126.96 | |||
HA |
Div 26 |
$ | 130.15 | |||
WT |
Div 32 |
$ | 119.66 | |||
HC |
Div 42 |
$ | 118.21 | |||
RF |
Div 46 |
$ | 156.90 | |||
CE |
Div 57 |
$ | 63.75 | |||
LG |
Div 71 |
$ | 160.57 |
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
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Service Order Transfer Fee (SOTF) : is defined as the Carry-In service order transfer fee that reimburses the Store for the creation of the service order, material handling of the customers product, and the collection and close of the service order at time of customer product pick-up. | Service Order Transfer Fee (SOTF) is $10.50 per service order. | |||
Misdirect fee : is defined as incorrect or repair-ineligible products that are sent to the Carry-In repair centers. Stores should refer to the Carry-In Brand & Product eligibility matrix before accepting customers products for repair. |
Misdirect Fee is $40.00 per service order. |
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Diagnostics fee : is defined as the minimum Carry-In service fee to transport, diagnose, create customer estimate, and return the product back to the Store. Diagnostics fee will be applied to all customer service orders when repair services are declined by the customer. |
Diagnostics Fee is $40.00 per service order. |
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4. Service Contracts
SHMC will continue to offer Sears Service Contracts to customers shopping in SHO Stores.
SHMC pays an acquisition fee to SHO for the sale of Sears Protection agreements / Sears Purchase Protect agreements.
Service Contract Fee/Reimbursement Schedule:
50% of Protection Agreement Sales will be paid to SHO as a commission on all Service Contract sales. The 50% commission is calculated on the Net Revenue (after cancellations).
Fee Basis is per protection agreement or Sears Purchase Protect agreement sold net of cancelled customer orders.
This commission rate remains in place provided that SHMC remains the exclusive provider for Service Contracts on all merchandise sold through SHO retail locations to SHO customers |
Service Contract Fee is 50% of the Net Revenue from PA Sales. |
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Service or Business Area |
Services |
Fees |
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Commissions to SHOs Outlet business employees and HTS owners are the responsibility of SHO.
SHMC and SHO must review and agree before any percentage adjustments are made to the commission paid to SHO employees and HTS owners. |
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5. Sears Parts Direct Services
The Sears Parts Direct team will maintain and continue providing access to all SHO dependent Parts Ordering Systems. These Services include but are not limited to:
Sourcing, purchasing, shipping and handling of all Parts Orders.
Providing sales and commissions files for all Parts Orders placed by SHO will be handled by sears.com or Parts Direct.
Parts Direct collects 100% of all shipping charges on customer part orders.
SHMC and SHO must agree to any adjustments to the commission percentage paid to SHOs HTS owner.
SHO earns a 33.5% commission on customer part orders through Parts Direct of which the SHO (HTS owner) receives 25% commission. SHO assumes responsibility for resolving all SHO (HTS owner) commission payment disputes. SHMC and SHO require agreement before any adjustments are made to the commission percentage paid to SHO (HTS owner). |
Parts Direct Fees and Commissions:
SHMC will pay SHO a 33.5% commission on customer part orders through Parts Direct. |
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Bulk Part Orders are placed through the Sears Commercial Parts account. The bulk order must meet a minimum purchase requirement of $400 to qualify for a 25% discount on the transaction and free ground shipping. Transactions less than $400 will not receive a discount or free shipping consideration.
All bulk transactions will be handled as a Commercial Parts transaction and the Commercial return policy applies, with a $25 minimum to return, 25% restocking fee, 90 days to return. Authorization is required on all returns.
SHO (HTS Ops) receives no financial consideration on bulk transactions. |
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Store Charge is used to replace a missing or damaged part on a Store display or to replace a missing or damaged part for a customer on a product purchased from the Store. The charges are absorbed by SHO at a cost of (Parts Direct Cost + 25%). Parts that are ordered via the Store Charge process are not returnable unless damaged or defective. Damaged or defective parts will be replaced or refunded. |
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
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REAL ESTATE |
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Market Research |
Mapping
Off Shore Market Reviews (Excludes Outlets) |
$100 per map
No Charge |
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Estoppels |
Estoppels |
$1,000 per estoppel |
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Asset Management |
Notice of Tenant Obligations |
No Charge |
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Real Estate Transition Services (mo-to-mo for up to 6 months) |
Transition Services Package includes:
Asset Management:
Lease Interpretation/Research
Enforcement of Landlord Developer Obligations
Notice of Tenant Obligations (SHO-owned or leased units only)
Curing Defaults (Outlets only)
Resolving Signee Issues
Evaluating Landlord Requests for Changes for Approval
Negotiating Lease Renewals
Site Plan Reviews for Store Impact (Outlets only)
Lease Administration:
Document Abstracting
System Maintenance for New Documents
Payment of Monthly Rent and Charges (HTS transition stores and Outlets only)
Track Renewals (Hardware and Outlets only)
Finance:
Prepare CAM Reconciliations (Outlets only)
Prepare SOAR Billings (Outlets only) |
For Transition Services Package: $125 per unit per month.
(SHO may remove units from the Transition Services Package, as it migrates those units to its own Real Estate Administration program. Removals will be effective the first day of the following month. SHO will give 14 days advance notice of removals.) |
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Store Rents |
Reimbursement for sub-leased stores and embedded Outlet units as agreed upon by the parties. | Separate Lease Agreements | ||
Corporate Rent |
Headquarters space | Separate Lease Agreements |
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
||
Licensed Businesses
|
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Licensed Business Hometown Stores |
Budget Truck & Car Rental
1 Contractual Obligations : Agreement permits Budget Truck and Budget Cars to establish independent License Agreements with SHO Hometown Stores for the purpose of renting cars and trucks. Budget shall enter agreements directly with the SHO Store owners (Participation Agreements). Transactions are processed through Sears POS. Moving supplies are non-commissionable. SHMC will remit 100% of all cash, check, and Sears Card transactions back to Budget. Either party may terminate a location with 30 days notice.
2 Marketing Support : Budget is responsible for all marketing initiatives. Avis/ Budget group will frequently coordinate national marketing campaigns through the Licensed Business Marketing Director. All local marketing initiatives are subject to SHMC approval.
3 Operational Support : SHMC shall work with Budgets performance managers as needed for any auditing processes and issues that arise. SHMC remains final authority on floor presentation in each SHO Store. Changes to layout or signage must be approved by SHMC. SHMC will provide an account for the SHO Store owner to process the moving supplies funds (flow-thru account used for the sale of Budget supplies which are 100% reversed back to the SHO Store during settlement). SHMC will allocate the 4x4 floor space, and must approve all signage. |
Licensed Business Fees :
Budget pays SHMC 17% of gross sales, minus SHMCs portion of BART charges once a month via check. SHMC pays 99% of the Budget payment to SHO, retaining 1% as administrative fee. BART charges are allocated 30% to SHMC, and 70% to SHO. SHMCs portion of BART charges cannot exceed $28.50 per month. |
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Travel Concepts
1 Contractual Obligations : General contract maintenance (contract renewals, insurance monitoring, location additions/deletions, etc). Support use of Sears POS and standard settlement processes (exception of special travel tax that is accessed in Puerto Rico which is processed on a weekly basis).
2 Marketing Support : Travel Concepts is responsible for marketing initiatives which are subject to SHMC Licensed Business Marketing Directors approval.
3 Operational Support : The SHMC Licensed Business Operation Team supports Licensees space and location requirements, in accordance with the License Agreement. |
Licensed Business Fees :
SHO to receive all licensed business royalty income except for 1% to be retained by SHMC as administrative fee. |
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
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Miracle Ear
1 Contractual Obligations : General contract maintenance (contract renewals, insurance monitoring, location additions/deletions, etc). Support use of Sears POS and standard settlement processes.
2 Marketing Support : Miracle Ear is responsible for marketing initiatives which are subject to SHMC Licensed Business Marketing Directors approval.
3 Operational Support : The Licensed Business Operation Team supports Licensees space and location requirements, in accordance with the License Agreement. |
Licensed Business Fees :
SHO to receive all licensed business royalty income except for 1% to be retained by SHMC as administrative fee. |
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Licensed Business Outlets Stores |
Budget Truck & Car Rental
1 Contractual Obligations : Third & Fourth Amendments to Affiliation Agreement between SHMC and Avis Budget Group permit the leasing of both cars and trucks
2 Marketing Support : Budget is responsible for all marketing initiatives. Avis Budget group will frequently coordinate national marketing campaigns through the Licensed Business Marketing Director. All local marketing initiatives are subject to SHMCs approval.
3 Operational Support : The Licensed Business Operation Team supports Licensees space and location requirements, in accordance with the License Agreement. |
Licensed Business Fees :
Fees for Outlet Stores shall be 6% of net sales. SHO to receive 99% of Fees; SHMC to retain 1% of Fees as administrative fee. |
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Universal Vending
1 Contractual Obligations : General contract maintenance (contract renewals, insurance monitoring, location additions/deletions, etc). Support use of Sears non-POS settlement processes.
2 Marketing Support : NA
3 Operational Support : Location of Vending Machines are coordinated and supported by Licensed Business Operations Team in accordance with the License Agreement. |
Licensed Business Fees :
SHO to receive all licensed business commission income except for 1% to be retained by SHMC as administrative fee. |
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Licensed Business Hardware Stores |
CPI (Portrait Studios)
1 Contractual Obligations : General contract maintenance (contract renewals, insurance monitoring, location additions/deletions, etc). Support use of SHMCs Off-Premise Reporting process and settlement processes.
2 Marketing Support : CPI is responsible for its marketing initiatives and subject to SHMC Licensed Business Marketing Directors approval |
Licensed Business Fees :
SHO to receive all licensed business royalty income except for 1% to be retained by SHMC as administrative fee. |
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
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3 Operational Support : The Licensed Business Operation Team supports Licensees space and location requirements, in accordance with the License Agreement. |
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New Licensed Businesses Opportunities |
New Business Opportunities
All new businesses opportunities will be brought to SHO for review.
The SHMC Licensed Business Team will explore, create and develop business opportunities that fit and complement the new company customer. |
Licensed Business Fees:
Any cost incurred in the business development activities will be included in the revenue share of the business. |
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SEARS DE PUERTO RICO (SDPR) |
Marketing / Promotional Planning
SHO will be included along with PR FLS in all activities associated with the marketing, advertising signing and vendor relations associated with the Marketing/Promotional process. This includes, but is not limited to all print, electronic, digital and outdoor advertising and public relations.
SHO will participate, along with PR FLS in all monthly sales planning meetings (MSP meetings).
|
1% of SHO sales revenue in Puerto Rico |
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Finance
SHMC will handle governments tax related issues involving SHO such as:
new SHO stores sales tax registration
annual gross receipt tax returns
annual personal property tax returns
Treasury Dept. information requests.
|
As requested Billed at Cost |
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Miscellaneous
SHMC will handle Department of Consumer Affairs notifications and stores fines in coordination with SHO.
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No Charge | |||
Merchandising/Assorting /Inventory
Select all merchandise for SHO locations in Puerto Rico
Maintain pre-determined inventory levels of merchandise appropriate to maximize promotions and drive sales increases
Support inventory requirements for each new store in Puerto Rico
Provide regular updates with inventory status, significant changes, forecasts
Review SHMC and SDPR promotional inventory to ensure that SHO is included in all events |
Appendix 1.01-A Page A - 76
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Appendix 1.01-A
Service or Business Area |
Services |
Fees |
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Maintain all merchandising systems with current status identification
Include SHO in all seasonal / promotional buys both from SHMC mainland and SPDR specific purchases
Maintain all prices for SHO locations in Puerto Rico
Maintain all POGs for SHO locations in Puerto Rico
Partner with and provide SHO the opportunity/ability to add special one time buys for SHO locations
Participate in monthly updates with SHO to review current merchandising performance and upcoming events
All subsidy collected by SDPR will be allocated based on SHO balance of sales, not inclusive of Outlet merchandise sales, to SHO
SDPR will include SHO in key meetings and vendor discussions
SDPR and SHO will notify each other of strategic changes with vendors or direction in promotional activity in order to avoid potential issues before they are created
SHO and SDPR will share with each other any business information that could be used to leverage additional sales/margins with the Sears stores in Puerto Rico
SDPR will support SHO with any key strategic initiatives by providing any available data, research or insights that could assist in executing such key strategies
SHO will share key strategic initiatives with SDPR leadership on a regular basis |
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Service or Business Area |
Services |
Fees |
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Logistics
Provide all logistics support for shipments of merchandise to and from SHO locations in Puerto Rico
Pricing / rates for Logistics services will be consistent with SHC rates for non SHO location in Puerto Rico
Any rate changes will be reviewed with SHO 60 days prior to implementation, and be consistent with SHC rate changes
Provide all logistics support for the delivery of merchandise to Customers sold via Home Delivery
Any rate changes will be reviewed with SHO 60 days prior to implementation, and be consistent with SHMC rate changes
Provide all logistics support necessary to complete store or customer generated RORs
ROR process in Puerto Rico, including transfer rates, will be consistent with SHMC mainland processes and rates |
Appendix 1.01-A Page A - 78
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EXHIBITS TO APPENDIX 1.01-A TO THE SERVICES AGREEMENT
APPENDIX 1.01-B
APPENDIX 1.10
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ONLINE SERVICES
OBU Project Outline
Requesting Business Unit: | Sears Outlet | Requestor: | Beau Warren |
Project Name: | Sears Outlet: Retainer Services Agreement 15311 | |
WorkLenz ID: | 15311 |
1 | Statement of Work |
1.1 | Project Description |
The OBU will provide design, development, project management, QA and Support services for the evolution and maintenance of the Sears Outlet platform. The aim of this understanding is to provide a basis for close co-operation between the Sears Outlet Organization and the Online Business Unit (OBU) in support of Sears Outlet and supporting functionality, but does not address promotions, marketing or related capabilities thereby ensuring a timely and efficient support service is available.
Objectives of Service Level Provision
1. | To define the service structure and associated resources allocated to support the Sears Outlet business needs. |
2. | To provide a common understanding of service requirements/capabilities |
3. | To define the cost structure associated with the service level provision with the intent to achieve a price/value relationship that exceeds what can be managed/sourced via competitive bid from outside SHC vendor/partners. |
4. | To define the commencement of the understanding, its initial term and the provision for change required throughout the lifecycle of the understanding. |
1.2 | Team |
The OBU will provide both dedicated and shared resources based on and offshore to drive and support Sears Outlet development.
The current and proposed team and timing can be found in Appendix A for a full listing of all the roles working on Outlet projects as well as Appendix B that will highlight the ramp-up
Sears Holdings Corporation Confidential and Proprietary Information
EXHIBIT 1 TO APPENDIX 1.01-A
2
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ONLINE SERVICES
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Hiring and Recruiting: OBU is solely responsible for recruiting resources including compensation, bonus etc. However, OBU will work closely with Sears Outlet to manage their requirements for specific skills. OBU is solely responsible for determining use of full time employees and/or contract resources. |
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Performance Management: On unsatisfactory resource performance, Sears Outlet will provide in writing the resource name and examples of poor performance. There after OBU will determine how to handle resource issues (e.g. coaching, performance improvement plan, reallocate tasks/roles, interchange resources, etc.) |
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Resource Replacement and backfill: Online will attempt within commercially reasonable effort to backfill departing team members. OBU will continue to meet deliverable deadlines by adding temporary resources, working overtime, or other implementing other contingencies. |
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Team Location: Dedicated resources will be based either at Hoffman Estate or offsite. |
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Temporary Resources: additional temporary resources may be added to augment team and/or meet specific skill set needs. This work will be quoted and contracted separately. |
Sears Holdings Corporation Confidential and Proprietary Information
EXHIBIT 1 TO APPENDIX 1.01-A
3
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ONLINE SERVICES
2 | Project Costs & Timeline |
2.1 | Project Costs |
Outlet 2012 Engineering & Ux Budget / Exec Summary
Cost Category
Amount (in $) | ||||
Labor |
$ | 3,110,375 | ||
OBU |
$ | 3,072,680 | ||
Ux |
$ | 450,667 | ||
Onshore |
$ | 1,560,693 | ||
Offshore |
$ | 1,061,320 | ||
Infosys |
$ | 383,292 | ||
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|
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Total Labor |
$ | 3,455,972 | ||
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|
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Total Labor Bill (at 10% Discount) |
$ | 3,110,375 | ||
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|
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Other Expenses |
$ | 47,000 | ||
Site Hosting & Support |
$ | 169,000 | ||
Site Hosting & Support (after $122K Discount) |
$ | 47,000 | ||
Hardware and Software Purchase and Install |
TBD | |||
Total Bill (Labor & Other Expenses) To Outlet BU |
$ | 3,157,375 | ||
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Budget Basis and Key Assumptions:
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Includes Labor for Core Outlet Engineering & Ux Delivery Team Only |
Assumes the Core Team is ramped up slowly to full staffing level proposed and not a 100% ramp up right from Day 1 of FY 2012
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Doesnt include |
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New Infrastructure (h/w & Software planned for 2012) |
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Delivery work from OBU (Outside of Core Team, I&TG or other SHC resources) |
Sears Holdings Corporation Confidential and Proprietary Information
EXHIBIT 1 TO APPENDIX 1.01-A
4
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ONLINE SERVICES
**Each month, chargeback will occur according to the below cost | ||
Monthly Cost | table. This cost could increase or decrease depending on ramp-up | |
and availability of resources targeted for that planned month. |
Feb | Mar | Apr | May | Jun | Jul | Aug | Sept | Oct | Nov | Dec | Jan | Feb | ||||||||||||||||||||||||||||||||||||||||
Monthly Labor Bill To Outlet BU |
$ | 184,204.80 | $ | 217,900.80 | $ | 279,442.80 | $ | 255,309.60 | $ | 255,309.60 | $ | 255,309.60 | $ | 269,349.60 | $ | 269,349.60 | $ | 269,349.60 | $ | 284,949.60 | $ | 284,949.60 | $ | 284,949.60 | $ | 3,110,374.80 | ||||||||||||||||||||||||||
Other Expenses |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Site Hosting |
$ | 14,083.33 | $ | 14,083.33 | $ | 14,083.33 | $ | 14,083.33 | $ | 14,083.33 | $ | 14,083.33 | $ | 14,083.33 | $ | 14,083.33 | $ | 14,083.33 | $ | 14,083.33 | $ | 14,083.33 | $ | 14,083.33 | $ | 169,000.00 | ||||||||||||||||||||||||||
Site Hosting |
$ | (10,166.67 | ) | $ | (10,166.67 | ) | $ | (10,166.67 | ) | $ | (10,166.67 | ) | $ | (10,166.67 | ) | $ | (10,166.67 | ) | $ | (10,166.67 | ) | $ | (10,166.67 | ) | $ | (10,166.67 | ) | $ | (10,166.67 | ) | $ | (10,166.67 | ) | $ | (10,166.67 | ) | $ | (122,000.00 | ) | |||||||||||||
New Environment Hdw & SW Cost |
||||||||||||||||||||||||||||||||||||||||||||||||||||
(Labor and Other Expenses) To Outlet BU |
$ | 188,121.47 | $ | 221,817.47 | $ | 283,359.47 | $ | 259,226.27 | $ | 259,226.27 | $ | 259,226.27 | $ | 273,266.27 | $ | 273,266.27 | $ | 273,266.27 | $ | 288,866.27 | $ | 288,866.27 | $ | 288,866.27 | $ | 3,157,374.80 |
** | SEE APPENDIX A: Team Size Roles |
** | SEE APPENDIX B: Ramp-up Schedule |
Cost Review
OBU Product Lead: | Dan Bernstein | |
OBU Business Lead: | Matt Guardiola |
2.2 | Term and Termination |
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Contract is in effect from February 1st, 2012 through January 31st, 2013 . |
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After January 31st, 2013, contract will renew monthly unless a new contract or extension is put in place. |
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Contract may be terminated at any time with 90 day written notice. |
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Upon termination, OBU will release and/or redeploy team resources |
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Project costs may be evaluated and adjusted from time-to-time as necessary with mutual agreement from OBU and Sears Outlet. |
3 | Funding and Chargeback |
Please provide signatures and chargeback information below. No development will begin without acceptance and approval of Project Costs.
Unit # (Peoplesoft Ledger-5 digit numerical): | 58479 | |
Account # (5 digit numerical): | 54612 |
Sears Holdings Corporation Confidential and Proprietary Information
EXHIBIT 1 TO APPENDIX 1.01-A
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ONLINE SERVICES
Payment Terms . Upon signing, OBU will charge Holding Company on monthly basis via SOAR allocation to the Unit/Account number provided above.
Expenses . Pricing does not include image royalty or software licensing, if applicable. All third party costs are estimates. Third party expenses will be billed and paid by Requesting Business Unit at cost.
Signature constitutes agreement to pay the above Total Cost, to be charged to the Unit and Account numbers provided. Project Delivery Date will be confirmed upon completion and approval of functional wireframes. Any functional, design or technical requests in addition to the work described in the attached PRD may result in increased costs, project delay, or both, and shall be requested via submittal of a new Business Intake Request & Funding Form.
Sign-off: |
Name |
Title |
Signature |
|||
BU Requestor | Beau Warren | Director, E-commerce Sears Outlet | ||||
BU Approval | J.J. Ethridge | VP/GM Sears Outlet |
Corporate Finance Approval Limits:
Manager up to $100,000
Director up to $250,000
DVP up to $500,000
VP up to $750,000
SVP or direct report to CFO up to $999,999
Sears Holdings Corporation Confidential and Proprietary Information
EXHIBIT 1 TO APPENDIX 1.01-A
6
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ONLINE SERVICES
APPENDIX A:
Team Structure
Sears Outlet.com 2012 Engineering & Ux Team
Role |
Onshore | Offshore | Total | |||||||||||||||||||||
SHC | SHI | Infosys | SHI | Infosys | ||||||||||||||||||||
Dir (Engg) |
0.2 | 0.2 | ||||||||||||||||||||||
Del Mgr (DM) |
0.5 | 0.5 | 1 | |||||||||||||||||||||
Proj Mgr (PM) |
1 | 1 | 1 | 3 | ||||||||||||||||||||
Bus Analyst (BA) |
1 | 1 | 2 | |||||||||||||||||||||
Dev Lead |
2 | 1 | 1 | 4 | ||||||||||||||||||||
Dev (FED) |
1 | 1 | ||||||||||||||||||||||
Dev (BED) |
2 | 7 | 9 | |||||||||||||||||||||
QA (Lead) |
1 | 1 | ||||||||||||||||||||||
QA |
2 | 2 | ||||||||||||||||||||||
Architect |
1 | 1 | ||||||||||||||||||||||
Performance Engr |
0.25 | 0.25 | ||||||||||||||||||||||
Middleware Engr |
0.25 | 0.25 | ||||||||||||||||||||||
DBA |
0.25 | 0.25 | ||||||||||||||||||||||
Infra Engr |
0 | |||||||||||||||||||||||
Acct Mgr |
0.25 | 0.25 | ||||||||||||||||||||||
UxA Proj Mgr |
0.25 | 0.25 | ||||||||||||||||||||||
Ux A (IA) |
1 | 1 | ||||||||||||||||||||||
Ux Design/Creative |
0.5 | 0.5 | ||||||||||||||||||||||
Ux FED |
1 | 1 | ||||||||||||||||||||||
OMS Proj Mgr |
| 0 | ||||||||||||||||||||||
OMS Dev |
1 | 1 | 2 | |||||||||||||||||||||
11.95 | 2 | 1 | 14 | 1 | ||||||||||||||||||||
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Total Team Size |
29.95 | 29.95 | ||||||||||||||||||||||
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Sears Holdings Corporation Confidential and Proprietary Information
EXHIBIT 1 TO APPENDIX 1.01-A
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Execution Copy
ONLINE SERVICES
Appendix B:
Ramp up Schedule
Team |
Onshore/
Offshore |
Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Jan | |||||||||||||
Labor |
||||||||||||||||||||||||||
OBU |
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Director (Engg) |
Onshore | 0.20 | 0.20 | 0.20 | 0.20 | 0.20 | 0.20 | 0.20 | 0.20 | 0.20 | 0.20 | 0.20 | 0.20 | |||||||||||||
Delivery Mgr |
Onshore | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | |||||||||||||
Project Mgr |
Onshore | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | |||||||||||||
BA |
Onshore | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | |||||||||||||
Dev lead |
Onshore | 1.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | |||||||||||||
Dev (BED) |
Onshore | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | ||||||||||||||
QA (Lead) |
Onshore | 1.0 | 1.0 | 1.0 | ||||||||||||||||||||||
Architect |
Onshore | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | |||||||||||||||
Performance Engr |
Onshore | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | |||||||||||||
Infra Engr |
Onshore | |||||||||||||||||||||||||
Acct Mgr |
Onshore | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | |||||||||||||
UxA Proj Mgr |
Onshore | 0.50 | 0.50 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | |||||||||||||
Ux A (IA) |
Onshore | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | |||||||||||||||
Ux Design/Creative |
Onshore | 0.50 | 0.50 | 0.50 | 0.50 | 0.50 | 0.50 | 0.50 | 0.50 | 0.50 | 0.50 | |||||||||||||||
Ux FED |
Onshore | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | |||||||||||||||
OMS Proj Mgr |
Onshore | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | |||||||||||||
Head Count (OBU Only) |
4.7 | 6.7 | 10.0 | 10.0 | 10.0 | 10.0 | 11.0 | 11.0 | 11.0 | 12.0 | 12.0 | 12.0 | ||||||||||||||
SHI |
||||||||||||||||||||||||||
Delivery Mgr |
Offshore | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | 0.5 | |||||||||||||
Project Mgr |
Onshore | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | |||||||||||||||
Project Mgr |
Offshore | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | |||||||||||||
BA |
Offshore | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | |||||||||||||
Dev lead |
Onshore | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | |||||||||||||
Dev lead |
Offshore | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | |||||||||||||
Dev (FED) |
Offshore | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | |||||||||||||
Dev (BED) |
Offshore | 5.0 | 6.0 | 6.0 | 7.0 | 7.0 | 7.0 | 7.0 | 7.0 | 7.0 | 7.0 | 7.0 | 7.0 | |||||||||||||
QA |
Offshore | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | |||||||||||||
Middleware Engr |
Offshore | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | |||||||||||||
DBA |
Offshore | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | 0.25 | |||||||||||||
Head Count (SHI Only) |
13.0 | 14.0 | 15.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | 16.0 | ||||||||||||||
Infosys |
||||||||||||||||||||||||||
Outlet Dev |
Onshore | 2.0 | 2.0 | 2.0 | ||||||||||||||||||||||
Outlet Dev |
Offshore | 2.0 | 2.0 | 2.0 | ||||||||||||||||||||||
OMS Dev |
Onshore | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | ||||||||||||||||
OMS Dev |
Offshore | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | 1.0 | |||||||||||||
Head Count (Infosys Only) |
5.0 | 5.0 | 5.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | 2.0 | ||||||||||||||
Head Count (TOTAL) |
22.70 | 25.70 | 29.95 | 27.95 | 27.95 | 27.95 | 28.95 | 28.95 | 28.95 | 29.95 | 29.95 | 29.95 |
Sears Holdings Corporation Confidential and Proprietary Information
EXHIBIT 1 TO APPENDIX 1.01-A
8
Execution Copy
ONLINE SERVICES
Sears.com & Kmart.com Display Ad Rate Card - 2012
Vertical Page | Category Page | |||||||||||||||||||||||
Vertical |
CPM | Medium Rectangle | CPM | Leaderboard | CPM | Medium Rectangle | CPM | Leaderboard | ||||||||||||||||
Appliances |
$ | 13 | 300x250 | $ | 7 | 728x90 | $ | 16 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Automotive & Tires |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 726x90 | ||||||||||||
Baby |
$ | 12 | 300x25 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Beauty |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Bed & Bath |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Books & Magazines |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Clothing |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Electronics & Computers |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728X90 | ||||||||||||
Fitness & Sports |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Food & Grocery |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728X90 | ||||||||||||
For the Home |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Gift Registry |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Gifts |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728X90 | ||||||||||||
Health & Wellness |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Jewelry |
$ | 14 | 300x250 | $ | 7 | 728x90 | $ | 17 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Lawn & Garden |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728X90 | ||||||||||||
Movies Music & Gaming |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Outdoor Living |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
PartsDlrect Parts |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Pet Supplies |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Shoes |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Sports Fan Shop |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Tools |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
T OYS & Games |
$ | 12 | 300x250 | $ | 7 | 728x90 | $ | 15 | 300x250 | $ | 8 | 728x90 | ||||||||||||
Run of Site |
$ | 7 | 300x250 | $ | 5 | 728x90 | $ | 7 | 300x250 | $ | 5 | 728x90 | ||||||||||||
Homepage |
$ | 10 | 300x250 | $ | 6 | 728x90 | | | $ | 9 | Non Std |
EXHIBIT 1 TO APPENDIX 1.01-A
9
Execution Copy
2012 LOGISTICS RATES
FIXED HANDLING BILLING |
Monthly
Billing Rate |
|||
Hardware |
$ | 269,594 | ||
Hometown |
903,140 | |||
Outlet |
10,915 | |||
|
|
|||
Total |
$ | 1,183,649 |
VARIABLE HANDLING BILLING | Charge based upon carton disbursement volume and rate by flow path and size/division | |||||||||||||||||||||||||
RRC Variable Handling Rates | Flowpath | Metric | Small | Medium | Large | X-Large | Per Pick | |||||||||||||||||||
ACD |
Case | $ | 0.17 | $ | 0.17 | $ | 0.17 | $ | 0.17 | $ | | |||||||||||||||
EMP |
Case | 0.57 | 0.58 | 0.68 | 0.99 | | ||||||||||||||||||||
Stock Case |
Case | 0.30 | 0.33 | 0.64 | 1.62 | | ||||||||||||||||||||
Stock Case NonCon |
Case | 1.08 | 1.11 | 1.35 | 2.11 | | ||||||||||||||||||||
Stock Repack Each |
Case | 0.63 | 0.66 | 0.86 | 1.53 | 0.13 | ||||||||||||||||||||
Stock Repack Inner |
Case | 0.63 | 0.66 | 0.86 | 1.53 | 0.13 | ||||||||||||||||||||
Stock Double Break |
Case | 1.29 | 1.32 | 1.53 | 2.19 | 0.13 | ||||||||||||||||||||
Stock Repack Case |
Case | 0.41 | 0.43 | 0.64 | 1.31 | 0.13 | ||||||||||||||||||||
Auto Case |
Case | 1.43 | 1.43 | 1.43 | 1.43 | | ||||||||||||||||||||
Game Domain Case |
Case | 0.96 | 0.96 | 0.96 | 0.96 | | ||||||||||||||||||||
Game Domain Repack |
Case | $ | 0.72 | $ | 0.72 | $ | 0.72 | $ | 0.72 | $ | 0.11 | |||||||||||||||
DDC Variable Handling Rates |
||||||||||||||||||||||||||
Accessories | Accessories | |||||||||||||||||||||||||
Billpath | Metric | B2S | MDO | B2S | MDO | |||||||||||||||||||||
Fridge & Freezer |
Each | $ | 2.45 | $ | 2.23 | $ | 0.18 | $ | 0.16 | |||||||||||||||||
Dishwasher |
Each | 1.90 | 1.67 | 0.18 | 0.16 | |||||||||||||||||||||
Laundry |
Each | 1.74 | 1.51 | 0.18 | 0.16 | |||||||||||||||||||||
Tractors |
Each | 2.62 | 2.39 | 0.18 | 0.16 | |||||||||||||||||||||
Microwaves |
Each | 1.86 | 1.64 | 0.18 | 0.16 | |||||||||||||||||||||
Other Divisions |
Each | 1.78 | 1.55 | 0.18 | 0.16 | |||||||||||||||||||||
Range |
Each | 2.02 | 1.79 | 0.18 | 0.16 | |||||||||||||||||||||
TVs |
Each | 1.63 | 1.40 | 0.18 | 0.16 | |||||||||||||||||||||
RDC Variable Handling Rates | Flowpath | Metric | Small | Medium | Large | X-Large | Per Pick | |||||||||||||||||||
ACD |
Case | $ | 0.10 | $ | 0.10 | $ | 0.10 | $ | 0.10 | $ | | |||||||||||||||
Flow Pallet NonCon |
Case | 5.45 | 5.45 | 5.45 | 5.45 | | ||||||||||||||||||||
Stock Pallet NonCon |
Case | 7.40 | 7.40 | 7.40 | 7.40 | | ||||||||||||||||||||
Flow Case |
Case | 0.28 | 0.30 | 0.37 | 0.73 | | ||||||||||||||||||||
Flow NonCon |
Case | 0.20 | 0.22 | 0.33 | 0.89 | | ||||||||||||||||||||
Stock Case |
Case | 0.29 | 0.32 | 0.47 | 1.24 | | ||||||||||||||||||||
Stock Repack Each |
Case | 0.64 | 0.65 | 0.72 | 1.09 | 0.13 | ||||||||||||||||||||
Stock Repack Inner |
Case | 0.64 | 0.65 | 0.72 | 1.09 | 0.13 | ||||||||||||||||||||
Stock Double Break |
Case | 2.73 | 2.75 | 2.82 | 3.18 | 0.13 | ||||||||||||||||||||
Stock Case NonCon |
Case | 0.53 | 0.57 | 0.73 | 1.62 | | ||||||||||||||||||||
RSC Variable Handling Rates | Flowpath | Metric | Small | Medium | Large | X-Large | Per Pick | |||||||||||||||||||
ACD |
Case | $ | 0.12 | $ | 0.12 | $ | 0.12 | $ | 0.12 | $ | | |||||||||||||||
Stock Case |
Case | $ | 0.33 | $ | 0.35 | $ | 0.40 | $ | 0.54 | $ | | |||||||||||||||
Stock Repack Each |
Case | $ | 0.85 | $ | 0.90 | $ | 1.00 | $ | 1.31 | $ | 0.21 | |||||||||||||||
Stock Repack Inner |
Case | $ | 0.85 | $ | 0.90 | $ | 1.00 | $ | 1.31 | $ | 0.21 | |||||||||||||||
Stock Double Break |
Case | $ | 1.03 | $ | 1.85 | $ | 1.95 | $ | 5.48 | $ | 0.21 | |||||||||||||||
Stock Case NonCon |
Case | $ | 0.77 | $ | 0.83 | $ | 0.94 | $ | 1.30 | $ | |
STORAGE BILLING
RRC Storage Rate |
$ | 0.27 | per cubic foot per month | |||
DDC Storage Rate |
$ | 1.42 | per square foot per month | |||
RDC Storage Rate |
$ | 0.28 | per cubic foot per month | |||
RSC Storage Rate |
$ | 0.62 | per cubic foot per month |
Exhibit 2 to Appendix 1.01-A
Execution Copy
2012 LOGISTICS RATES
CRC BILLING
CRC Handling Rate |
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Hardware |
$ | 0.405 | per scan charge | |||
Hometown |
$ | 0.405 | per scan charge | |||
Outlet |
$ | 0.405 | per scan charge | |||
CRC Transportation Rate |
||||||
Hardware |
$ | 0.240 | per cubic foot calculated at the division level | |||
Hometown |
$ | 0.240 | per cubic foot calculated at the division level | |||
Outlet |
$ | 0.240 | per cubic foot calculated at the division level | |||
CRC Supplies & Other Rate |
||||||
Hardware |
$ | 0.077 | per scan charge | |||
Hometown |
$ | 0.077 | per scan charge | |||
Outlet |
$ | 0.077 | per scan charge | |||
CRC Revenue |
||||||
Hardware |
salvage revenue recovery rate with 3rd Party by division | |||||
Hometown |
salvage revenue recovery rate with 3rd Party by division | |||||
Outlet |
salvage revenue recovery rate with 3rd Party by division | |||||
CRC Freight & Handling Credit |
10 | % | handling credit rate | |||
OTHER | ||||||
Space Management |
$ | 38.50/hour | ||||
Inventory Management |
$ | 10,070 / month | ||||
Billing Adjustment |
Quarterly true up of actual logistics expense performed. |
Logistics Overhead Billing Rate
Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Jan | |||||||||||||||||||||||||||||||||||||
Hometown |
86,511 | 121,517 | 103,689 | 78,032 | 76,951 | 73,050 | 70,063 | 68,687 | 68,821 | 69,415 | 76,294 | 82,082 | ||||||||||||||||||||||||||||||||||||
Hardware |
21,914 | 38,325 | 42,771 | 25,075 | 22,920 | 20,681 | 20,443 | 20,690 | 18,498 | 19,444 | 21,057 | 26,292 | ||||||||||||||||||||||||||||||||||||
Outlet |
1,048 | 1,814 | 917 | 929 | 1,045 | 688 | 754 | 823 | 1,001 | 766 | 685 | 838 |
Exhibit 2 to Appendix 1.01-A
Exhibit 2 to Appendix 1.01-A
Ex. 2 Page 2
Execution Copy
IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
OVERVIEW
|
HMC (currently through its I&TG Business Unit (at times referred to as I&TG )) will perform services, upon request of SHO. | |
The following defines the scope of I&TG Services, and deliverables that SHMC will provide to SHO, and will:
1. | Help enable SHO to understand the technology levers it has available to maximize performance for better decision making. |
2. | Provide the framework to conduct business together. |
3. | Create a simple methodology for understanding demand and consumption of technology services delivery. |
4. | Clarify key roles and responsibilities that contribute to the Parties joint governance and resulting success. |
5. | Employ a structure to minimize post-agreement tracking and administrative support. |
6. | Enable service data collection to feed financial reporting for SHO in a mechanized manner. |
7. | Describe I&TG Services and outline SHMCs engagement model to proactively bring SHO new products and services to help improve performance. |
As a supplier of Technology Services, SHMC is responsible for understanding how technology can promote more competitive business models, for delivering planned and budgeted business solutions and serving as service management consultants to SHO by entering into agreements and managing relationships with outside service providers as needed. SHO is responsible for defining its business processes, needs and requirements in support of stated business objectives; quantifying the value impact of its Service Requests, and providing business insight and review/approvals required during scoping, planning, design and delivery of its business solutions.
The Parties must work in close collaboration so that I&TG can deliver business solutions to meet SHO needs. SHMC will review the currency of infrastructure and applications supporting technology on an ongoing basis and recommend, in SHMCs discretion, that SHO consider adoption of new, more efficient automation methods.
To help confirm alignment on service delivery goals, SHMC will implement a SHO Technology Leader role to better lead efforts in collaboration with the SHO team to effectively:
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Identify business process pain points |
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Conduct needs assessments and requirements definition |
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Scope and plan Request for Services (RFS) |
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Monitor Service Delivery |
Sears Holdings Corporation proprietary and confidential for internal use only.
EXHIBIT 3 TO APPENDIX 1.01-A
Execution Copy
IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
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Gain key input from all SHO and SHMC stakeholders to help confirm alignment on priorities and delivery of business solutions |
The SHO Technology Leader role (described below) is paramount to coordinating the Parties joint delivery of value. The Request-for-Services (RFS) process, managed through the I&TG Project Management Organization (PMO), takes the I&TG Services and manifests it in specific timelines, skill-sets, pricing, and milestones linked to each Service Request and gives the Parties joint transparency on costs, effort, risk, and solution delivery.
CLIENT SERVICE MINDSET
SHMCS I&TG STRATEGY
|
he strategy for I&TG focuses on 4 areas that will help drive value creation for SHO by improving SHMCs ability to assist SHO with technology innovation and service delivery. |
1. | Business Model |
A. | Product and service offerings defined |
B. | Usage and billing processes documented |
C. | Project lifecycle revamped and refined |
2. | Organization and Talent |
A. | Technology leaders engaged with SHO Personnel |
B. | Development and operation teams re-aligned |
3. | Financials |
A. | Market rates for services |
B. | Usage-driven chargeback for both development and support Services |
C. | Greater transparency and choice for SHO |
4. | Strategic Initiatives |
A. | Improve the customer and associate digital experience |
B. | Increase the flexibility, agility, and capabilities of SHMCs retail systems |
C. | Modernize SHMCs technology infrastructure |
SHMC classifies the I&TG Services into 2 major categories: Technology Services and Operational Services.
Service revenues for custom technology services and projects (technical advisory, business process engineering, solution design, build and deliver) | ||||
|
Usage revenues from operational services currently used by our customers (integrated retail, merchant & sourcing intelligence, pricing & marketing, supply chain, remote customer support and infrastructure) |
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
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Execution Copy
IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
SHO TECHNOLOGY ENGAGEMENT
In order to align more closely, SHMC created a key role within the SHO Technology Engagement function; that of the SHO Technology Lead. The mission of the SHO Technology Lead is the official, though not single, point of interface between SHO and SHMC to facilitate delivery of business solutions and value creation on a timely basis.
To do this, the SHO Technology Lead will:
1. | Assist SHO in properly documenting business processes & requirements. |
2. | Help business teams create needs assessments and business cases in support of business solutions. |
3. | Facilitate all phases of the systems delivery lifecycle to help ensure that the SHMC I&TG and SHO teams are aligned, aware and working effectively to meet business requirements. (Note that the assigned SHO Technology Leader is not responsible for directly managing technology projects, but will maintain active oversight on every Service Request and project related to SHO and intervene where necessary to keep projects on track). |
4. | Be responsible for securing SHO sign-off (or documented rejection) for each step in which it is required during the Service Delivery process. |
5. | Provide an escalation point for the SHO business teams with respect to technology issues and for the technology teams with respect to business engagement in Base Operations and Service Delivery activities. |
6. | Monitor the resolution of technology related issues (as tracked by SHMC I&TG PMO), following up with issue owners where necessary to ensure timely resolution. |
7. | Communicate updates relating to technology direction and status to the SHO teams. |
8. | Be the steward of technology capability for SHO, maintaining an awareness of external developments relevant to their business domain (e.g. new technologies being used by competitors, etc.) and helping confirm SHO has access to appropriate and value-adding solutions in the short and long term. |
The SHO Technology Leader will be held to account for:
1. | Aged issue status for technology related issues raised by SHO and submitted through the PMO process or through error-ticket systems. |
2. | Adherence by the business team to systems delivery process (e.g. completion of business process models, appropriate scope and timely sign-off of requirements, completion of UAT, business investment in user training and change management, etc.). |
3. | Facilitating effective communication and eliminating disconnects between teams involved in delivering solutions to their business, including technology teams, transformation & development, training & change management, and the SHO team itself. |
4. | Client satisfaction in solutions and engagement model (where measured). |
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
2
Execution Copy
IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
SERVICE DELIVERY & MAINTENANCE
The key responsibilities for the Service Delivery & Maintenance functions within I&TG are:
1. | Managing the underlying technical and application infrastructure. |
2. | Being responsible for the quality and availability of technology services; provided that SHO performs its responsibilities and that SHO senior management remains responsible for SHO-specific management decisions. |
3. | Continuity management as it relates to the support and operations of the business-critical processes and systems. |
4. | Risk and Security management. |
5. | Identity and Access management. |
TECHNOLOGY SERVICES
ENGAGEMENT MODEL & REQUEST-FOR-SERVICES (RFS)
HMCs I&TGs Engagement Models helps maximize the value created from technology investments through processes that ensure alignment and results. The engagement models align priorities, funding and resources, and elevate decision making, decision rights and accountability to the appropriate levels at SHO through both the SHO Technology Leader role and the RFS process. |
All Service Requests - projects, change requests and new requirements will be managed through a defined process. This process is used to help confirm the following:
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Requests are rejected if not supported by necessary endorsement, business process model, clear business case and requirements documentation, or if considered not implementable |
|
All Service Requests are recorded and assigned a WorkLenz (WL) number to confirm I&TG specialists participate in the estimating process, with tracking of the approved allocation and subsequent progress of the request. This includes rejected requests and requests that are subsequently dropped or rolled into another request or project. |
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For all activated business service requests, SHMC time spent will equal time billed to SHO regardless of whether the request is delivered in full, cancelled or postponed. Commitment of skilled resources comes with a cost that must be recovered during the request fulfillment process. |
|
A contingency allowance will be built into the pricing for projects considered to be high risk endeavors, as evaluated according to a set of risk assessment criteria, such as technology employed, business calendar/season, SHO exposure, project budget or duration, regulatory impact or effect on critical business systems (infrastructure, applications, tools). |
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Maintaining a single funnel for acquisition of all requests is essential to the success of this approach |
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Governance/PMO will administer this process. |
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
3
Execution Copy
IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
SHOS APPROVAL PROCESS
The chart below represents SHMCs I&TG collective governance model; through a series of authorization gates throughout the project initiation lifecycle, this model helps confirm that opportunities that are most highly aligned with business strategy are pursued, and that timing of initiation is commensurate with the urgency of SHO needs.
This chart also illustrates the numerous points at which SHO must work with SHMC to ensure alignment between the Parties. The steps above which are circled in red indicate the minimum interface points and are detailed below.
1. | Approving Business VP Approval : At this point, SHO Vice President is required to approve the project for estimation. Up until this point in the projects lifecycle, there has been little or no SHMC involvement in the project. Once this approval is received, SHMC will begin the estimation effort and can begin charging SHO for the time involved in pulling together the high-level cost estimate. |
2. | Executive Sponsor Approval : The high-level cost estimates have been created and included in the projects information. SHO Executive Sponsor (a direct report to the CEO) is now required to approve these estimates in order for the project to continue through the remaining lifecycle steps. |
3. | Obtain SHO Funding Approval : Once the Executive sponsor has approved the project request, the SHO CFO/Finance Manager is required to approve. This ensures that SHO has the necessary funds to cover the cost of the planned or unplanned project and is committed to having the work performed. |
4. | Update I&TG Estimates : This is the final cost estimate which gets submitted by SHMC. It is possible, through the process of collecting and documenting the detailed requirements and finalizing the design solution, that SHMC may need to update the costs associated with delivering the project. If the final cost estimate exceeds the original estimate by more than 50%, an additional approval by SHO Executive Sponsor will be required. |
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
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Execution Copy
IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
5. | Request Functional Readiness Approval : The SHO project sponsor must approve / sign-off on the projects readiness to be moved into production. This is the final approval step needed on SHO side. |
PROJECT CHANGE CONTROL PROCESS
Throughout the lifecycle of a service request within SHMC, various factors may affect the overall cost to deliver. These factors may include (but are not limited to) a change in project scope, a better understanding of specialized skill sets needed, a shift in priorities from SHO or a change in the cost of materials (hardware or software) required to complete the project. Any time a change occurs, the SHMC I&TG project manager will initiate a Change Control Request. This is a formal process within I&TG and helps confirm the necessary governance is followed and approvals are obtained before any additional costs are incurred.
A note of change to the approval process for 2012 represents an easing of review and approval requirements if the request is under a pre-set percentage of the initially approved funding. The percentage will be set by the governing SHO project team and allows for work to move ahead once the preliminary project estimate (E1) has been approved if the additional cost to the project is under the stated amount. After proceeding through the Evaluate activities, if the executive approval gate (E2) indicates the change exceeds the allowed percentage, the full scope of requirements, revised project plan and business case must be reviewed again and approved prior to moving forward.
The diagram below depicts the steps which are followed as part of the Change Control process.
This chart also illustrates the additional approval steps necessary from SHO:
6. | Executive Sponsor Approval : The revised cost estimates have been created and included in the projects information. SHO Project Sponsor must approve these amended estimates in order for the project to continue through the remaining Change Control steps. |
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
5
Execution Copy
IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
7. | Obtain SHO Funding Approval : Once the Executive sponsor has approved the Change Control request, SHO CFO/Finance Manager is required to approve. This ensures that SHO has the necessary funds to cover the additional costs related to the Change Control request. |
OPERATIONAL SERVICES
&TG Service Lines have been designed to meet SHO Base operating/support needs and Request-for-Service demand. A fundamental underpinning of I&TGs Service Lines is the use of its Business Process Management (BPM) Center of Excellence (COE). I&TG uses BPM as its overarching framework to help SHO achieve competitive advantage and business growth through process performance, capability and adaptability. Each Service Request SHMC undertakes will have a business process model and clear requirements to help confirm the value is understood. SHMC will assist SHO in understanding the value of business process management and provide enablement services through its BPM COE so that SHO can create and own its process definitions to expedite needs assessment and business solution delivery.
OPERATIONAL SERVICE REQUESTS COMPONENTS
The operational Services I&TG will provide are:
1. | Technology & Business Innovation |
A. | Innovation Lab & Prototyping |
B. | Commercial Grade Solutioning |
2. | Business Process Consulting & Technology Advisory Services |
A. | Value Engineering / Business Process Optimization |
B. | Business / Technology Needs Assessment |
C. | Scoping, Planning, Estimating and Road-Mapping |
D. | To-Be Process Modeling & Enablement |
E. | Change Leadership |
3. | Business Solution Development / Ad Hoc Service Requests |
A. | Project, Program and Budget Management |
B. | Milestone, Issue and Risk Management |
C. | Deliverables / Quality Assurance |
D. | Project Coordination |
E. | Communications & Training |
F. | Core Development & Solution Delivery |
There exist a variety of business models to accommodate the different request types received from SHO and offered for delivery by I&TG. One design and delivery model may not be appropriate for all; thus SHMC employs a flexible assignment process to help determine the anticipated optimum way to satisfy a new request, particularly in the project space. SHMC I&TG knowledge and experience spans the potential use of:
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Traditional service lifecycle with analysis, planning, design, build, test and deploy. |
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
6
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IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
|
An agile style of iterative development building to a phased set of requirements, working toward an end product that helps meet a business objective and enable a new operational capability. |
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Pilot approach where a full set of requirements becomes an initial version of the end product, goes into a trial operational period and then benefits from continuous improvement process based on trial learnings. |
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Walk before we run model a series of modules designed, built and deployed individually under a single architecture such that add-on modules enhance the original capability using consistent and complementary functional elements and technologies. |
Each project approach has a different cost model that may influence the joint SHO / SHMC decision on how to proceed. This review and decision process should occur during the Ideate stage and can be reviewed or reconsidered early in the Evaluate stage with minimal impact on the final project cost.
BASE OPERATIONS COMPONENTS
The Services I&TG provides as part of the Base Operations (Keep-the-Lights-On) are organized into key Operational Services and I&TG Product Domains:
Best Offering | Technology Product Domain | |
Business Strategy & Operations | Enterprise Learning & Development | |
Enterprise Process Management | ||
Enterprise Support | ||
Corporate Technology Services | Audit / Legal / Real Estate Support | |
Corporate Services Support | ||
Finance & Procurement Systems Support | ||
Financial Services Support | ||
Human Resources Management | ||
Payroll Management | ||
Procurement Systems Support | ||
Real Estate Systems Support | ||
Decision Analytics & BI | Tax Systems Support | |
BI Administration | ||
BI Application Support | ||
BI Data Monitoring | ||
BI Delivery Administration | ||
BI License Management & Support | ||
Shop Your Way Rewards Support | ||
Supply Chain Management | ||
Home Services | Targeted Interactions Support | |
Customer Management | ||
Knowledge Management | ||
Order Management | ||
Planning/Consulting | ||
Sales Lifecycle Management | ||
Software Maintenance | ||
Supply Chain Management | ||
Marketing, Pricing & Loyalty | Support and Services | |
Clearance Pricing Services | ||
Dynamic Pricing Services | ||
Loyalty Services | ||
Marketing / Advertising Services | ||
Pricing Services | ||
Publishing Services |
Base Offering | Technology Product Domain | |
Network & Security Services | Compliance | |
Media Services | ||
Non-retail Asset Maintenance | ||
Retail Asset Maintenance | ||
Security | ||
Telecom Provisioning & Management | ||
Telecommunications Data | ||
Telecommunications Voice | ||
Operational Services | Data Center Operational Services | |
Distributed Environment Services | ||
Mainframe Services | ||
Storage Services | ||
Teradata Sevices | ||
Retail Services | Associate & Customer Desktop Support | |
Core Retailing Transaction Support | ||
Customer Facing Transaction Support | ||
Hardware Support Services | ||
Administration | ||
Service Management | Business Continuity | |
I&TG Service Quality Management | ||
I&TG Service Support | ||
I&TG Service Support Corporate Desktop Support | ||
Learning & Development | ||
Performance & Service Mgmt | ||
Business to Business Systems Support | ||
Supply Chain Services | Design Systems Support | |
Distribution Center Systems Support | ||
Import Systems Support | ||
Inventory Management | ||
Item Management Services | ||
Ordering & Receiving Support | ||
Retail Demand Intelligence | ||
Return Goods Processing Support | ||
Store Space Management Systems Support | ||
Transportation Systems Support | ||
Vendor Management Services |
SHO DEPENDENT OPERATING/SUPPORT SYSTEMS
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
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Execution Copy
IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
Maintenance and access to the following systems required by SHO to operate its business, and other additional or replacement systems as later identified by the Parties:
SHO Dependent Operating/Support Systems | ||||||||||
AdPlan/PMI |
Dynamic Pricing |
IMPACT |
NTE |
RTV |
Store Ordering |
|||||
Alex |
ECM |
In-Store Hardware Maintenance |
OMS |
SADI |
Store Planning (Epic 2/4) |
|||||
Applicant Drug Testing |
EDI Star Wars |
iPlan |
OneSource |
Sales Tax Exempt Certification Systems (SECS) |
Store Visit Scheduler |
|||||
Associate Contribution Reports |
EHDS |
IPS |
OTM |
Sales Tax Tables |
Super RIM |
|||||
Associate Discount |
eHire |
Kenshoo |
outlet.com |
SAS |
Support Services |
|||||
Cash Flow |
EIS |
LCM |
Outlook |
SCIM/NSN |
SYWR |
|||||
CLRP |
eProperty |
LDAP |
PartsDirect |
Sears Sales Tax Support System (S4) and Reporting |
Tax Compliance Calendar |
|||||
Combo Receiving |
ESB |
Lease Payments (LPS) |
PBW |
Sears Source Subsidy (SSIS) |
TKC |
|||||
Concur |
Essbase |
LicenseHQ |
PC RIM |
Service Desk |
TPC |
|||||
CORE |
Financial Transaction Data (FTD) Warehouse |
LIS |
PDS |
ServiceLive |
Tracker |
|||||
Core HR Function |
FIPS |
Loss Prevention |
Pebble |
Settlement & Reconciliations |
Trading Partners |
|||||
CorpTax |
Fixed Asset Management |
LPub |
Planogram |
SHARP Authorizations |
Training Tracker |
|||||
CRT Income Tax |
Fixed Asset Software (FAS) |
MARE |
POM |
SHARP Refund Management |
Treasury Database |
|||||
CRT Sales Tax |
FLEXXperts |
Markdown Mgmt (MDM) |
POS (NPOS & CashR) |
SHC POM |
TS21 |
|||||
CSAT |
GameOn |
MIM |
PRCM |
SHC Procurement Portal |
Unity (Movaris) |
|||||
Customer Data Warehouse (CDW/EDW) |
General Ledger Management |
MS Office |
RCS Rapid Credit Application Processing |
Shopping Recap |
USIS |
|||||
DCPO |
Google Affilicate Connect Commerce |
My Personal Information (MPI) |
Retail Enterprise Suite (RES) |
Signature and Receipt Application (SARA) |
ViewDIrect |
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
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Execution Copy
IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
Deal Management |
Help Ticket |
NAI |
Revised Accounts Payable |
SIMI/BOSS |
Waste Reconciliation and Stock Ledger |
|||||
Dealer Commission |
HomeTown Store Connect |
National Accounts Payable (NAP) |
RIM |
SKU 991 Table/Database |
WFA |
|||||
Desktop Support |
HRP |
National Disbursements Journal (NDJ) |
Risk Management Information System |
SNC Fusion on a Workstation |
WFM |
|||||
Digital Asset Management |
I9 and WOTC |
NFX |
RMDS |
SNC/iSNC |
WLP |
|||||
DOS |
IDRP |
NPS |
RSOS |
SPIN |
||||||
DOS SOE |
IMA |
NROS |
RTI |
SPRS/MDRS |
I&TG SERVICE CATALOG
A detailed 2012 I&TG Service Catalog is attached to this Exhibit as Addendum 3. Addendum 3 may be unilaterally amended by SHMC. SHMC will notify the SHO contact person of changes to this Addendum 3.
ISSUES MANAGEMENT / RESOLUTION
HMC employs severity scales for Issue Management to help confirm that proper ownership, collaboration, and resolution of Issues occurs as swiftly as possible. SHO agrees to make commercially reasonable efforts to timely provide SHMC with complete and accurate information and material requested by SHMC and required for use in replicating and diagnosing an Issue. SHO also agrees to make reasonably available appropriate employees when options for resolution are being vetted and course-of-action decisions are required.
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
9
Execution Copy
IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
I&TG COSTS AND RATES FOR SERVICES
BASE COMPONENT & SERVICE REQUEST CHARGES
ervice costs for Base Components (enterprise support, integrated retailing, merchant & sourcing intelligence, technology infrastructure, etc.) have been bottom-up identified and are charged based an appropriate allocation method or usage/consumption level. |
Service costs of Base Components for SHO will not exceed $9.6M for 2012, assuming SHO usage and requirements are consistent with that experienced in 2011. Each subsequent year of the agreement will provide the next fiscal years plan to SHO ninety (90) days in advance of the close of the fiscal year. Annual increases to the Base Component and Systems Access/Maintenance service costs will be capped at five-percent (5%) with the exception of increases to 3rd Party services which will be passed through to SHO. Any additional increases will be subject to negotiation and agreement by both parties in advance of any applicable increase.
Labor Rates have been determined for FY12, however actual spend is based on the time and materials cost associated with Service Requests determined on a project-by-project basis, as well as by the skill sets required to deliver the Services.
The rate/hour for Service Requests is as follows:
I&TG Standard Rates for SHC and SHI Associates FY2012
SHC Associates | Skill Set | Rate | ||
Associate | $65 / hour | |||
SHI Associate | Skill Set | Rate | ||
Off-shore Engineer | $35 / hour | |||
On site Engineer | $65 / hour | |||
3rd Party Contractor | Skill Set | Rate | ||
Will vary |
$/hour will be reviewed with and approved by SHO |
SUPPORT SERVICES AND ENGAGEMENT TEAM
An SHMC I&TG Engagement Team will be formed to support SHO to provide support and maintenance services and multiple enhancements. External variable labor for project development will be charged as needed and agreed upon with SHO. The SHMC team will be comprised of a Director, Project Manager, Business Analysts and Solution Architects with an annual cost of $811,200 for 2012.
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
10
Execution Copy
IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
EXPECTATIONS
COLLABORATION
HMC and SHO will work together, utilizing collaborative planning focused on meeting business objectives, efficient and cost effective shared service centers, common service management processes and an organization designed and skilled to help optimize a commercially viable service model.
SHMC will assist SHO in identifying the business processes critical to SHO customers and the computer systems or services which support those processes. Once that list of critical systems and processes has been identified, a mutually agreed-upon level of service will be provided with the commensurate costs detailed.
BUSINESS SPONSOR / CUSTOMER RESPONSIBILITIES
In order for SHMC to effectively provide the Services, SHO will:
1. | Ensure sound business processes exist prior to engaging SHMC for solution architecture |
This can be accomplished by leveraging SHMC Business Process Management Center of Excellence as described above. Ensuring a sound business process before introducing new technology helps to ensure the solution being delivered will properly address SHOs problem or need.
2. | Provide proper allocation and timely availability of SHO Personnel as part of the engagement team |
SHMC is only part of the solution process. SHO must allocate sufficient resources to the engagement. If SHO does not allocate and make available appropriate resources, the solution being delivered will most likely not fulfill the need appropriately.
3. | Ensure responsiveness and participation of SHO senior executives & sponsors |
There are key, significant times within the lifecycle of the engagement where Senior SHO Executive and Sponsors must participate and collaborate with the SHMC I&TG engagement teams. From the initial approval to submit requests to SHMC, to funding approvals, to periodic status updates, through to the engagement close-out all of these gates and project events require engagement by Senior SHO members. It is the responsibility of the both Parties, through the joint project management team, to pre plan the meeting calendar and build sufficient executive time into the project plan for all such executive requirements. It will be SHOs responsibility to confirm that all necessary internal SHO approvals are obtained.
4. | Define accurate & reasonable expectations of project benefits (quantifiable wherever possible) |
While SHMC is responsible for identifying the costs associated with performing the requested services for SHO, it is entirely the responsibility of SHO to identify potential benefits for the engagement. These benefits have typically been represented as monetary (EBITDA & BOP) but are not limited to that category. Additional, quantifiable metrics could include:
|
Faster time to productivity |
|
Improved ease of use leading to faster transaction processing time |
|
Increased users or usage |
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
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Execution Copy
IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
|
Increased system uptime/availability |
|
Increased response time |
|
Increased units of client or customer data captured |
|
Increased data accuracy (fewer defects) |
Only by identifying these quantifiable metrics can accurate benefit realization be measured.
5. | Complete Customer Satisfaction Surveys (CSATs) upon the conclusion of the engagement |
The key mechanism by which SHMC can measure the success of the engagement with SHO is through the Customer Satisfaction Survey which is sent at the conclusion of each engagement. The survey itself takes only a few minutes to complete, but allows SHMC to understand what went well or what areas may need improvement as part of SHMCs engagement model.
6. | For projects that affect SHO only, SHO will be responsible for key strategic and material management decisions. For projects that affect both SHO and other SHMC clients, SHO and SHMC will have joint strategic and material management decisions regarding the respective project; provided that SHO will remain responsible for decision making as it affects SHO. |
INFORMATION & TECHNOLOGY GROUP RESPONSIBILITIES
As part of the collaboration between SHMC and SHO, there will be periodic governance meetings between which will be used to discuss the following:
1. | Accomplishments to date These will include: |
a. | Planned projects delivered to-date |
b. | Unplanned projects delivered to-date |
c. | Base & Support services provided |
d. | Improvements or cost reductions made towards Base & Support services |
2. | Metrics |
a. | Service metrics are in place (internal, customer) |
b. | Project, Base and Support metrics jointly agreed to be tracked in SLA/OLA |
c. | What metrics have been met |
d. | Any operational issues with meeting committed metrics |
3. | Expenses |
a. | Planned expenses versus actual expenses as measured on a period-to-date and year-to-date basis |
b. | New items or expenses from SHMC |
c. | Expected changes to expenses for the remainder of the year (either decreases or increases) |
d. | Charges incurred by SHO for postponed or cancelled projects |
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
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IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
LIST OF ADDENDUMS
Below is a list of I&TG-related Addenda to the Agreement:
Addendum 1. | SHO 2012 Base & Support Charges | |
Addendum 2. | SHO 2012 Support Services | |
Addendum 3. | 2012 I&TG Service Catalog |
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
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IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
ADDENDUM 1 SHO BASE AND SUPPORT CHARGES
Base Components (Technology Products) Usage/Consumption Charge (per year):
Base Operations for 2012 |
Technology Product Domain |
Total | ||||
Business Strategy & Operations |
Enterprise Learning & Development |
$ | 12,004 | |||
Enterprise Process Management |
$ | 32,744 | ||||
Enterprise Project / Program Support |
$ | 48,821 | ||||
|
|
|||||
Business Strategy & Operations Total |
$ | 93,569 | ||||
|
|
|||||
Information Analytics & Innovation |
BI Administration |
$ | 11,306 | |||
BI Application Support |
$ | 266,063 | ||||
BI Data Monitoring |
$ | 46,829 | ||||
BI Delivery Administration |
$ | 57,532 | ||||
BI License Management & Support |
$ | 62,870 | ||||
Supply Chain Management |
$ | 374 | ||||
|
|
|||||
Information Analytics & Innovation Total |
$ | 444,974 | ||||
|
|
|||||
Network & Security Services |
Compliance |
$ | 89,867 | |||
Media Services |
$ | 22,337 | ||||
Non-retail Asset Maintenance |
$ | 82,513 | ||||
Retail Asset Maintenance |
$ | 53,404 | ||||
Security |
$ | 460,099 | ||||
Telecom Provisioning & Management |
$ | 305,188 | ||||
Telecommunications Data |
$ | 4,095,582 | ||||
Telecommunications Voice |
$ | 647,057 | ||||
|
|
|||||
Network & Security Services Total |
$ | 5,756,047 | ||||
|
|
|||||
Operational Services |
Associate & Customer Desktop Support |
$ | 65,393 | |||
Data Center Operational Services |
$ | 660,421 | ||||
Distributed Environment Services |
$ | 961,213 | ||||
Storage Services |
$ | 208,106 | ||||
|
|
|||||
Operational Services Total |
$ | 1,895,133 | ||||
|
|
|||||
Retail Services |
Core Retailing Transaction Support |
$ | 310,871 | |||
Customer Facing Transaction Support |
$ | 68,673 | ||||
Hardware Support Services |
$ | 377 | ||||
|
|
|||||
Retail Services Total |
$ | 379,921 | ||||
|
|
|||||
Service Management |
Administration |
$ | 959 | |||
Business Continuity |
$ | 27,439 | ||||
I&TG Service Quality Management |
$ | 14,416 | ||||
I&TG Service Support |
$ | 2,254 | ||||
I&TG Service Support - Corporate Desktop Support |
$ | 168,341 | ||||
Learning & Development |
$ | 1,720 | ||||
Performance & Service Mgmt |
$ | 11,784 | ||||
|
|
|||||
Service Management Total |
$ | 226,913 | ||||
|
|
|||||
Base Offering Grand Total |
$ | 8,796,557 | ||||
|
|
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
15
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IT SERVICES
Service Level Agreement between Sears Holdings Corporation and SHO
ADDENDUM 2 SHO SUPPORT SERVICES
Support Services |
Total | |||||
Development & Support Services |
Fixed team minimum to support and maintain services, multiple enhancements, external variable charged, as needed |
$ | 811,200 | |||
|
|
|||||
Business Strategy & Operations Total |
$ | 811,200 | ||||
|
|
ADDENDUM 3 2012 I&TG SERVICE CATALOG
2012 I&TG Service Catalog is provide as a separate document.
Sears Holdings Corporation proprietary and confidential for internal use only.
Exhibit 3 to Appendix 1.01-A
16
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Version 1.1 Mar 2012
Exhibit 3 to Appendix 1.01-A
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Charge Back Models |
3 | |||
Base Offerings Descriptions |
4 | |||
Business Services |
||||
Business Strategy & Operations |
||||
Enterprise Learning & Development |
5 | |||
Enterprise Process Management |
6 | |||
Enterprise Project / Program Support |
7 | |||
Corporate Technology Services |
||||
Audit / Legal / Real Estate Support |
8 | |||
Corporate Services Support |
9 | |||
Finance & Procurement Systems Support |
10 | |||
Financial Services Support |
11 | |||
Human Resources Management |
12 | |||
Payroll Management |
13 | |||
Procurement Systems Support |
14 | |||
Real Estate Systems Support |
15 | |||
Tax Systems Support |
16 | |||
Home Services |
||||
Customer Management |
17 | |||
Knowledge Management |
18 | |||
Order Management |
19 | |||
Planning/Consulting |
20 | |||
Sales Lifecycle Management |
21 | |||
Software Maintenance |
22 | |||
Supply Chain Management |
23 | |||
Support and Services |
24 | |||
Information Analytics & Innovation |
||||
BI Administration |
25 | |||
BI Application Support |
26 | |||
BI Data Monitoring |
27 | |||
BI Delivery Administration |
28 | |||
BI License Management & Support |
29 | |||
Shop Your Way Rewards Support |
30 | |||
Supply Chain Management |
31 | |||
Targeted Interactions Support |
32 | |||
Marketing, Pricing & Loyalty |
||||
Clearance Pricing Services |
33 | |||
Dynamic Pricing Services |
34 | |||
Loyalty Services |
35 | |||
Marketing / Advertising Services |
36 | |||
Pricing Services |
37 | |||
Publishing Services |
38 |
Network & Security Services |
||||
Compliance |
39 | |||
Media Services |
40 | |||
Non-retail Asset Maintenance |
41 | |||
Retail Asset Maintenance |
42 | |||
Security |
43 | |||
Telecom Provisioning & Management |
44 | |||
Telecommunications Data |
45 | |||
Telecommunications Voice |
46 | |||
Operational Services |
||||
Associate & Customer Desktop Support |
47 | |||
Data Center Operational Services |
48 | |||
Distributed Environment Services |
49 | |||
Mainframe Services |
50 | |||
Storage Services |
51 | |||
Teradata Services |
52 | |||
Retail Services |
||||
Core Retailing Transaction Support |
53 | |||
Customer Facing Transaction Support |
54 | |||
Hardware Support Services |
55 | |||
Service Management |
||||
Administration |
56 | |||
Business Continuity |
57 | |||
I&TG Service Quality Management |
58 | |||
I&TG Service Support |
59 | |||
I&TG Service Support Corporate Desktop Support |
60 | |||
Learning & Development |
61 | |||
Performance & Service Mgmt |
62 | |||
Supply Chain Services |
||||
Business to Business Systems Support |
63 | |||
Design Systems Support |
64 | |||
Distribution Center Systems Support |
65 | |||
Import Systems Support |
66 | |||
Inventory Management |
67 | |||
Item Management Services |
68 | |||
Ordering & Receiving Support |
69 | |||
Retail Demand Intelligence |
70 | |||
Return Goods Processing Support |
71 | |||
Store Space Management Systems Support |
72 | |||
Transportation Systems Support |
73 | |||
Vendor Management Services |
74 |
Exhibit 3 to Appendix 1.01-A
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IT SERVICES
2012 I&TG Service Catalog
Charge Back Models:
Model Type |
Explanation |
Formula |
||
Equal Distribution |
Total cost is spread equally across all of the Operating Units | Cost / 20 (5%) | ||
Transaction |
Spread the cost based on what % of the overall transactions are processed on behalf of the Operating BU | (BU Transaction Count) / (Total Transaction Count) | ||
Revenue |
The cost is spread out based on the % of the overall revenue that is generated by the Operating BU | (BU Generated Revenue) / (Total Revenue) | ||
Headcount |
Total cost is spread based on the headcount % within the Operating BU compared to the overall headcount | (BU Headcount) / (Total Headcount) | ||
Headcount (ex-POS) |
Total cost is spread based on the headcount % within the Operating BU compared to the overall headcount | (BU Headcount) / (Total Headcount) | ||
Actual |
Total cost is spread across the Operating BUs based on actual cost incurred | BU Cost | ||
Seat |
Total cost is spreadout by the number of license seats distributed | (BU Assigned Seats/Total Seats Allocated) | ||
Application Consumption |
Support and infrastructure charges assigned across the business units depending the usage of applications being supported by those infrastructure components | (BU-specific applications / Total SHC applications) | ||
Project Consumption |
The total cost to provide this services is spread across the Business Units who consume the most in terms of the resources required to do project work in the fiscal year | (# of projects initiated by BU / total # of projects in fiscal year) |
Exhibit 3 to Appendix 1.01-A
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IT SERVICES
2012 I&TG Service Catalog
Base Offering / Portfolio Descriptions
Business Strategy & Operations
The Business Strategy & Operations offerings encompass several functions aimed at providing governance and structure to the I&TG Business Unit. These functions include: supplier management; project and portfolio management; process quality assurance; and pricing and allocations management.
Corporate Technology Services
The Corporate Technology Services offerings are comprised of services which enable the Support Business Units to provide services to their customers. These services include (but are not limited to): financial; tax; legal; procurement; human resources; payroll; real estate; and tax.
Home Services
The Home Services offerings are aligned specifically to support the Home Services and ServiceLive Business Units. These services include: customer management; knowledge management; order management; sales lifecycle management; supply chain management; and the support and maintenance of these services.
Information Analytics & Innovation
The Information Analytics & Innovation services are a collection of business intelligence services which provide support for: analytics tool licensing; data monitoring; supply chain analytics; and support for specific program such as Shop Your Way Rewards and Targeted Interaction.
Marketing, Pricing & Loyalty
The Marketing, Pricing & Loyalty offerings support the business units with services specifically tailored to provide: pricing modeling; marketing and advertising services; and support for the loyalty programs such as Shop Your Way Rewards.
Network & Security Services
The Network & Security Services offerings are provided across all of SHC and include: industry compliance; retail and non-retail asset maintenance; enterprise systems security; and an array of telecommunications services for voice and data.
Operational Services
The Operational Services offerings include all the services and support necessary to run the data center operations group which include: desktop support; distributed environment support, mainframe services; storage services; and Teradata services.
Retail Services
The Retail Services offerings are specifically aligned to support the Retail Services Business Unit and their Operating Business Unit customers. These services include: retailing transaction support; customer facing transaction support; and hardware support services.
Service Management
The Service Management offerings are a collection of services which provide the SHC enterprise with: enterprise business continuity management; service quality management; service support for corporate as well as field customers; and performance management services.
Supply Chain
The Supply Chain offerings are a collection of services aligned to support the Supply Chain Business Unit and their customers with the following: business to business support; distribution center support; import, inventory and item management; order management; and transportation systems support.
Exhibit 3 to Appendix 1.01-A
4
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Business Strategy & Operations
Service: | Enterprise Learning & Development | |
Service Description: | The Enterprise Learning & Development services provide the following: | |
Computer based training catalogs for IT-related topics, Office Productivity, and Business & Soft skills |
||
Facilitation of on-site, instructor lead training classes |
||
Chargeback method: | Seat | |
Service Components: |
ElementK / SkillSoft |
|
Caliber Training |
||
Global Knowledge |
||
SHU Training |
||
SHC Course |
Exhibit 3 to Appendix 1.01-A
5
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Business Strategy & Operations
Service: | Enterprise Process Management | |
Service Description: |
The Enterprise Process Management service is a collection of applications and services which provide:
Enterprise and BU-specific process documentation
Metrics-based process management modeling
A process governance framework |
|
Chargeback method: | Project Consumption | |
Service Components: |
Process Quality Assurance
Business Process Management Consulting |
Exhibit 3 to Appendix 1.01-A
6
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Business Strategy & Operations
Service: | Enterprise Project / Program Support | |
Service Description: | The Project Management Office (PMO) is responsible for managing all project requests, monitoring the health of projects, helping with the portfolio optimization and prioritization process and providing guidance to each of the portfolio sponsors. | |
Chargeback method: | Project Consumption | |
Service Components: |
WorkLenz (PPM CentraI)
Enterprise Program Management
Enterprise Project Management |
Exhibit 3 to Appendix 1.01-A
7
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Corporate Technology Services
Service: | Audit / Legal / Real Estate Support | |
Service Description: | Support provided to the Audit, Legal and Real Estate groups which would include the following services: | |
Application break/fix support |
||
Application monitoring |
||
Minor enhancements |
||
Interface support and application upgrades |
||
Chargeback method: | Actual | |
Service Components: |
CT Tymetrix |
|
Internal Audit apps (TeamMate) |
||
Legal Apps (DM, T360, Intella, Deltaview, etc.) |
||
Legal Global Compliance Maintenance |
||
Legal Requests for Sales/Product Information |
||
OpenText DM |
Exhibit 3 to Appendix 1.01-A
8
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Corporate Technology Services
Service: | Corporate Services Support | |
Service Description: | Support provided across Sears Holdings involving enterprise wide applications or services which would include the following: | |
Application break/fix support |
||
Minor enhancements to applications |
||
Chargeback method: | Actual | |
Service Components: |
Corporate Services applications (Utilities, Front Desk Badge, Scheduler Plus, etc.) |
|
Food applications (Bottle Deposit) |
||
Google Earth and Google Earth Pro |
||
Identicard Badges |
||
Licensed Business Requests for Sales/Product Information |
||
MARE |
||
Server moves, Office/OS/IE upgrade testing, Mainframe Migration research, etc. |
||
Relius Government Forms |
||
Risk Management Information Systems |
||
Sales Data |
||
Sears Store Planning (EPIC2/4) |
||
SOX and Internal Audit Reviews |
||
STAR |
||
Store Operations Requests for Sales/Product Information |
||
Third Party Desktop Applications |
Exhibit 3 to Appendix 1.01-A
9
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Corporate Technology Services
Service: | Finance & Procurement Systems Support | |
Service Description: | The Finance & Procurement systems support services is a collection of applications and services which provide: | |
Accounts Payable services |
||
Credit card processing |
||
Accounting services |
||
General Ledger services |
||
Treasury services |
||
Chargeback method: | Actual | |
Service Components: |
Accounts Payable (NDJ, IPS, NAP, CSI, RAPS) |
|
Activity Based Costing (ABC) |
||
Bridge Warehouse |
||
CASH & SALES |
||
Concur |
||
Daily Credit Card Settlement |
||
Finance & Acctg (Tracker, LPS, JDE) |
||
Kmart RE Acctg App (J.D. Edwards) |
||
Licensed Business (STL0) |
||
LOCN and Store Master |
||
NAI (Sears General Ledger) |
||
PeopleSoft Financials - Asset Management, Project Costing, and Procurement |
||
PeopleSoft General Ledger and FTD |
||
Royalty System |
||
Stock Ledger (including Waste Recon, SPAs, Daily Cycle lnv.) |
||
Treasury (Tweb, JPMAccess, CashPro, Treasury Db, etc.) |
Exhibit 3 to Appendix 1.01-A
10
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Corporate Technology Services
Service: | Financial Systems Support | |
Service Description: | A suite of applications and services tailored to meet the needs of the Financial Services support business. These systems facilitate: | |
Authorizations and Credit |
||
Processing of Layaways |
||
ID Validation services |
||
Reporting services |
||
Settlements |
||
Chargeback method: | Actual | |
Service Components: |
Centralized Vault |
|
Associate reimbursement |
||
Authorizations |
||
Credit Extranet |
||
Layaway |
||
Rapid Credit / ID Validation Services |
||
SARA |
||
SAS / Essbase reporting |
||
SCPE |
||
Settlement |
Exhibit 3 to Appendix 1.01-A
11
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Corporate Technology Services
Service: | Human Resources Management | |
Service Description: | A suite of applications and services tailored to meet the needs of the Sears Holdings associates. These systems facilitate: | |
Sears & Kmart discount card system, cards provided by the vendor, FirstData |
||
Calculation of associate commissions |
||
Supporting the hourly recruiting application |
||
Associate performance review and goal planning |
||
Management reporting for the analysis of associate data |
||
Chargeback method: | Actual | |
Service Components: |
Associate Discount (AD) |
|
Commission System |
||
eHire |
||
eLearning |
||
HRP |
||
Human Resources Case Management Tool |
||
IVR |
||
My Personal Information (MPI) |
||
TPC |
||
Workforce Analytics (WFA) |
Exhibit 3 to Appendix 1.01-A
12
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Corporate Technology Services
Service: | Payroll Management | |
Service Description: | A suite of applications and services which facilitate payroll functions such as: | |
PeopleSoft HR and Payroll applications |
||
Timekeeping services |
||
Chargeback method: | Actual | |
Service Components: |
Paybase |
|
PeopleSoft HCM |
||
PeopleSoft HCM - Oracle DB |
||
TKC |
||
WFC Kronos |
Exhibit 3 to Appendix 1.01-A
13
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Corporate Technology Services
Service: | Procurement Systems Support | |
Service Description: | A suite of applications and services tailored to meet the needs of Procurement. These systems facilitate: | |
Asset Management |
||
Procure-to-Pay and 3 rd Party Supplier integrations |
||
Chargeback method: | Actual | |
Service Components: |
Asset Management, Project Costing, and Procurement |
|
P2P (Ariba) Integration |
Exhibit 3 to Appendix 1.01-A
14
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Corporate Technology Services
Service: | Real Estate Systems Support | |
Service Description: | A suite of applications and services tailored to meet the needs of the Sears Real Estate business. These services include: | |
Application break / fix |
||
Minor enhancements |
||
Application monitoring |
||
Strategic market planning |
||
Sales territory planning |
||
Targeted geomarketing |
||
Chargeback method: | Actual | |
Service Components: |
FIPS |
|
Tactician |
Exhibit 3 to Appendix 1.01-A
15
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Corporate Technology Services
Service: | Tax Systems Support | |
Service Description: | A suite of applications and services supporting tax related activities. These services include: | |
Interface support for web based training system for field associates |
||
Property tax data mining |
||
Commercial real estate appraisal |
||
Tax calculations for sales, purchases and rentals |
||
Application upgrades |
||
Application break /fix support |
||
Chargeback method: | Actual | |
Service Components: |
Gross Receipts Tax (License HQ) |
|
Income Tax (CorpTax, Intelliforms) |
||
Property Tax (eProperty, Narrative1, Directory of MM, etc.) |
||
Sales Tax (Tax Matrix for Sales Tax, Taxware, Kmart Sales Tax, S4, etc.) |
Exhibit 3 to Appendix 1.01-A
16
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Home Services
Service: | Customer Management | |
Service Description: | Customer management is a collection of services aimed at providing a complete customer relationship capability. These services include: | |
Software platform for building and deploying ECRM applications |
||
Multi-channel analytics capturing customer interactions across all channels |
||
Customer service and sales |
||
Chargeback method: | Actual | |
Service Components: |
Aspect |
|
Autonomy |
||
Avaya |
||
Ciboodle |
||
Facilities Management / Field Support |
||
HSCCD |
||
HSCCN&SC |
||
HSQUALITY |
||
HSVRU |
||
Nuance |
||
Serviont |
||
TSG |
Exhibit 3 to Appendix 1.01-A
17
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Home Services
Service: | Knowledge Management | |
Service Description: | Knowledge management is a suite of applications and services aligned to provide the following: | |
Enterprise Content Management including document management and web content management |
||
Real-time data integration and high-availability solutions |
||
Large scale data warehousing and analytics |
||
Chargeback method: | Actual | |
Service Components: |
Alfresco |
|
Golden Gate |
||
GREENPLUM1HS |
||
HSBUSINTEL |
||
IBM CDC |
||
Intelex |
||
Kaidara |
||
SAS |
Exhibit 3 to Appendix 1.01-A
18
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Home Services
Service: | Order Management | |
Service Description: | The order management service is a collection of applications and services which provide: | |
Compression software and tools for geographic data, document management, and web distribution |
||
Workforce optimization and 3 rd party network management |
||
Digital maps |
||
Dynamic routing |
||
Chargeback method: | Actual | |
Service Components: |
ESRI |
|
HS - Help Desk |
||
HS - Wireless Communication |
||
HSHAL |
||
HSHDROUTING |
||
HSNEWCO |
||
HSROUTING |
||
HSSOMCS |
||
HSSOMNP |
||
LizardTech |
||
SAS Forecasting |
||
ServicePower |
||
Teleatlas |
||
Teleatlas - Map updates |
Exhibit 3 to Appendix 1.01-A
19
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IT SERVICES
2012 I&TG Service Catalog
Base Offering: Home Services
Service: | Planning / Consulting | |
Service Description: | The planning and consulting services provide pre-project assistance in the analysis of business requirements and needs, in an effort to better align the business demand with the technology solutions available. | |
Chargeback method: | Actual | |
Service Components: |
I&TG Planning / Consulting |
|
Other BU Planning / Consulting |
Exhibit 3 to Appendix 1.01-A
20
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Home Services
Service: | Sales Lifecycle Management | |
Service Description: | Sales lifecycle management is a series of applications and services aimed and providing: | |
Sales campaign management |
||
Commission management |
||
Chargeback method: | Actual | |
Service Components: |
HSCAMPAIGN |
|
HSCOMMSALES |
Exhibit 3 to Appendix 1.01-A
21
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IT SERVICES
2012 I&TG Service Catalog
Base Offering: Home Services
Service: | Software Maintenance | |
Service Description: | Software maintenance is a service which manages the software licensing and maintenance for the SAP suite of tools. | |
Chargeback method: | Actual | |
Service Components: |
SAP |
Exhibit 3 to Appendix 1.01-A
22
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Home Services
Service: | Supply Chain Management | |
Service Description: | Supply chain management is a collection of applications and services which provide the following functionality: | |
Enabling business agility and IT efficiency by providing innovative data management technology and services that transform data into a strategic asset |
||
Research and development |
||
Transforming service business operations and accessing new sources of revenue, profits, competitive differentiation and customer loyalty |
||
Chargeback method: | Actual | |
Service Components: |
Data Flux |
|
Deja Imagining |
||
HSPARTSDIRECT |
||
HSPARTSNPN |
||
Iron Mountain - Software Escrow |
||
Lawson |
||
LeadTech |
||
Servigistics |
||
Softeaon |
Exhibit 3 to Appendix 1.01-A
23
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Home Services
Service: | Support and Services | |
Service Description: | Support and services is a collection of applications, tools and services which provide: | |
Web site monitoring |
||
License management |
||
System load testing |
||
Architectural services |
||
Chargeback method: | Actual | |
Service Components: |
Gomez - Web site monitoring |
|
Hewlett Packard |
||
LoadRunner |
||
Systems Architecture - Pipeline |
||
Systems Architecture - R&D |
||
Profiling Tool |
||
Troy Data Center |
Exhibit 3 to Appendix 1.01-A
24
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Information Analytics & Innovation
Service: | BI Administration | |
Service Description: | The Business Intelligence administration service is an aggregation of all the administrative tasks associated with the analytics applications and services provided across SHC. | |
Chargeback method: | Transaction | |
Service Components: |
BI Admin Production Support |
Exhibit 3 to Appendix 1.01-A
25
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Information Analytics & Innovation
Service: | BI Application Support | |
Service Description: | The Business Intelligence application support services provide break / fix, monitoring and support for various analytics applications and functions such as: | |
Associate contribution |
||
An integrated environment that consolidates multiple data subjects for both Kmart and Sears into a single platform driving a consistent view |
||
In Store reporting for store operations defined metrics and actionable information. |
||
Chargeback method: | Transaction | |
Service Components: |
BI ACR / FLS |
|
BI Alex MSTR Support |
||
BI Alex Support |
||
BI Application Support |
||
BI Business Objects Support |
||
BI CRRS Support |
||
BI Data Modeling |
||
BI OWB Support |
||
BI SPRS Support |
||
BI View Direct |
||
KMWB Support |
Exhibit 3 to Appendix 1.01-A
26
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Information Analytics & Innovation
Service: | BI Data Monitoring | |
Service Description: | The Business Intelligence data monitoring service provides real-time monitoring of the various data feeds from transactional systems into data marts and data warehouses. | |
Chargeback method: | Transaction | |
Service Components: |
BI Data Monitoring Production Support |
|
BI Data Monitoring Support |
Exhibit 3 to Appendix 1.01-A
27
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Information Analytics & Innovation
Service: | BI Delivery Administration | |
Service Description: | The Business Intelligence delivery administration is a service which provides support for the project intake and execution related to analytics applications and services. | |
Chargeback method: | Transaction | |
Service Components: |
BI Delivery Administration - BU Analytics Training |
|
BI Delivery Administration - Delivery Administration |
||
BI Delivery Administration - Intake |
Exhibit 3 to Appendix 1.01-A
28
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Information Analytics & Innovation
Service: | BI License Management & Support | |
Service Description: | The Business Intelligence license management and support service provides a single point of contact between various vendors of analytics tools and services and SHC. These tools and services include: | |
Individual customer recognition and identification information |
||
Web-hosted solutions |
||
Web-based controls used on SHC portals |
||
Data modeling software |
||
Chargeback method: | Transaction / Seat | |
Service Components: |
BI - Acxiom - Abilitec & Infobase |
|
BI - Applied Predictive Technologies - Subscription |
||
BI - APT - Hosted Analytics solution |
||
BI - EIS - Maintenance & Finance Labor Support |
||
BI - EssBase Finance Labor Support |
||
BI - Financial Coordinator |
||
BI - Hyperion EssBase - Maintenance |
||
BI - Netezza - Maintenance |
||
BI - SAS Institute - Maintenance |
||
BI -Telenik - Maintenance |
||
BI - Unica Annual Maintenance |
||
BI - WeatherBank - Maintenance |
||
BI Livelink Support |
||
Bus Obj and USPS software licensing (NCOA) |
||
KXEN Sofware Mainenance |
||
Microstrategy CPU License Maintenance |
||
Microstrategy Term License |
||
Replicon - Web Resource Tool |
||
Sybase - PowerDesigner License |
Exhibit 3 to Appendix 1.01-A
29
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Information Analytics & Innovation
Service: | Shop Your Way Rewards Support | |
Service Description: | The Information and Analytics Shop Your Way Rewards support services provides all the vendor, licensing, monitoring and hosting support for the Shop Your Way Rewards program. | |
Chargeback method: | Transaction | |
Service Components: |
Epsilon fees to develop SYWR system |
|
Epsilon mgmt fees within SYWR system |
||
SYWR - S/W Maintenance (Oracle) |
||
SYWR Managed services fee (Oracle) |
Exhibit 3 to Appendix 1.01-A
30
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Information Analytics & Innovation
Service: | Supply Chain Management | |
Service Description: | The Information Analytics Supply Chain Management services are a collection of applications and services which assist the Supply Chain function with the following: | |
A centralized database of product information |
||
Space and floor planning |
||
Assortment planning |
||
Chargeback method: | Actual | |
Service Components: |
BI - Advance Visual Tech - Retail Focus |
|
BI - APT Merchandise Optimization Tool - Hosting Fee |
||
BI - Gerber Technology Inc - Web PDM Maintenance |
||
BI - iPLanMerch., Fin., & Assort. Planning - SAS.Market Max |
||
BI - JDA - Space and Floor Planning - Maintenance |
||
BI - SAS Institute - Merch., Fin., & Assort. Planning - ASAP Weblogic |
||
BI - SAS Institute ( iPLanMerch., Fin., & Assort. Planning) |
||
Data Visualization |
||
Web PDM |
Exhibit 3 to Appendix 1.01-A
31
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Information Analytics & Innovation
Service: | Targeted Interactions Support | |
Service Description: | The targeted interactions support services are aligned to provide in-depth information about customer behavior and provide real-time analytics and reporting to better align future offers. | |
Chargeback method: | Transaction / seat | |
Service Components: |
Unica and Application Reporting Hosting/Support |
|
Unica Realtime annual maintenance |
Exhibit 3 to Appendix 1.01-A
32
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Marketing, Pricing & Loyalty
Service: | Clearance Pricing Services | |
Service Description: | The clearance pricing services are a collection of applications and services which provide: | |
Markdown management services |
||
Clearance pricing services |
||
Chargeback method: | Actual | |
Service Components: |
CLRP |
|
Kmart Markdown Management |
||
No Home Clearance System |
||
SAS Markdown Optimization |
||
Sears Markdown Management |
Exhibit 3 to Appendix 1.01-A
33
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Marketing, Pricing & Loyalty
Service: | Dynamic Pricing Services | |
Service Description: | The dynamic pricing services are a collection of applications and services which provide the following: | |
Detailed analytics around competitor pricing |
||
Pricing recommendations |
||
Product matching services |
||
Chargeback method: | Actual | |
Service Components: |
Dynamic Pricing - Best Seller |
|
Dynamic Pricing - Crawling |
||
Dynamic Pricing - Data Sourcing |
||
Dynamic Pricing - Mygofer |
||
Dynamic Pricing - Price Recommendation |
||
Dynamic Pricing - Product Matching |
Exhibit 3 to Appendix 1.01-A
34
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Marketing, Pricing & Loyalty
Service: | Loyalty Services | |
Service Description: | Loyalty services within the Marketing, Pricing and Loyalty offering are specifically aligned to the Shop Your Way Rewards program. These services provide management over the supplier being leveraged to host the program. | |
Chargeback method: | Actual | |
Service Components: |
SYWR - Epsilon |
Exhibit 3 to Appendix 1.01-A
35
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Marketing, Pricing & Loyalty
Service: | Marketing / Advertising Services | |
Service Description: | The marketing and advertising services are a collection of applications and services which provide: | |
A consolidated database of customer information |
||
Digital asset management |
||
Chargeback method: | Actual | |
Service Components: |
CDW |
|
DAM |
||
Marketing/Advertising - IMPACT |
||
Marketing/Advertising - Kmart Legacy |
||
Marketing/Advertising - New Project Evaluation |
||
Marketing/Advertising - Sears Legacy |
||
TI |
||
Workhorse |
Exhibit 3 to Appendix 1.01-A
36
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Marketing, Pricing & Loyalty
Service: | Pricing Services | |
Service Description: | The pricing services is a collection of applications and services which provide the following: | |
Price optimization |
||
Web portal to view pricing information |
||
Price management for both Sears and Kmart formats |
||
Chargeback method: | Actual | |
Service Components: |
Deal Management |
|
K-Link |
||
McLane Cost Change Process |
||
Price Optimization |
||
Pricing - Ad Forecasting |
||
Pricing - DSD |
||
Pricing - GAME |
||
Pricing - Kmart Price Management |
||
Pricing - New Price |
||
Pricing - SAM |
||
Pricing - Sears Price Management |
||
Pricing - Uplift |
||
Pricing Portal |
||
Vendor Flags (a.k.a. VSAM) |
Exhibit 3 to Appendix 1.01-A
37
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Marketing, Pricing & Loyalty
Service: | Publishing Services | |
Service Description: | The publishing services is a service which provides an electronic alternative to a printed advertising circular. The electronic version would do a better job of targeting specific audiences with relevant advertising information. | |
Chargeback method: | Actual | |
Service Components: |
e-Publishing |
Exhibit 3 to Appendix 1.01-A
38
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Network & Security Services
Service: | Compliance | |
Service Description: | The Compliance service is a collection of applications and processes which enable enterprise-wide adherence to industry requirements and best-practices which include: | |
Email protection services |
||
Penetration testing and intrusion detection |
||
Software licensing compliance |
||
Chargeback method: | Headcount / Headcount (Ex-POS) | |
Service Components: |
NPE - SLA Tracking/Reporting |
|
NPE - Vendor Governance |
||
SEC - Compliance - SW Maint - Bradford NAC |
||
SEC - Compliance - SW Maint - Email Encryption |
||
SEC - Compliance - SW Maint - RSA DLP |
||
SEC - Compliance - SW Maint - Tripwire |
||
SEC - Compliance eDiscovery Tool SW Maint |
||
SEC - Compliance HW Maintenance |
||
SEC - On-Line - SW Maint - Fortify |
Exhibit 3 to Appendix 1.01-A
39
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Network & Security Services
Service: | Media Services | |
Service Description: | Media Services is a suite of applications and services which provide SHC-wide capabilities such as: | |
Peer-to-peer video conferencing |
||
Voice conferencing and equipment support |
||
Video conference room support and services |
||
Chargeback method: | Headcount - (Ex-POS) | |
Service Components: |
Maintenance on (2) Polycom video conference systems in Troy and Royal Oak |
|
Maintenance on Vidyo equipment, new in 2011 - PART OF RFP |
||
NPE - AudioWeb Conferencing Support |
||
NPE - Video Engineering |
||
NPE - Video Standards & Architecture |
||
Symon Readerboards in SHTC Annual Maintenance |
||
Video conferencing maintenance - New systems in 2011 |
Exhibit 3 to Appendix 1.01-A
40
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Network & Security Services
Service: | Non-retail Asset Maintenance | |
Service Description: | Non-retail Asset Maintenance is a collection of tools and services aimed at providing asset maintenance to the non-retail functions. These services include: | |
Private Branch Exchange (PBX) management for voice |
||
Cellular repeaters for the major facilities |
||
Wide Area Network (WAN) service optimization |
||
Voice over IP (VoIP) services |
||
Wireless services |
||
Chargeback method: | Headcount (Ex-POS) | |
Service Components: |
AT&T(Troy) - PBX, Mail etc. |
|
Hoffman Cellular repeater infrastructure T&M maintenance |
||
Meru controller maintenance new in 2010 |
||
Meru s/w maintenance new in 2010 |
||
Nexum - Checkpoint hardware maintenance used for Troy & Hoffman firewalls |
||
Palo Alto annual maintenance |
||
Riverbed annual maintenance |
||
SBC Hoffman PBX maintenance |
||
Sniffer Infinistream (Netscout) hardware maintenance for Troy network core |
Exhibit 3 to Appendix 1.01-A
41
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Network & Security Services
Service: | Retail Asset Maintenance | |
Service Description: | Retail Asset Maintenance is a collection of tools and services aimed at providing asset maintenance to the retail functions. These services include: | |
Private Branch Exchange (PBX) management for voice |
||
Wide Area Network (WAN) service optimization |
||
Voice over IP (VoIP) services |
||
Wireless services |
||
Interactive voice response (IVR) systems support |
||
Chargeback method: | Headcount / Headcount (Ex-POS) | |
Service Components: |
AT&T 3174 SNA PU/LU Support |
|
Bluecoat hw maintenance for Kmart store systems proxies |
||
Bluecoat sw maintenance for Kmart store systems proxies |
||
Cisco - Verizon Smartnet maintenance financed through Cisco Capital 7/1/11 - 6/30/14 |
||
Intervoice HW maint - IVR used for store locator, procedure help line, Kexpress, product return hotline, flu clinic, AP |
||
Maintenance on Telident 911 System - new in 2010 |
||
Nortel BCM (PBX) Maintenance - Crosscom /Siemens |
||
Nortel maintenance - Troy legacy routers |
||
Sentinel T&M maintenance for Cisco VoIP to desktop phones |
||
Siemens Maintenance Contract for all Sear locations with Siemens PBX, including Call Centers, PRS, SLS, Logistics and FLS |
Exhibit 3 to Appendix 1.01-A
42
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Network & Security Services
Service: | Security | |
Service Description: | Security services is a suite of tools, applications and services which provide the following: | |
Secure web access and digital certificates |
||
Single Sign On (SSO) authentication |
||
Network scanning for vulnerabilities and threat management |
||
Payment Card Industry (PCI) compliance |
||
Crisis management |
||
Chargeback method: | Headcount / Headcount (Ex-POS) | |
Service Components: |
SEC - Secure Web Gateway |
|
SEC - Access Support |
||
SEC - Compliance vGO SSO |
||
SEC - Digital Certificates |
||
SEC - Endpoint Encryption & Security |
||
SEC - Identity Management |
||
SEC - Internal Vulnerability Scanning |
||
SEC - IPS Chassis |
||
SEC - Maint for mainframe ID creation tool |
||
SEC - Maintenance of Security Appliances |
||
SEC - Managed Security Service |
||
SEC - Mobile Management Server |
||
SEC - PCI Code Reviews & Vulnerability Scanning |
||
SEC - Production Support (Access Administration) |
||
SEC - Secops Project Management & Tools |
||
SEC - Security Compliance Support |
||
SEC - Security Operations Support |
||
SEC - SHC Crisis Management Program |
||
SEC - Vulnerability/Threat Management |
Exhibit 3 to Appendix 1.01-A
43
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Network & Security Services
Service: | Telecom Provisioning & Management | |
Service Description: | Telecom Provisioning & Management services provide support for the following: | |
Provisioning of telecom equipment |
||
On-line, expense management systems and services |
||
Comprehensive Telecom Expense Management with our providers |
||
Contract management |
||
Chargeback method: | Headcount / Headcount (Ex-POS) | |
Service Components: |
NPE - Management & Administration |
|
NPE - Project Management & Administration |
||
NPE - Business Financials |
||
NPE - Provisioning & Support (Voice/Data/Cellular/BB) |
||
NPE - Telecom Expense Management |
||
TEM tool |
Exhibit 3 to Appendix 1.01-A
44
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Network & Security Services
Service: | Telecommunications Data | |
Service Description: | Telecommunications Data services are a collection of applications, tools and services which provide the following data services: | |
Broadband internet/WAN services |
||
Dense wavelength division multiplexing (DWDM) services providing high-speed connectivity across campuses |
||
Wireless support services |
||
Network performance monitoring and analysis services |
||
Chargeback method: | Actual / Headcount / Headcount (Ex-POS) | |
Service Components: |
ARIN - Internet Registration (Kmart) |
|
AT&T Broadband Aggregation, MIS / DSL Circuits and ANIRA |
||
Data Network cabling time & materials charges |
||
DWDM Private Data Network (PDN) |
||
Enterprise fee |
||
Hoffman Campus Wireless maintenance & support (AirWave) |
||
Hughes - Dealer Stores Lease & DSL |
||
Level 3 MPLS for Off Mall Sites |
||
NPE - Core/Data Center Engineering, Standards & Architecture |
||
NPE - Data Support Services Corporate, Off-Mall & Retail |
||
NPE - Engineering Standards & Architecture |
||
NPE - Firewall Engineering, Standards & Architecture |
||
NPE - Hometown Store Support |
||
NPE - Routing and Switching Engineering, Standards & Architecture |
||
NPE - Server & Application Load Balancing Engineering |
||
NPE - VPN/Remote Access Engineering, Standards & Architecture |
||
Opnet Maintenance |
||
Solarwinds Maintenance for Network analysis tools |
||
Sprint MPLS Head End Circuits OC3s (Hoffman and Troy) |
Exhibit 3 to Appendix 1.01-A
45
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Network & Security Services
Service: | Telecommunications Voice | |
Service Description: | Telecommunications Voice services are a collection of applications, tools and services which provide the following voice services: | |
BlackBerry device support and connectivity |
||
Wireless cell phone support |
||
Call center support and maintenance services |
||
Voicemail systems support |
||
Chargeback method: | Actual / Headcount / Headcount (Ex-POS) | |
Service Components: |
Amerinet - Secure Sidewinder (Blackberry firewalls) |
|
AT&T Wireless Cell Phone Credit |
||
Intervoice SW maint - IVR used for store locator, procedure help line, Kexpress, product return hotline, flu clinic, AP |
||
IVR Application (Edify replacement) |
||
Lyrix - Peoplefind, automated operator on Troy PBX |
||
NPE - Call Center/Voice Engineering, Standards & Architecture |
||
NPE - DATA/VOICE/WIRELESS MACD Corporate, Off-Mall & Retail |
||
NPE - Voice Support Services Corporate, Off-Mall & Retail |
||
NPE - Wireless Engineering |
||
NPE - Wireless Services Support Corporate, Off-Mall & Retail |
||
NPE - Wireless Standards & Architecture |
||
Research in Motion (RIM) - annual server licenses and fees |
||
Unimax 2nd Nature Software Maint - Hoffman uses to program/support the PBX and Voicemail systems Nortel Call Pilot; Help Desk; Call Manager |
||
Unimax 2nd Nature Software Maint - Troy PBX programming interface & Help Desk |
||
Voice - AT&T CSU maintenance, to Call Centers |
||
WIRELESS - Cell Phones, Pagers, Blackberries, Wireless Air Card Backup (Outlet and SAC stores) |
Exhibit 3 to Appendix 1.01-A
46
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Operational Services
Service: | Associate & Customer Desktop Support | |
Service Description: | Associate & Customer Desktop Support services are a set of services which provide: | |
Desktop support for the enterprise systems users |
||
Support for mobile platforms |
||
Desktop operating systems support |
||
Remote software installation and support services |
||
Chargeback method: | Headcount (Ex-POS) | |
Service Components: |
Enterprise Desktop - Non Retail |
|
Enterprise Mobility Framework |
||
Enterprise Windows Operating Systems |
||
Enterprise Workstation Builds |
||
Enterprise Wrkstn Pkg Install Rtl/NonRtl |
Exhibit 3 to Appendix 1.01-A
47
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Operational Services
Service: | Data Center Operational Services | |
Service Description: | Data Center Operational Services are a collection of services provided out of our data center which provide: | |
Cloud computing support and services |
||
Hadoop (large data) support, services and analytics |
||
Data center facilities support and maintenance services |
||
Chargeback method: | Actual | |
Service Components: |
Cloud |
|
Hadoop |
||
Operations Center Support |
Exhibit 3 to Appendix 1.01-A
48
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Operational Services
Service: | Distributed Environment Services | |
Service Description: | Distributed Environment Services are a collection of services which provide the following for the distributed computing environment: | |
Computer maintenance |
||
Support and service of the various software packages and installations |
||
Equipment support and repairs |
||
Chargeback method: | Application Consumption | |
Service Components: |
Distributed - Computer Maintenance |
|
Distributed - Data Procs Software Packages |
||
Distributed - Equipment Repairs |
Exhibit 3 to Appendix 1.01-A
49
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Operational Services
Service: | Mainframe Services | |
Service Description: | Mainframe Services is a collection of tools and services which provide support to our mainframe environment which includes: | |
Computer maintenance services |
||
Software support |
||
Equipment repairs and rentals |
||
Chargeback method: | Transaction | |
Service Components: |
Mainframe - Computer Maintenance |
|
Mainframe - Data Procs Software Packages |
||
Mainframe - Equipment Repairs |
||
Mainframe - Machine Rentals |
Exhibit 3 to Appendix 1.01-A
50
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Operational Services
Service: | Storage Services | |
Service Description: | Storage Services is a collection of tools and services which provide support to our data storage needs which includes: | |
Computer maintenance services |
||
Software support |
||
Equipment repairs and rentals |
||
Chargeback method: | Application Consumption | |
Service Components: |
Storage - Computer Maintenance |
|
Storage - Data Procs Software Packages |
||
Storage - Machine Rental |
Exhibit 3 to Appendix 1.01-A
51
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Operational Services
Service: | Teradata Services | |
Service Description: | Teradata Services is a collection of tools and services which provide support specific to our use of the Teradata platform. These services include: | |
Teradata computer maintenance services |
||
Software support |
||
Chargeback method: | Transaction | |
Service Components: |
Teradata - Computer Maintenance |
|
Teradata - Data Procs Software Packages |
Exhibit 3 to Appendix 1.01-A
52
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Retail Services
Service: | Core Retailing Transaction Support | |
Service Description: | Core Retailing transactions support is a collection of applications and services which provide support to the Point of Sale including: | |
Back office suite (SNC, MPU, KIN, RMU) support |
||
Integrated retailing mobile support (SHC Connect) |
||
Store opening and closing support |
||
Loss prevention support and services |
||
Labor management support and services |
||
Sign Management support and services |
||
Chargeback method: | Actual | |
Service Components: |
ABD |
|
Back Office Suite (SNC MPU) & (KIN RMU) |
||
EOD Processing NFX |
||
Grocery Host |
||
Hometown - Hometown Connection |
||
Hometown - Sears Auth Deal Incnt SADI |
||
Hometown - Workstation SNC |
||
I&TG Int Retail SHC Connect |
||
I&TG Int Retail Str Open/Close - All Formats |
||
I&TG Int Retail Support Tool SOSl(Builds) |
||
Int Retail - My Gofer |
||
KIN Mainframe |
||
Kiosk Support - All Formats |
||
Labor Mgt(VLM WFM LMF) |
||
Loss Prevention - Wazagua |
||
Loss Prevention ASPECT - Sears(annually) |
||
Loss Prevention ASPECT -Kmart (twice a year) |
||
Sign Management RES |
||
Support Tool RWI(Services) |
Exhibit 3 to Appendix 1.01-A
53
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Retail Services
Service: | Customer Facing Transaction Support | |
Service Description: | Customer Facing transactions support is a collection of applications and services which provide support to the Point of Sale for end-user transaction processing, including: | |
Kmart Point of Sale (XPOS) |
||
Sears Point of Sale (NPOS) |
||
The Great Indoors point of sales support |
||
Automotive Point of Sale (TPOS) |
||
Outlet Stores point of sales support |
||
Chargeback method: | Actual | |
Service Components: |
Kmart XPOS |
|
Outlet - Searsoutlet.com |
||
Outlet LIS |
||
Outlet Portal |
||
Outlet SOAP |
||
Pharmacy |
||
Sears NPOS |
||
TGI 20/20 |
||
TGI BDM |
||
TGI MSL |
||
TGI OMNI |
||
TPOS |
Exhibit 3 to Appendix 1.01-A
54
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Retail Services
Service: | Hardware Support Services | |
Service Description: | Hardware Support Services within the Retail Services area is specifically aimed at providing support for Point of Sale hardware. This includes: | |
Back office printer support and services |
||
Chargeback method: | Actual | |
Service Components: |
Back Office Printers |
Exhibit 3 to Appendix 1.01-A
55
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Service Management
Service: | Administration | |
Service Description: | The Administration services within the Service Management area are the necessary people to ensure the Service Support & Maintenance activities are properly administered. | |
Chargeback method: | Headcount | |
Service Components: |
Support Administration |
Exhibit 3 to Appendix 1.01-A
56
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Service Management
Service: | Business Continuity | |
Service Description: | Business Continuity services provide the support and services necessary to ensure the business of Sears Holdings would continue to operate effectively in time of crisis or systems outages. | |
Chargeback method: | Headcount (Ex-POS) | |
Service Components: |
Business Continuity |
Exhibit 3 to Appendix 1.01-A
57
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Service Management
Service: | I&TG Service Quality Management | |
Service Description: | I&TG Service Quality Management services are a collection of processes and services which provide: | |
Change management services |
||
Service level monitoring and reporting services |
||
Configuration management services |
||
Release management services |
||
Chargeback method: | Headcount | |
Service Components: |
I&TG Service Change Mgmt |
|
I&TG Service Level Reporting |
||
I&TG Service Mgmt Asset Management |
||
I&TG Service Mgmt Configuration Management |
||
I&TG Service Mgmt HW Maintenance Support |
||
I&TG Service Release Mgmt |
Exhibit 3 to Appendix 1.01-A
58
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Service Management
Service: | I&TG Service Support | |
Service Description: | The I&TG Service Support services are a collection of services which are aimed specifically at providing support to the named I&TG Portfolios (aligned by the Business Units they represent). | |
Chargeback method: | Actual | |
Service Components: |
I&TG Service Support - BI |
|
I&TG Service Support - Home Services/Service Live |
||
I&TG Service Support - Marketing & Pricing |
||
I&TG Service Support - Store Systems |
||
I&TG Service Support - Supply Chain |
Exhibit 3 to Appendix 1.01-A
59
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Service Management
Service: | I&TG Service Support - Corporate Desktop Support | |
Service Description: | I&TG Service Support - Corporate Desktop Support are services specifically designed to support the Corporate Desktop environment (Hoffman Estates) and all the Business Units represented there. | |
Chargeback method: | Headcount (Ex-POS) | |
Service Components: |
I&TG Service Support - Corporate Desktop Support |
Exhibit 3 to Appendix 1.01-A
60
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Service Management
Service: | Learning & Development | |
Service Description: | The Learning & Development support services within Service Management are all the applications, tools and services necessary to provide the CTC training rooms with the computer/lab equipment. | |
Chargeback method: | Headcount (Ex-POS) | |
Service Components: |
Training Room |
Exhibit 3 to Appendix 1.01-A
61
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Service Management
Service: | Performance & Service Mgmt | |
Service Description: | Performance & Service Management services are a collection of services and processes which provide I&TG service continuity in the following areas: | |
Business Service Management services |
||
Incident Management services |
||
Knowledge Management services |
||
Problem Management services |
||
Chargeback method: | Headcount | |
Service Components: |
I&TG Service Mgmt Business Service Management |
|
I&TG Service Mgmt Incident Management |
||
I&TG Service Mgmt Knowledge Management |
||
I&TG Service Mgmt Problem Management |
Exhibit 3 to Appendix 1.01-A
62
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Supply Chain Services
Service: | Business to Business Systems Support | |
Service Description: | Business to Business Systems Support are the services and applications which provide support from one BU to another and include: | |
Order support systems for Kenmore, Craftsman & Diehard |
||
Cross training of BU associates |
||
Chargeback method: | Actual | |
Service Components: |
Brand Order Support System (BOSS) |
|
Cross Training |
Exhibit 3 to Appendix 1.01-A
63
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Supply Chain Services
Service: | Design Systems Support | |
Service Description: | Design Systems Support is a collection of applications and services which provide support and software to the Design business unit. | |
Chargeback method: | Actual | |
Service Components: |
Product Design Software |
Exhibit 3 to Appendix 1.01-A
64
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Supply Chain Services
Service: | Distribution Center Systems Support | |
Service Description: | Distribution Center Systems support is a collection of applications and services which provide support to the various types of distribution centers within Supply Chain. These include: | |
Direct Delivery Centers support |
||
Customer Direct Fulfillment Centers support |
||
Jewelry Replenishment Centers support |
||
Warehouse Management Systems support |
||
Chargeback method: | Actual | |
Service Components: |
Black Box |
|
Direct Delivery Center (DDC) WMS |
||
DOS DD |
||
DOS DD MF |
||
Jewely Replenishment Center |
||
JFC & CDFC WMS |
||
KEXE |
||
Market Delivery Operation (MDO) |
||
mygoferWMS |
||
OH |
||
PDC/IRC WMS |
||
PkMS |
||
Retail/Jewelry Replenishment Center (RRC/JRC) WMS |
||
RRC, TDC, JRC - DOS TW-MF |
||
Source Availability System (SAS) - Mainframe |
||
Third Party DC (Distribution Center) |
||
WMS |
Exhibit 3 to Appendix 1.01-A
65
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Supply Chain Services
Service: | Import Systems Support | |
Service Description: | Import Systems support services is the collection of applications and services necessary to provide support for the Import function within Supply Chain. | |
Chargeback method: | Actual | |
Service Components: |
Import 2000 |
Exhibit 3 to Appendix 1.01-A
66
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Supply Chain Services
Service: | Inventory Management | |
Service Description: | Inventory Management services is a suite of applications and services which provide support for the following: | |
Inventory allocation services |
||
Inventory replenishment services |
||
Integrated demand and replenishment planning services |
||
Chargeback method: | Actual | |
Service Components: |
Allocation |
|
IDRP |
||
Kmart Replenishment |
||
Scan Based Trading |
Exhibit 3 to Appendix 1.01-A
67
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Supply Chain Services
Service: | Item Management Services | |
Service Description: | Item Management Services are a suite of applications and services which are used to Design, Source, and fully setup products in the systems required for ordering, receiving, shipping, selling and paying for products sold in Kmart, Sears, TGI and online formats. These include: | |
Item On-Boarding services |
||
Item Maintenance Application (IMA) |
||
Costing Model Application (CMA) |
||
Data Catalogue Integration (1Sync and Inovis third party catalogues) |
||
Chargeback method: | Actual | |
Service Components: |
CORE & IMA2CORE&BVP |
|
Costing Model Application (CMA) |
||
Data Catalogue / Data Integration |
||
Item Batch, Vision, Other |
||
Item Maintenance Application (IMA) |
||
SHC Hierarchy |
Exhibit 3 to Appendix 1.01-A
68
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Supply Chain Services
Service: | Ordering & Receiving Support | |
Service Description: | Ordering & Receiving Support services include applications and services related to Distribution Center ordering and receiving functions. | |
Chargeback method: | Actual | |
Service Components: |
DC Order Mgmt System (OMS) |
Exhibit 3 to Appendix 1.01-A
69
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Supply Chain Services
Service: | Retail Demand Intelligence | |
Service Description: | Retail Demand Intelligence services are a collection of applications and services which include support for break/fix, monitoring, and enhancements). These systems summarize sales data at various levels to be used by Allocation and Replenishment. | |
Chargeback method: | Actual | |
Service Components: |
BEST |
Exhibit 3 to Appendix 1.01-A
70
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Supply Chain Services
Service: | Return Goods Processing Support | |
Service Description: | Return Goods Processing Support services is responsible for processing Return of Goods via Store along with tracking the Goods received and shipped from Third Party Return Distribution Centers. | |
Chargeback method: | Actual | |
Service Components: |
Return Goods |
Exhibit 3 to Appendix 1.01-A
71
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Supply Chain Services
Service: | Store Space Management Systems Support | |
Service Description: | Store Space Management Systems Support services is a collection of services and applications which provide the functionality necessary to appropriately plan and allocation store space to displays and product placement. | |
Chargeback method: | Actual | |
Service Components: |
Space/Floor Planning |
Exhibit 3 to Appendix 1.01-A
72
Execution Copy
IT SERVICES
2012 I&TG Service Catalog
Base Offering: Supply Chain Services
Service: | Transportation Systems Support | |
Service Description: | Transportation Systems Support services is a collection of services and applications which help with the optimization and management of transportation functions and systems. | |
Chargeback method: | Actual | |
Service Components: |
Legacy Transportation |
Exhibit 3 to Appendix 1.01-A
73
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
3439 | 45078 | $ | 87.33 | ||||||||
Hometown |
3409 | 45078 | $ | 87.33 | ||||||||
Hometown |
5501 | 45078 | $ | 87.33 | ||||||||
Hometown |
7392 | 45094 | $ | 80.45 | ||||||||
Hometown |
5467 | 45094 | $ | 80.45 | ||||||||
Hometown |
3161 | 45094 | $ | 80.45 | ||||||||
Hometown |
7163 | 45094 | $ | 80.45 | ||||||||
Hometown |
7203 | 45094 | $ | 80.45 | ||||||||
Hometown |
9632 | 32980 | $ | 86.92 | ||||||||
Hometown |
3099 | 32980 | $ | 86.92 | ||||||||
Hometown |
3492 | 32980 | $ | 86.92 | ||||||||
Hometown |
5824 | 32980 | $ | 86.92 | ||||||||
Hometown |
3838 | 45573 | $ | 86.83 | ||||||||
Hometown |
3856 | 45573 | $ | 86.83 | ||||||||
Hometown |
7816 | 45573 | $ | 86.83 | ||||||||
Hometown |
7377 | 45573 | $ | 86.83 | ||||||||
Hometown |
6420 | 45117 | $ | 85.81 | ||||||||
Hometown |
3281 | 45117 | $ | 85.81 | ||||||||
Hometown |
3091 | 45117 | $ | 85.81 | ||||||||
Hometown |
1832 | 45117 | $ | 85.81 | ||||||||
Hometown |
3930 | 45117 | $ | 85.81 | ||||||||
Hometown |
5584 | 45117 | $ | 85.81 | ||||||||
Hometown |
5710 | 45117 | $ | 85.81 | ||||||||
Hometown |
5811 | 45117 | $ | 85.81 | ||||||||
Hometown |
3204 | 45117 | $ | 85.81 | ||||||||
Hometown |
7821 | 45117 | $ | 85.81 | ||||||||
Hometown |
5777 | 45119 | $ | 105.90 | ||||||||
Hometown |
2726 | 45119 | $ | 105.90 | ||||||||
Hometown |
5407 | 45119 | $ | 105.90 | ||||||||
Hometown |
5918 | 45119 | $ | 105.90 | ||||||||
Hometown |
5272 | 45119 | $ | 105.90 | ||||||||
Hometown |
5469 | 45119 | $ | 105.90 | ||||||||
Hometown |
3430 | 45119 | $ | 105.90 | ||||||||
Hometown |
5520 | 45120 | $ | 93.58 | ||||||||
Hometown |
5559 | 45120 | $ | 93.58 | ||||||||
Hometown |
3849 | 45120 | $ | 93.58 | ||||||||
Hometown |
5524 | 45568 | $ | 107.99 | ||||||||
Hometown |
5232 | 45568 | $ | 107.99 | ||||||||
Hometown |
3294 | 45568 | $ | 107.99 | ||||||||
Hometown |
6087 | 45568 | $ | 107.99 | ||||||||
Hometown |
3610 | 45569 | $ | 91.35 | ||||||||
Hometown |
2780 | 45569 | $ | 91.35 | ||||||||
Hometown |
5929 | 45569 | $ | 91.35 | ||||||||
Hometown |
3081 | 45569 | $ | 91.35 | ||||||||
Hometown |
7211 | 45569 | $ | 91.35 | ||||||||
Hometown |
5220 | 45569 | $ | 91.35 | ||||||||
Hometown |
3482 | 45569 | $ | 91.35 |
EXHIBIT 4 TO APPENDIX 1.01-A | 1 of 14 | |||
Ex. 4 Page 1 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
6558 | 45570 | $ | 91.12 | ||||||||
Hometown |
6213 | 45570 | $ | 91.12 | ||||||||
Hometown |
8146 | 45570 | $ | 91.12 | ||||||||
Hometown |
3887 | 45130 | $ | 99.24 | ||||||||
Hometown |
7301 | 45130 | $ | 99.24 | ||||||||
Hometown |
7515 | 45130 | $ | 99.24 | ||||||||
Hometown |
5945 | 45130 | $ | 99.24 | ||||||||
Hometown |
6720 | 45130 | $ | 99.24 | ||||||||
Hometown |
3944 | 45130 | $ | 99.24 | ||||||||
Hometown |
5588 | 45133 | $ | 96.29 | ||||||||
Hometown |
3576 | 45133 | $ | 96.29 | ||||||||
Hometown |
6288 | 45133 | $ | 96.29 | ||||||||
Hometown |
6741 | 45133 | $ | 96.29 | ||||||||
Hometown |
5534 | 45133 | $ | 96.29 | ||||||||
Hometown |
5891 | 45136 | $ | 117.48 | ||||||||
Hometown |
5510 | 45136 | $ | 117.48 | ||||||||
Hometown |
5495 | 45136 | $ | 117.48 | ||||||||
Hometown |
3647 | 45136 | $ | 117.48 | ||||||||
Hometown |
6240 | 45136 | $ | 117.48 | ||||||||
Hometown |
3936 | 45136 | $ | 117.48 | ||||||||
Hometown |
3525 | 45148 | $ | 113.55 | ||||||||
Hometown |
5735 | 45148 | $ | 113.55 | ||||||||
Hometown |
3445 | 45148 | $ | 113.55 | ||||||||
Hometown |
5505 | 45566 | $ | 77.99 | ||||||||
Hometown |
5620 | 45566 | $ | 77.99 | ||||||||
Hometown |
3870 | 45566 | $ | 77.99 | ||||||||
Hometown |
2753 | 45566 | $ | 77.99 | ||||||||
Hometown |
3739 | 45566 | $ | 77.99 | ||||||||
Hometown |
5826 | 45566 | $ | 77.99 | ||||||||
Hometown |
3974 | 45566 | $ | 77.99 | ||||||||
Hometown |
5835 | 45166 | $ | 90.62 | ||||||||
Hometown |
3123 | 45166 | $ | 90.62 | ||||||||
Hometown |
5815 | 45166 | $ | 90.62 | ||||||||
Hometown |
3463 | 45166 | $ | 90.62 | ||||||||
Hometown |
6979 | 45166 | $ | 90.62 | ||||||||
Hometown |
5759 | 45166 | $ | 90.62 | ||||||||
Hometown |
3690 | 45166 | $ | 90.62 | ||||||||
Hometown |
7476 | 45583 | $ | 117.44 | ||||||||
Hometown |
1846 | 45583 | $ | 117.44 | ||||||||
Hometown |
7267 | 45583 | $ | 117.44 | ||||||||
Hometown |
3898 | 45583 | $ | 117.44 | ||||||||
Hometown |
5760 | 45583 | $ | 117.44 | ||||||||
Hometown |
3545 | 45583 | $ | 117.44 | ||||||||
Hometown |
7468 | 45591 | $ | 107.96 | ||||||||
Hometown |
3875 | 45591 | $ | 107.96 | ||||||||
Hometown |
8108 | 45591 | $ | 107.96 | ||||||||
Hometown |
5193 | 45062 | $ | 75.20 |
EXHIBIT 4 TO APPENDIX 1.01-A | 2 of 14 | |||
Ex. 4 Page 2 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
1444 | 45062 | $ | 75.20 | ||||||||
Hometown |
7703 | 45062 | $ | 75.20 | ||||||||
Hometown |
5462 | 45064 | $ | 76.23 | ||||||||
Hometown |
3694 | 45064 | $ | 76.23 | ||||||||
Hometown |
5960 | 45064 | $ | 76.23 | ||||||||
Hometown |
6637 | 45064 | $ | 76.23 | ||||||||
Hometown |
3514 | 45064 | $ | 76.23 | ||||||||
Hometown |
7262 | 45065 | $ | 64.57 | ||||||||
Hometown |
3384 | 45065 | $ | 64.57 | ||||||||
Hometown |
5194 | 45065 | $ | 64.57 | ||||||||
Hometown |
6966 | 45065 | $ | 64.57 | ||||||||
Hometown |
3609 | 45065 | $ | 64.57 | ||||||||
Hometown |
7694 | 45070 | $ | 82.49 | ||||||||
Hometown |
2713 | 45070 | $ | 82.49 | ||||||||
Hometown |
5876 | 45070 | $ | 82.49 | ||||||||
Hometown |
3246 | 45070 | $ | 82.49 | ||||||||
Hometown |
3426 | 45070 | $ | 82.49 | ||||||||
Hometown |
1926 | 45070 | $ | 82.49 | ||||||||
Hometown |
3965 | 45070 | $ | 82.49 | ||||||||
Hometown |
2634 | 45070 | $ | 82.49 | ||||||||
Hometown |
7506 | 45070 | $ | 82.49 | ||||||||
Hometown |
5180 | 45076 | $ | 67.50 | ||||||||
Hometown |
1849 | 45076 | $ | 67.50 | ||||||||
Hometown |
3469 | 45076 | $ | 67.50 | ||||||||
Hometown |
3449 | 45076 | $ | 67.50 | ||||||||
Hometown |
3448 | 45077 | $ | 91.28 | ||||||||
Hometown |
7658 | 45079 | $ | 75.09 | ||||||||
Hometown |
5822 | 45079 | $ | 75.09 | ||||||||
Hometown |
2579 | 45079 | $ | 75.09 | ||||||||
Hometown |
3611 | 45081 | $ | 97.55 | ||||||||
Hometown |
3883 | 45081 | $ | 97.55 | ||||||||
Hometown |
5216 | 45081 | $ | 97.55 | ||||||||
Hometown |
3791 | 45081 | $ | 97.55 | ||||||||
Hometown |
2172 | 45081 | $ | 97.55 | ||||||||
Hometown |
6726 | 45081 | $ | 97.55 | ||||||||
Hometown |
4951 | 45081 | $ | 97.55 | ||||||||
Hometown |
3983 | 45081 | $ | 97.55 | ||||||||
Hometown |
7638 | 45083 | $ | 72.93 | ||||||||
Hometown |
3101 | 45083 | $ | 72.93 | ||||||||
Hometown |
8030 | 45083 | $ | 72.93 | ||||||||
Hometown |
6475 | 45083 | $ | 72.93 | ||||||||
Hometown |
6611 | 45088 | $ | 76.69 | ||||||||
Hometown |
1870 | 45088 | $ | 76.69 | ||||||||
Hometown |
7370 | 45088 | $ | 76.69 | ||||||||
Hometown |
3102 | 45088 | $ | 76.69 | ||||||||
Hometown |
3341 | 45088 | $ | 76.69 | ||||||||
Hometown |
6573 | 45088 | $ | 76.69 |
EXHIBIT 4 TO APPENDIX 1.01-A | 3 of 14 | |||
Ex. 4 Page 3 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
9890 | 45088 | $ | 76.69 | ||||||||
Hometown |
7290 | 45088 | $ | 76.69 | ||||||||
Hometown |
3250 | 45095 | $ | 76.32 | ||||||||
Hometown |
1933 | 45095 | $ | 76.32 | ||||||||
Hometown |
9607 | 45095 | $ | 76.32 | ||||||||
Hometown |
7357 | 45095 | $ | 76.32 | ||||||||
Hometown |
7406 | 45095 | $ | 76.32 | ||||||||
Hometown |
5400 | 45095 | $ | 76.32 | ||||||||
Hometown |
3181 | 45095 | $ | 76.32 | ||||||||
Hometown |
7952 | 45095 | $ | 76.32 | ||||||||
Hometown |
5231 | 45095 | $ | 76.32 | ||||||||
Hometown |
9291 | 45572 | $ | 78.88 | ||||||||
Hometown |
9292 | 45572 | $ | 78.88 | ||||||||
Hometown |
6856 | 45572 | $ | 78.88 | ||||||||
Hometown |
5494 | 45572 | $ | 78.88 | ||||||||
Hometown |
5977 | 45105 | $ | 83.08 | ||||||||
Hometown |
1848 | 45105 | $ | 83.08 | ||||||||
Hometown |
3649 | 45106 | $ | 75.58 | ||||||||
Hometown |
1801 | 45109 | $ | 77.56 | ||||||||
Hometown |
6908 | 45109 | $ | 77.56 | ||||||||
Hometown |
2572 | 45109 | $ | 77.56 | ||||||||
Hometown |
7284 | 45109 | $ | 77.56 | ||||||||
Hometown |
9270 | 45109 | $ | 77.56 | ||||||||
Hometown |
1741 | 45109 | $ | 77.56 | ||||||||
Hometown |
1806 | 45109 | $ | 77.56 | ||||||||
Hometown |
1803 | 45109 | $ | 77.56 | ||||||||
Hometown |
5825 | 45109 | $ | 77.56 | ||||||||
Hometown |
6583 | 45109 | $ | 77.56 | ||||||||
Hometown |
2930 | 45109 | $ | 77.56 | ||||||||
Hometown |
3591 | 45565 | $ | 75.96 | ||||||||
Hometown |
2701 | 45565 | $ | 75.96 | ||||||||
Hometown |
5542 | 45565 | $ | 75.96 | ||||||||
Hometown |
5482 | 45565 | $ | 75.96 | ||||||||
Hometown |
6614 | 45116 | $ | 95.41 | ||||||||
Hometown |
3112 | 45116 | $ | 95.41 | ||||||||
Hometown |
3612 | 45116 | $ | 95.41 | ||||||||
Hometown |
7630 | 45116 | $ | 95.41 | ||||||||
Hometown |
1852 | 45116 | $ | 95.41 | ||||||||
Hometown |
7433 | 45116 | $ | 95.41 | ||||||||
Hometown |
3472 | 45116 | $ | 95.41 | ||||||||
Hometown |
5724 | 45116 | $ | 95.41 | ||||||||
Hometown |
6586 | 45116 | $ | 95.41 | ||||||||
Hometown |
3830 | 45116 | $ | 95.41 | ||||||||
Hometown |
5738 | 45116 | $ | 95.41 | ||||||||
Hometown |
7742 | 45116 | $ | 95.41 | ||||||||
Hometown |
1842 | 45116 | $ | 95.41 | ||||||||
Hometown |
3242 | 45116 | $ | 95.41 |
EXHIBIT 4 TO APPENDIX 1.01-A | 4 of 14 | |||
Ex. 4 Page 4 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
3921 | 45116 | $ | 95.41 | ||||||||
Hometown |
3652 | 45116 | $ | 95.41 | ||||||||
Hometown |
5464 | 45127 | $ | 116.60 | ||||||||
Hometown |
7954 | 45127 | $ | 116.60 | ||||||||
Hometown |
5751 | 45127 | $ | 116.60 | ||||||||
Hometown |
6325 | 45127 | $ | 116.60 | ||||||||
Hometown |
7291 | 45127 | $ | 116.60 | ||||||||
Hometown |
9209 | 45598 | $ | 103.67 | ||||||||
Hometown |
2024 | 45598 | $ | 103.67 | ||||||||
Hometown |
3526 | 45598 | $ | 103.67 | ||||||||
Hometown |
1939 | 45598 | $ | 103.67 | ||||||||
Hometown |
3259 | 45598 | $ | 103.67 | ||||||||
Hometown |
3565 | 45598 | $ | 103.67 | ||||||||
Hometown |
3674 | 45598 | $ | 103.67 | ||||||||
Hometown |
7271 | 45598 | $ | 103.67 | ||||||||
Hometown |
5748 | 45129 | $ | 86.50 | ||||||||
Hometown |
5790 | 45129 | $ | 86.50 | ||||||||
Hometown |
3969 | 45129 | $ | 86.50 | ||||||||
Hometown |
3055 | 45129 | $ | 86.50 | ||||||||
Hometown |
8164 | 45129 | $ | 86.50 | ||||||||
Hometown |
7815 | 45134 | $ | 81.81 | ||||||||
Hometown |
7737 | 45134 | $ | 81.81 | ||||||||
Hometown |
8092 | 45134 | $ | 81.81 | ||||||||
Hometown |
5915 | 45134 | $ | 81.81 | ||||||||
Hometown |
5916 | 45134 | $ | 81.81 | ||||||||
Hometown |
9628 | 45134 | $ | 81.81 | ||||||||
Hometown |
5919 | 45134 | $ | 81.81 | ||||||||
Hometown |
5875 | 45135 | $ | 87.38 | ||||||||
Hometown |
7483 | 45135 | $ | 87.38 | ||||||||
Hometown |
7807 | 45135 | $ | 87.38 | ||||||||
Hometown |
3036 | 45135 | $ | 87.38 | ||||||||
Hometown |
3636 | 45135 | $ | 87.38 | ||||||||
Hometown |
5695 | 45560 | $ | 111.62 | ||||||||
Hometown |
5165 | 45560 | $ | 111.62 | ||||||||
Hometown |
6622 | 45560 | $ | 111.62 | ||||||||
Hometown |
6643 | 45154 | $ | 95.42 | ||||||||
Hometown |
3473 | 45154 | $ | 95.42 | ||||||||
Hometown |
3913 | 45154 | $ | 95.42 | ||||||||
Hometown |
3603 | 45154 | $ | 95.42 | ||||||||
Hometown |
3134 | 45154 | $ | 95.42 | ||||||||
Hometown |
3148 | 45154 | $ | 95.42 | ||||||||
Hometown |
5504 | 45156 | $ | 69.07 | ||||||||
Hometown |
7893 | 45156 | $ | 69.07 | ||||||||
Hometown |
5412 | 45156 | $ | 69.07 | ||||||||
Hometown |
5152 | 45156 | $ | 69.07 | ||||||||
Hometown |
3871 | 45156 | $ | 69.07 | ||||||||
Hometown |
7102 | 45164 | $ | 76.56 |
EXHIBIT 4 TO APPENDIX 1.01-A | 5 of 14 | |||
Ex. 4 Page 5 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
3434 | 45164 | $ | 76.56 | ||||||||
Hometown |
7693 | 45164 | $ | 76.56 | ||||||||
Hometown |
3712 | 45164 | $ | 76.56 | ||||||||
Hometown |
6846 | 45165 | $ | 74.72 | ||||||||
Hometown |
5507 | 45165 | $ | 74.72 | ||||||||
Hometown |
5756 | 45165 | $ | 74.72 | ||||||||
Hometown |
9272 | 45165 | $ | 74.72 | ||||||||
Hometown |
1845 | 45169 | $ | 91.95 | ||||||||
Hometown |
6135 | 45170 | $ | 87.48 | ||||||||
Hometown |
7378 | 45170 | $ | 87.48 | ||||||||
Hometown |
6581 | 45170 | $ | 87.48 | ||||||||
Hometown |
7720 | 45170 | $ | 87.48 | ||||||||
Hometown |
3150 | 45170 | $ | 87.48 | ||||||||
Hometown |
9843 | 45599 | $ | 84.77 | ||||||||
Hometown |
5711 | 45599 | $ | 84.77 | ||||||||
Hometown |
3374 | 45599 | $ | 84.77 | ||||||||
Hometown |
7813 | 45176 | $ | 81.27 | ||||||||
Hometown |
6557 | 45137 | $ | 99.46 | ||||||||
Hometown |
3587 | 45137 | $ | 99.46 | ||||||||
Hometown |
3217 | 45137 | $ | 99.46 | ||||||||
Hometown |
6740 | 45137 | $ | 99.46 | ||||||||
Hometown |
7726 | 45137 | $ | 99.46 | ||||||||
Hometown |
3906 | 45137 | $ | 99.46 | ||||||||
Hometown |
3007 | 45137 | $ | 99.46 | ||||||||
Hometown |
7202 | 45137 | $ | 99.46 | ||||||||
Hometown |
3574 | 45060 | $ | 82.99 | ||||||||
Hometown |
7545 | 45060 | $ | 82.99 | ||||||||
Hometown |
3003 | 45060 | $ | 82.99 | ||||||||
Hometown |
3673 | 45060 | $ | 82.99 | ||||||||
Hometown |
3273 | 45060 | $ | 82.99 | ||||||||
Hometown |
5461 | 45060 | $ | 82.99 | ||||||||
Hometown |
3285 | 45060 | $ | 82.99 | ||||||||
Hometown |
3064 | 45060 | $ | 82.99 | ||||||||
Hometown |
3503 | 45061 | $ | 98.75 | ||||||||
Hometown |
5455 | 45061 | $ | 98.75 | ||||||||
Hometown |
2702 | 45061 | $ | 98.75 | ||||||||
Hometown |
4864 | 45061 | $ | 98.75 | ||||||||
Hometown |
6686 | 45061 | $ | 98.75 | ||||||||
Hometown |
5522 | 45061 | $ | 98.75 | ||||||||
Hometown |
7573 | 45061 | $ | 98.75 | ||||||||
Hometown |
5847 | 45067 | $ | 63.48 | ||||||||
Hometown |
5734 | 45067 | $ | 63.48 | ||||||||
Hometown |
5192 | 45067 | $ | 63.48 | ||||||||
Hometown |
5955 | 45067 | $ | 63.48 | ||||||||
Hometown |
9698 | 45067 | $ | 63.48 | ||||||||
Hometown |
5533 | 45067 | $ | 63.48 | ||||||||
Hometown |
3640 | 45578 | $ | 107.81 |
EXHIBIT 4 TO APPENDIX 1.01-A | 6 of 14 | |||
Ex. 4 Page 6 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
3121 | 45578 | $ | 107.81 | ||||||||
Hometown |
5828 | 45578 | $ | 107.81 | ||||||||
Hometown |
9970 | 45068 | $ | 95.54 | ||||||||
Hometown |
5853 | 45068 | $ | 95.54 | ||||||||
Hometown |
5993 | 45068 | $ | 95.54 | ||||||||
Hometown |
5858 | 45068 | $ | 95.54 | ||||||||
Hometown |
7550 | 45073 | $ | 70.45 | ||||||||
Hometown |
5820 | 45073 | $ | 70.45 | ||||||||
Hometown |
2426 | 45073 | $ | 70.45 | ||||||||
Hometown |
3166 | 45577 | $ | 87.36 | ||||||||
Hometown |
1825 | 45577 | $ | 87.36 | ||||||||
Hometown |
3226 | 45577 | $ | 87.36 | ||||||||
Hometown |
6224 | 45577 | $ | 87.36 | ||||||||
Hometown |
5867 | 45577 | $ | 87.36 | ||||||||
Hometown |
2004 | 45577 | $ | 87.36 | ||||||||
Hometown |
5852 | 45577 | $ | 87.36 | ||||||||
Hometown |
5690 | 45577 | $ | 87.36 | ||||||||
Hometown |
5836 | 45577 | $ | 87.36 | ||||||||
Hometown |
5696 | 45577 | $ | 87.36 | ||||||||
Hometown |
3236 | 45577 | $ | 87.36 | ||||||||
Hometown |
5704 | 45074 | $ | 91.25 | ||||||||
Hometown |
5498 | 45581 | $ | 78.22 | ||||||||
Hometown |
3450 | 45581 | $ | 78.22 | ||||||||
Hometown |
1861 | 45581 | $ | 78.22 | ||||||||
Hometown |
1860 | 45581 | $ | 78.22 | ||||||||
Hometown |
5754 | 45581 | $ | 78.22 | ||||||||
Hometown |
2159 | 45574 | $ | 84.27 | ||||||||
Hometown |
5515 | 45574 | $ | 84.27 | ||||||||
Hometown |
5888 | 45574 | $ | 84.27 | ||||||||
Hometown |
5937 | 45574 | $ | 84.27 | ||||||||
Hometown |
3549 | 45574 | $ | 84.27 | ||||||||
Hometown |
8034 | 45574 | $ | 84.27 | ||||||||
Hometown |
6574 | 45084 | $ | 68.21 | ||||||||
Hometown |
7671 | 45084 | $ | 68.21 | ||||||||
Hometown |
3432 | 45084 | $ | 68.21 | ||||||||
Hometown |
5895 | 45084 | $ | 68.21 | ||||||||
Hometown |
3980 | 45084 | $ | 68.21 | ||||||||
Hometown |
4789 | 45084 | $ | 68.21 | ||||||||
Hometown |
5933 | 45559 | $ | 70.86 | ||||||||
Hometown |
3303 | 45559 | $ | 70.86 | ||||||||
Hometown |
5951 | 45559 | $ | 70.86 | ||||||||
Hometown |
3261 | 45559 | $ | 70.86 | ||||||||
Hometown |
5903 | 45559 | $ | 70.86 | ||||||||
Hometown |
5212 | 45559 | $ | 70.86 | ||||||||
Hometown |
3280 | 45559 | $ | 70.86 | ||||||||
Hometown |
5536 | 45559 | $ | 70.86 | ||||||||
Hometown |
9655 | 45089 | $ | 60.03 |
EXHIBIT 4 TO APPENDIX 1.01-A | 7 of 14 | |||
Ex. 4 Page 7 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
9666 | 45089 | $ | 60.03 | ||||||||
Hometown |
9668 | 45089 | $ | 60.03 | ||||||||
Hometown |
5855 | 45089 | $ | 60.03 | ||||||||
Hometown |
1483 | 45089 | $ | 60.03 | ||||||||
Hometown |
4661 | 45089 | $ | 60.03 | ||||||||
Hometown |
7860 | 45091 | $ | 69.31 | ||||||||
Hometown |
7674 | 45091 | $ | 69.31 | ||||||||
Hometown |
5276 | 45099 | $ | 67.31 | ||||||||
Hometown |
5312 | 45099 | $ | 67.31 | ||||||||
Hometown |
1867 | 45099 | $ | 67.31 | ||||||||
Hometown |
7617 | 45099 | $ | 67.31 | ||||||||
Hometown |
3590 | 45099 | $ | 67.31 | ||||||||
Hometown |
7497 | 45099 | $ | 67.31 | ||||||||
Hometown |
3826 | 45100 | $ | 83.38 | ||||||||
Hometown |
1839 | 45100 | $ | 83.38 | ||||||||
Hometown |
3349 | 45100 | $ | 83.38 | ||||||||
Hometown |
6526 | 45100 | $ | 83.38 | ||||||||
Hometown |
5803 | 45100 | $ | 83.38 | ||||||||
Hometown |
1815 | 45101 | $ | 65.45 | ||||||||
Hometown |
5202 | 45101 | $ | 65.45 | ||||||||
Hometown |
9099 | 45101 | $ | 65.45 | ||||||||
Hometown |
2559 | 45101 | $ | 65.45 | ||||||||
Hometown |
7408 | 45101 | $ | 65.45 | ||||||||
Hometown |
3519 | 45101 | $ | 65.45 | ||||||||
Hometown |
9228 | 45103 | $ | 56.77 | ||||||||
Hometown |
4718 | 45103 | $ | 56.77 | ||||||||
Hometown |
9219 | 45103 | $ | 56.77 | ||||||||
Hometown |
5956 | 45103 | $ | 56.77 | ||||||||
Hometown |
9080 | 45104 | $ | 70.40 | ||||||||
Hometown |
3037 | 45104 | $ | 70.40 | ||||||||
Hometown |
1841 | 45104 | $ | 70.40 | ||||||||
Hometown |
1829 | 45104 | $ | 70.40 | ||||||||
Hometown |
7537 | 45104 | $ | 70.40 | ||||||||
Hometown |
4778 | 45104 | $ | 70.40 | ||||||||
Hometown |
3048 | 45107 | $ | 56.51 | ||||||||
Hometown |
9206 | 45108 | $ | 119.95 | ||||||||
Hometown |
5938 | 45111 | $ | 90.39 | ||||||||
Hometown |
5191 | 45111 | $ | 90.39 | ||||||||
Hometown |
9941 | 45111 | $ | 90.39 | ||||||||
Hometown |
7514 | 45111 | $ | 90.39 | ||||||||
Hometown |
5303 | 45111 | $ | 90.39 | ||||||||
Hometown |
7782 | 45111 | $ | 90.39 | ||||||||
Hometown |
5706 | 45111 | $ | 90.39 | ||||||||
Hometown |
5521 | 45112 | $ | 87.70 | ||||||||
Hometown |
5812 | 45112 | $ | 87.70 | ||||||||
Hometown |
2761 | 45112 | $ | 87.70 | ||||||||
Hometown |
5950 | 45112 | $ | 87.70 |
EXHIBIT 4 TO APPENDIX 1.01-A | 8 of 14 | |||
Ex. 4 Page 8 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
3192 | 45113 | $ | 98.67 | ||||||||
Hometown |
7657 | 45113 | $ | 98.67 | ||||||||
Hometown |
5489 | 45113 | $ | 98.67 | ||||||||
Hometown |
5742 | 45113 | $ | 98.67 | ||||||||
Hometown |
4663 | 45113 | $ | 98.67 | ||||||||
Hometown |
7502 | 45114 | $ | 95.82 | ||||||||
Hometown |
8036 | 45114 | $ | 95.82 | ||||||||
Hometown |
3738 | 45115 | $ | 68.92 | ||||||||
Hometown |
5570 | 45115 | $ | 68.92 | ||||||||
Hometown |
5859 | 45115 | $ | 68.92 | ||||||||
Hometown |
3702 | 45115 | $ | 68.92 | ||||||||
Hometown |
5869 | 45115 | $ | 68.92 | ||||||||
Hometown |
3453 | 45115 | $ | 68.92 | ||||||||
Hometown |
2941 | 45115 | $ | 68.92 | ||||||||
Hometown |
5949 | 45115 | $ | 68.92 | ||||||||
Hometown |
1821 | 45115 | $ | 68.92 | ||||||||
Hometown |
5850 | 45115 | $ | 68.92 | ||||||||
Hometown |
6150 | 45115 | $ | 68.92 | ||||||||
Hometown |
3802 | 45115 | $ | 68.92 | ||||||||
Hometown |
3532 | 45115 | $ | 68.92 | ||||||||
Hometown |
6414 | 45115 | $ | 68.92 | ||||||||
Hometown |
2192 | 45115 | $ | 68.92 | ||||||||
Hometown |
3572 | 45115 | $ | 68.92 | ||||||||
Hometown |
5952 | 45115 | $ | 68.92 | ||||||||
Hometown |
1940 | 45115 | $ | 68.92 | ||||||||
Hometown |
3440 | 45115 | $ | 68.92 | ||||||||
Hometown |
5839 | 45115 | $ | 68.92 | ||||||||
Hometown |
5582 | 45115 | $ | 68.92 | ||||||||
Hometown |
3391 | 45115 | $ | 68.92 | ||||||||
Hometown |
1862 | 45115 | $ | 68.92 | ||||||||
Hometown |
9982 | 45115 | $ | 68.92 | ||||||||
Hometown |
6437 | 45115 | $ | 68.92 | ||||||||
Hometown |
1931 | 45115 | $ | 68.92 | ||||||||
Hometown |
7559 | 45122 | $ | 71.46 | ||||||||
Hometown |
3321 | 45122 | $ | 71.46 | ||||||||
Hometown |
5893 | 45122 | $ | 71.46 | ||||||||
Hometown |
5975 | 45122 | $ | 71.46 | ||||||||
Hometown |
9242 | 45122 | $ | 71.46 | ||||||||
Hometown |
6747 | 45122 | $ | 71.46 | ||||||||
Hometown |
5827 | 45122 | $ | 71.46 | ||||||||
Hometown |
9077 | 45122 | $ | 71.46 | ||||||||
Hometown |
9227 | 45122 | $ | 71.46 | ||||||||
Hometown |
2706 | 45122 | $ | 71.46 | ||||||||
Hometown |
3977 | 45122 | $ | 71.46 | ||||||||
Hometown |
2708 | 45122 | $ | 71.46 | ||||||||
Hometown |
5840 | 45122 | $ | 71.46 | ||||||||
Hometown |
7569 | 45122 | $ | 71.46 |
EXHIBIT 4 TO APPENDIX 1.01-A | 9 of 14 | |||
Ex. 4 Page 9 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
9472 | 45122 | $ | 71.46 | ||||||||
Hometown |
1816 | 45122 | $ | 71.46 | ||||||||
Hometown |
9504 | 45122 | $ | 71.46 | ||||||||
Hometown |
6665 | 45122 | $ | 71.46 | ||||||||
Hometown |
3307 | 45122 | $ | 71.46 | ||||||||
Hometown |
9073 | 45122 | $ | 71.46 | ||||||||
Hometown |
8076 | 45122 | $ | 71.46 | ||||||||
Hometown |
3135 | 45125 | $ | 100.21 | ||||||||
Hometown |
5491 | 45125 | $ | 100.21 | ||||||||
Hometown |
3704 | 45125 | $ | 100.21 | ||||||||
Hometown |
6267 | 45125 | $ | 100.21 | ||||||||
Hometown |
3125 | 45125 | $ | 100.21 | ||||||||
Hometown |
3145 | 45125 | $ | 100.21 | ||||||||
Hometown |
5973 | 45125 | $ | 100.21 | ||||||||
Hometown |
7363 | 45125 | $ | 100.21 | ||||||||
Hometown |
3918 | 45125 | $ | 100.21 | ||||||||
Hometown |
7220 | 45126 | $ | 88.70 | ||||||||
Hometown |
3346 | 45126 | $ | 88.70 | ||||||||
Hometown |
7350 | 45126 | $ | 88.70 | ||||||||
Hometown |
6684 | 45126 | $ | 88.70 | ||||||||
Hometown |
7709 | 45126 | $ | 88.70 | ||||||||
Hometown |
5726 | 45126 | $ | 88.70 | ||||||||
Hometown |
5691 | 45132 | $ | 90.25 | ||||||||
Hometown |
3787 | 45132 | $ | 90.25 | ||||||||
Hometown |
7491 | 45132 | $ | 90.25 | ||||||||
Hometown |
5917 | 45132 | $ | 90.25 | ||||||||
Hometown |
5887 | 45132 | $ | 90.25 | ||||||||
Hometown |
3736 | 45132 | $ | 90.25 | ||||||||
Hometown |
3950 | 45132 | $ | 90.25 | ||||||||
Hometown |
7210 | 45132 | $ | 90.25 | ||||||||
Hometown |
3012 | 45132 | $ | 90.25 | ||||||||
Hometown |
3915 | 45132 | $ | 90.25 | ||||||||
Hometown |
1869 | 45132 | $ | 90.25 | ||||||||
Hometown |
7614 | 45132 | $ | 90.25 | ||||||||
Hometown |
3157 | 45132 | $ | 90.25 | ||||||||
Hometown |
3186 | 45132 | $ | 90.25 | ||||||||
Hometown |
6208 | 45132 | $ | 90.25 | ||||||||
Hometown |
6504 | 45132 | $ | 90.25 | ||||||||
Hometown |
6753 | 45132 | $ | 90.25 | ||||||||
Hometown |
9286 | 45138 | $ | 57.22 | ||||||||
Hometown |
7728 | 45138 | $ | 57.22 | ||||||||
Hometown |
5658 | 45138 | $ | 57.22 | ||||||||
Hometown |
6911 | 45138 | $ | 57.22 | ||||||||
Hometown |
5663 | 45138 | $ | 57.22 | ||||||||
Hometown |
5947 | 45138 | $ | 57.22 | ||||||||
Hometown |
5656 | 45138 | $ | 57.22 | ||||||||
Hometown |
5657 | 45138 | $ | 57.22 |
EXHIBIT 4 TO APPENDIX 1.01-A | 10 of 14 | |||
Ex. 4 Page 10 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
5359 | 45139 | $ | 73.64 | ||||||||
Hometown |
5626 | 45139 | $ | 73.64 | ||||||||
Hometown |
5681 | 45139 | $ | 73.64 | ||||||||
Hometown |
3039 | 45139 | $ | 73.64 | ||||||||
Hometown |
3908 | 45139 | $ | 73.64 | ||||||||
Hometown |
6402 | 45139 | $ | 73.64 | ||||||||
Hometown |
6410 | 45139 | $ | 73.64 | ||||||||
Hometown |
3999 | 45139 | $ | 73.64 | ||||||||
Hometown |
5707 | 45139 | $ | 73.64 | ||||||||
Hometown |
5343 | 45140 | $ | 50.00 | ||||||||
Hometown |
9295 | 45140 | $ | 50.00 | ||||||||
Hometown |
5557 | 45142 | $ | 70.31 | ||||||||
Hometown |
7609 | 45142 | $ | 70.31 | ||||||||
Hometown |
5530 | 45142 | $ | 70.31 | ||||||||
Hometown |
5535 | 45142 | $ | 70.31 | ||||||||
Hometown |
5674 | 45142 | $ | 70.31 | ||||||||
Hometown |
3437 | 45142 | $ | 70.31 | ||||||||
Hometown |
3038 | 45142 | $ | 70.31 | ||||||||
Hometown |
5576 | 45142 | $ | 70.31 | ||||||||
Hometown |
5565 | 45142 | $ | 70.31 | ||||||||
Hometown |
5615 | 45142 | $ | 70.31 | ||||||||
Hometown |
3079 | 45142 | $ | 70.31 | ||||||||
Hometown |
5727 | 45142 | $ | 70.31 | ||||||||
Hometown |
5453 | 45143 | $ | 93.37 | ||||||||
Hometown |
3859 | 45143 | $ | 93.37 | ||||||||
Hometown |
2169 | 45143 | $ | 93.37 | ||||||||
Hometown |
3046 | 45143 | $ | 93.37 | ||||||||
Hometown |
5250 | 45145 | $ | 59.89 | ||||||||
Hometown |
5686 | 45145 | $ | 59.89 | ||||||||
Hometown |
7789 | 45145 | $ | 59.89 | ||||||||
Hometown |
5636 | 45145 | $ | 59.89 | ||||||||
Hometown |
5743 | 45145 | $ | 59.89 | ||||||||
Hometown |
5609 | 45145 | $ | 59.89 | ||||||||
Hometown |
5642 | 45145 | $ | 59.89 | ||||||||
Hometown |
5606 | 45145 | $ | 59.89 | ||||||||
Hometown |
5682 | 45145 | $ | 59.89 | ||||||||
Hometown |
5889 | 45146 | $ | 59.10 | ||||||||
Hometown |
5633 | 45146 | $ | 59.10 | ||||||||
Hometown |
3178 | 45146 | $ | 59.10 | ||||||||
Hometown |
5612 | 45146 | $ | 59.10 | ||||||||
Hometown |
5635 | 45146 | $ | 59.10 | ||||||||
Hometown |
5643 | 45146 | $ | 59.10 | ||||||||
Hometown |
5637 | 45146 | $ | 59.10 | ||||||||
Hometown |
5645 | 45146 | $ | 59.10 | ||||||||
Hometown |
5654 | 45146 | $ | 59.10 | ||||||||
Hometown |
5650 | 45146 | $ | 59.10 | ||||||||
Hometown |
5628 | 45146 | $ | 59.10 |
EXHIBIT 4 TO APPENDIX 1.01-A | 11 of 14 | |||
Ex. 4 Page 11 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
5648 | 45146 | $ | 59.10 | ||||||||
Hometown |
7557 | 45149 | $ | 73.04 | ||||||||
Hometown |
2235 | 45149 | $ | 73.04 | ||||||||
Hometown |
7565 | 45149 | $ | 73.04 | ||||||||
Hometown |
2785 | 45149 | $ | 73.04 | ||||||||
Hometown |
4746 | 45149 | $ | 73.04 | ||||||||
Hometown |
5221 | 45149 | $ | 73.04 | ||||||||
Hometown |
3520 | 45151 | $ | 67.68 | ||||||||
Hometown |
5052 | 45151 | $ | 67.68 | ||||||||
Hometown |
6561 | 45151 | $ | 67.68 | ||||||||
Hometown |
7482 | 45151 | $ | 67.68 | ||||||||
Hometown |
3020 | 45151 | $ | 67.68 | ||||||||
Hometown |
3113 | 45153 | $ | 72.75 | ||||||||
Hometown |
5832 | 45153 | $ | 72.75 | ||||||||
Hometown |
5755 | 45153 | $ | 72.75 | ||||||||
Hometown |
5490 | 45153 | $ | 72.75 | ||||||||
Hometown |
7853 | 45153 | $ | 72.75 | ||||||||
Hometown |
5807 | 45153 | $ | 72.75 | ||||||||
Hometown |
6795 | 45153 | $ | 72.75 | ||||||||
Hometown |
2751 | 45153 | $ | 72.75 | ||||||||
Hometown |
9361 | 45153 | $ | 72.75 | ||||||||
Hometown |
2739 | 45158 | $ | 74.46 | ||||||||
Hometown |
1858 | 45158 | $ | 74.46 | ||||||||
Hometown |
9201 | 45158 | $ | 74.46 | ||||||||
Hometown |
7567 | 45158 | $ | 74.46 | ||||||||
Hometown |
8105 | 45158 | $ | 74.46 | ||||||||
Hometown |
7686 | 45158 | $ | 74.46 | ||||||||
Hometown |
6017 | 45158 | $ | 74.46 | ||||||||
Hometown |
6206 | 45158 | $ | 74.46 | ||||||||
Hometown |
1811 | 45158 | $ | 74.46 | ||||||||
Hometown |
1936 | 45158 | $ | 74.46 | ||||||||
Hometown |
1856 | 45158 | $ | 74.46 | ||||||||
Hometown |
3497 | 45158 | $ | 74.46 | ||||||||
Hometown |
3388 | 45158 | $ | 74.46 | ||||||||
Hometown |
1928 | 45158 | $ | 74.46 | ||||||||
Hometown |
1937 | 45158 | $ | 74.46 | ||||||||
Hometown |
5927 | 45158 | $ | 74.46 | ||||||||
Hometown |
3697 | 45158 | $ | 74.46 | ||||||||
Hometown |
1819 | 45158 | $ | 74.46 | ||||||||
Hometown |
3528 | 45158 | $ | 74.46 | ||||||||
Hometown |
6400 | 45158 | $ | 74.46 | ||||||||
Hometown |
7489 | 45160 | $ | 77.38 | ||||||||
Hometown |
3961 | 45160 | $ | 77.38 | ||||||||
Hometown |
4798 | 45160 | $ | 77.38 | ||||||||
Hometown |
3816 | 45160 | $ | 77.38 | ||||||||
Hometown |
5818 | 45160 | $ | 77.38 | ||||||||
Hometown |
3458 | 45160 | $ | 77.38 |
EXHIBIT 4 TO APPENDIX 1.01-A | 12 of 14 | |||
Ex. 4 Page 12 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
3756 | 45160 | $ | 77.38 | ||||||||
Hometown |
4693 | 45160 | $ | 77.38 | ||||||||
Hometown |
9774 | 45160 | $ | 77.38 | ||||||||
Hometown |
7222 | 45160 | $ | 77.38 | ||||||||
Hometown |
7667 | 45161 | $ | 82.80 | ||||||||
Hometown |
5795 | 45161 | $ | 82.80 | ||||||||
Hometown |
2709 | 45162 | $ | 69.50 | ||||||||
Hometown |
3468 | 45162 | $ | 69.50 | ||||||||
Hometown |
5809 | 45162 | $ | 69.50 | ||||||||
Hometown |
7787 | 45162 | $ | 69.50 | ||||||||
Hometown |
7391 | 45162 | $ | 69.50 | ||||||||
Hometown |
7379 | 45162 | $ | 69.50 | ||||||||
Hometown |
1808 | 45162 | $ | 69.50 | ||||||||
Hometown |
1859 | 45162 | $ | 69.50 | ||||||||
Hometown |
7403 | 45162 | $ | 69.50 | ||||||||
Hometown |
5794 | 45162 | $ | 69.50 | ||||||||
Hometown |
1857 | 45162 | $ | 69.50 | ||||||||
Hometown |
5414 | 45162 | $ | 69.50 | ||||||||
Hometown |
5868 | 45162 | $ | 69.50 | ||||||||
Hometown |
8033 | 45162 | $ | 69.50 | ||||||||
Hometown |
1965 | 45162 | $ | 69.50 | ||||||||
Hometown |
1938 | 45162 | $ | 69.50 | ||||||||
Hometown |
3607 | 45162 | $ | 69.50 | ||||||||
Hometown |
1932 | 45162 | $ | 69.50 | ||||||||
Hometown |
7178 | 45162 | $ | 69.50 | ||||||||
Hometown |
1809 | 45162 | $ | 69.50 | ||||||||
Hometown |
2187 | 45579 | $ | 88.16 | ||||||||
Hometown |
5854 | 45579 | $ | 88.16 | ||||||||
Hometown |
7697 | 45579 | $ | 88.16 | ||||||||
Hometown |
6722 | 45579 | $ | 88.16 | ||||||||
Hometown |
5946 | 45579 | $ | 88.16 | ||||||||
Hometown |
5175 | 45579 | $ | 88.16 | ||||||||
Hometown |
3686 | 45579 | $ | 88.16 | ||||||||
Hometown |
3948 | 45579 | $ | 88.16 | ||||||||
Hometown |
7907 | 45579 | $ | 88.16 | ||||||||
Hometown |
7114 | 45579 | $ | 88.16 | ||||||||
Hometown |
5885 | 45579 | $ | 88.16 | ||||||||
Hometown |
5897 | 45579 | $ | 88.16 | ||||||||
Hometown |
3215 | 45580 | $ | 85.65 | ||||||||
Hometown |
3305 | 45580 | $ | 85.65 | ||||||||
Hometown |
5587 | 45580 | $ | 85.65 | ||||||||
Hometown |
6502 | 45580 | $ | 85.65 | ||||||||
Hometown |
5673 | 45580 | $ | 85.65 | ||||||||
Hometown |
5821 | 45580 | $ | 85.65 | ||||||||
Hometown |
4780 | 45580 | $ | 85.65 | ||||||||
Hometown |
4855 | 45580 | $ | 85.65 | ||||||||
Hometown |
7180 | 45576 | $ | 63.24 |
EXHIBIT 4 TO APPENDIX 1.01-A | 13 of 14 | |||
Ex. 4 Page 13 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Hometown
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Hometown |
5547 | 45576 | $ | 63.24 | ||||||||
Hometown |
3073 | 45576 | $ | 63.24 | ||||||||
Hometown |
7190 | 45576 | $ | 63.24 | ||||||||
Hometown |
7172 | 45576 | $ | 63.24 | ||||||||
Hometown |
3743 | 45163 | $ | 60.30 | ||||||||
Hometown |
2552 | 45163 | $ | 60.30 | ||||||||
Hometown |
3006 | 45163 | $ | 60.30 | ||||||||
Hometown |
4763 | 45163 | $ | 60.30 | ||||||||
Hometown |
2194 | 45163 | $ | 60.30 | ||||||||
Hometown |
3323 | 45163 | $ | 60.30 | ||||||||
Hometown |
2202 | 45163 | $ | 60.30 | ||||||||
Hometown |
7692 | 45163 | $ | 60.30 | ||||||||
Hometown |
2733 | 45593 | $ | 94.79 | ||||||||
Hometown |
1817 | 45593 | $ | 94.79 | ||||||||
Hometown |
3494 | 45593 | $ | 94.79 | ||||||||
Hometown |
5882 | 45593 | $ | 94.79 | ||||||||
Hometown |
1836 | 45593 | $ | 94.79 | ||||||||
Hometown |
1923 | 45593 | $ | 94.79 | ||||||||
Hometown |
5872 | 45593 | $ | 94.79 | ||||||||
Hometown |
9916 | 45168 | $ | 73.97 | ||||||||
Hometown |
3745 | 45168 | $ | 73.97 | ||||||||
Hometown |
6474 | 45171 | $ | 72.10 | ||||||||
Hometown |
2566 | 45171 | $ | 72.10 | ||||||||
Hometown |
2925 | 45171 | $ | 72.10 | ||||||||
Hometown |
1855 | 45171 | $ | 72.10 | ||||||||
Hometown |
5321 | 45171 | $ | 72.10 | ||||||||
Hometown |
7825 | 45172 | $ | 86.48 | ||||||||
Hometown |
5162 | 45172 | $ | 86.48 | ||||||||
Hometown |
1912 | 45172 | $ | 86.48 | ||||||||
Hometown |
7070 | 45172 | $ | 86.48 | ||||||||
Hometown |
8155 | 45172 | $ | 86.48 | ||||||||
Hometown |
7285 | 45172 | $ | 86.48 | ||||||||
Hometown |
7734 | 45177 | $ | 69.19 | ||||||||
Hometown |
1903 | 45177 | $ | 69.19 | ||||||||
Hometown |
5496 | 45177 | $ | 69.19 | ||||||||
Hometown |
5512 | 45177 | $ | 69.19 |
EXHIBIT 4 TO APPENDIX 1.01-A | 14 of 14 | |||
Ex. 4 Page 14 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Outlet
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Outlet |
5264 | 45573 | $ | 86.83 | ||||||||
Outlet |
7661 | 45120 | $ | 93.58 | ||||||||
Outlet |
7633 | 45062 | $ | 75.20 | ||||||||
Outlet |
7424 | 45065 | $ | 64.57 | ||||||||
Outlet |
4324 | 45065 | $ | 64.57 | ||||||||
Outlet |
7564 | 45070 | $ | 82.49 | ||||||||
Outlet |
9974 | 45070 | $ | 82.49 | ||||||||
Outlet |
9888 | 45076 | $ | 67.50 | ||||||||
Outlet |
5397 | 45076 | $ | 67.50 | ||||||||
Outlet |
4620 | 45081 | $ | 97.55 | ||||||||
Outlet |
7592 | 45081 | $ | 97.55 | ||||||||
Outlet |
5060 | 45081 | $ | 97.55 | ||||||||
Outlet |
7601 | 45083 | $ | 72.93 | ||||||||
Outlet |
7611 | 45083 | $ | 72.93 | ||||||||
Outlet |
9603 | 45083 | $ | 72.93 | ||||||||
Outlet |
7562 | 45572 | $ | 78.88 | ||||||||
Outlet |
4583 | 45572 | $ | 78.88 | ||||||||
Outlet |
7237 | 45105 | $ | 83.08 | ||||||||
Outlet |
9849 | 45106 | $ | 75.58 | ||||||||
Outlet |
4619 | 45109 | $ | 77.56 | ||||||||
Outlet |
4696 | 45109 | $ | 77.56 | ||||||||
Outlet |
8279 | 45116 | $ | 95.41 | ||||||||
Outlet |
7533 | 45129 | $ | 86.50 | ||||||||
Outlet |
7588 | 45134 | $ | 81.81 | ||||||||
Outlet |
8487 | 45134 | $ | 81.81 | ||||||||
Outlet |
7820 | 45135 | $ | 87.38 | ||||||||
Outlet |
4994 | 45164 | $ | 76.56 | ||||||||
Outlet |
7593 | 45165 | $ | 74.72 | ||||||||
Outlet |
9983 | 45165 | $ | 74.72 | ||||||||
Outlet |
7507 | 45599 | $ | 84.77 | ||||||||
Outlet |
4823 | 45067 | $ | 63.48 | ||||||||
Outlet |
8286 | 45067 | $ | 63.48 | ||||||||
Outlet |
9892 | 45068 | $ | 95.54 | ||||||||
Outlet |
4599 | 45073 | $ | 70.45 | ||||||||
Outlet |
9876 | 45577 | $ | 87.36 | ||||||||
Outlet |
4606 | 45581 | $ | 78.22 | ||||||||
Outlet |
1916 | 45581 | $ | 78.22 | ||||||||
Outlet |
9670 | 45581 | $ | 78.22 | ||||||||
Outlet |
4790 | 45581 | $ | 78.22 | ||||||||
Outlet |
9756 | 45581 | $ | 78.22 | ||||||||
Outlet |
7538 | 45574 | $ | 84.27 | ||||||||
Outlet |
4119 | 45574 | $ | 84.27 | ||||||||
Outlet |
9788 | 45574 | $ | 84.27 | ||||||||
Outlet |
9850 | 45084 | $ | 68.21 | ||||||||
Outlet |
5230 | 45084 | $ | 68.21 |
EXHIBIT 4 TO APPENDIX 1.01-A | 1 of 3 | |||
Ex. 4 Page 15 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Outlet
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Outlet |
7911 | 45084 | $ | 68.21 | ||||||||
Outlet |
9986 | 45084 | $ | 68.21 | ||||||||
Outlet |
7561 | 45084 | $ | 68.21 | ||||||||
Outlet |
9696 | 45089 | $ | 60.03 | ||||||||
Outlet |
5361 | 45089 | $ | 60.03 | ||||||||
Outlet |
4585 | 45090 | $ | 63.41 | ||||||||
Outlet |
7577 | 45091 | $ | 69.31 | ||||||||
Outlet |
7159 | 45091 | $ | 69.31 | ||||||||
Outlet |
9251 | 45091 | $ | 69.31 | ||||||||
Outlet |
7590 | 45091 | $ | 69.31 | ||||||||
Outlet |
8496 | 45091 | $ | 69.31 | ||||||||
Outlet |
5207 | 45091 | $ | 69.31 | ||||||||
Outlet |
5640 | 45091 | $ | 69.31 | ||||||||
Outlet |
9785 | 45091 | $ | 69.31 | ||||||||
Outlet |
7704 | 45091 | $ | 69.31 | ||||||||
Outlet |
7540 | 45091 | $ | 69.31 | ||||||||
Outlet |
9981 | 45091 | $ | 69.31 | ||||||||
Outlet |
9870 | 45091 | $ | 69.31 | ||||||||
Outlet |
8246 | 45099 | $ | 67.31 | ||||||||
Outlet |
9764 | 45099 | $ | 67.31 | ||||||||
Outlet |
7541 | 45099 | $ | 67.31 | ||||||||
Outlet |
7529 | 45101 | $ | 65.45 | ||||||||
Outlet |
4099 | 45103 | $ | 56.77 | ||||||||
Outlet |
5298 | 45103 | $ | 56.77 | ||||||||
Outlet |
4958 | 45103 | $ | 56.77 | ||||||||
Outlet |
5282 | 45103 | $ | 56.77 | ||||||||
Outlet |
7349 | 45104 | $ | 70.40 | ||||||||
Outlet |
7089 | 45104 | $ | 70.40 | ||||||||
Outlet |
4598 | 45104 | $ | 70.40 | ||||||||
Outlet |
7359 | 45107 | $ | 56.51 | ||||||||
Outlet |
4328 | 45107 | $ | 56.51 | ||||||||
Outlet |
4001 | 45111 | $ | 90.39 | ||||||||
Outlet |
9112 | 45111 | $ | 90.39 | ||||||||
Outlet |
4611 | 45115 | $ | 68.92 | ||||||||
Outlet |
7652 | 45115 | $ | 68.92 | ||||||||
Outlet |
7612 | 45122 | $ | 71.46 | ||||||||
Outlet |
7556 | 45122 | $ | 71.46 | ||||||||
Outlet |
8470 | 45122 | $ | 71.46 | ||||||||
Outlet |
7438 | 45140 | $ | 50.00 | ||||||||
Outlet |
4049 | 45140 | $ | 50.00 | ||||||||
Outlet |
7659 | 45140 | $ | 50.00 | ||||||||
Outlet |
4618 | 45142 | $ | 70.31 | ||||||||
Outlet |
9229 | 45142 | $ | 70.31 | ||||||||
Outlet |
9486 | 45143 | $ | 93.37 | ||||||||
Outlet |
8346 | 45145 | $ | 59.89 |
EXHIBIT 4 TO APPENDIX 1.01-A | 2 of 3 | |||
Ex. 4 Page 16 |
HOME SERVICES
2012 DELIVERY RATES
2012 Delivery Attachment
Outlet
2012 IBA
Type of Store |
Store# | MDO | 2012 Rate | |||||||||
Outlet |
9497 | 45146 | $ | 59.10 | ||||||||
Outlet |
4697 | 45146 | $ | 59.10 | ||||||||
Outlet |
7238 | 45146 | $ | 59.10 | ||||||||
Outlet |
9688 | 45146 | $ | 59.10 | ||||||||
Outlet |
7586 | 45149 | $ | 73.04 | ||||||||
Outlet |
8495 | 45149 | $ | 73.04 | ||||||||
Outlet |
7546 | 45149 | $ | 73.04 | ||||||||
Outlet |
7450 | 45151 | $ | 67.68 | ||||||||
Outlet |
7440 | 45151 | $ | 67.68 | ||||||||
Outlet |
4333 | 45153 | $ | 72.75 | ||||||||
Outlet |
9671 | 45153 | $ | 72.75 | ||||||||
Outlet |
4689 | 45153 | $ | 72.75 | ||||||||
Outlet |
9796 | 45158 | $ | 74.46 | ||||||||
Outlet |
7631 | 45158 | $ | 74.46 | ||||||||
Outlet |
4617 | 45158 | $ | 74.46 | ||||||||
Outlet |
7920 | 45158 | $ | 74.46 | ||||||||
Outlet |
4486 | 45158 | $ | 74.46 | ||||||||
Outlet |
4650 | 45158 | $ | 74.46 | ||||||||
Outlet |
9897 | 45160 | $ | 77.38 | ||||||||
Outlet |
9411 | 45162 | $ | 69.50 | ||||||||
Outlet |
8234 | 45162 | $ | 69.50 | ||||||||
Outlet |
7818 | 45162 | $ | 69.50 | ||||||||
Outlet |
9284 | 45579 | $ | 88.16 | ||||||||
Outlet |
8412 | 45580 | $ | 85.65 | ||||||||
Outlet |
7457 | 45580 | $ | 85.65 | ||||||||
Outlet |
5342 | 45576 | $ | 63.24 | ||||||||
Outlet |
4044 | 45576 | $ | 63.24 | ||||||||
Outlet |
9114 | 45576 | $ | 63.24 | ||||||||
Outlet |
4621 | 45576 | $ | 63.24 | ||||||||
Outlet |
4601 | 45576 | $ | 63.24 | ||||||||
Outlet |
9944 | 45163 | $ | 60.30 | ||||||||
Outlet |
8482 | 45163 | $ | 60.30 | ||||||||
Outlet |
9282 | 45163 | $ | 60.30 | ||||||||
Outlet |
8461 | 45167 | $ | 153.00 | ||||||||
Outlet |
5365 | 45168 | $ | 73.97 | ||||||||
Outlet |
4345 | 45168 | $ | 73.97 | ||||||||
Outlet |
4185 | 45171 | $ | 72.10 | ||||||||
Outlet |
4335 | 45171 | $ | 72.10 | ||||||||
Outlet |
6052 | 45171 | $ | 72.10 |
EXHIBIT 4 TO APPENDIX 1.01-A | 3 of 3 | |||
Ex. 4 Page 17 |
Execution Copy
Appendix 1.01-B
Effective Date
The Effective Date referred to in Section 1.01 is September , 2012.
Appendix 1.01-B- Page 1
Execution Copy
Appendix 1.10 Service Operating Committee
Party Contact Persons
For SHMC:
Chris Eyunni
For SHO:
J.J. Ethridge
Services Operating Committee
For SHMC:
Chris Eyunni, Carol Ricchio, Rob Riecker
For SHO:
J.J. Etheridge, Mike Gray, Jon Phillips,
Initial Chairperson: Chris Eyunni
Appendix 1.10 Page - 1
Exhibit 10.9
TAX SHARING AGREEMENT
This Tax Sharing Agreement (the Agreement), dated as of the 8th day of August, 2012, is by and among Sears Holdings Corporation, a Delaware corporation (Sears Holdings), and Sears Hometown and Outlet Stores, Inc., a Delaware corporation (SHO), and all of its direct and indirect Subsidiaries (SHO and its present and future Subsidiaries shall be collectively referred to herein as the SHO Companies).
WHEREAS, one or more of the SHO Companies is a member of the affiliated group of corporations of which Sears Holdings is the common parent corporation and which files a consolidated federal income tax return and combined and consolidated state tax returns;
WHEREAS, following the Rights Closing Date (as such term is defined in the Separation Agreement between SHC and SHO, dated as of August 8, 2012 (the Separation Agreement)), such SHO Companies will no longer be included in the affiliated group of corporations (within the meaning of Section 1504 of the Code) of which Sears Holdings is the common parent; and
WHEREAS, Sears Holdings and the SHO Companies desire to set forth their agreement regarding the allocation of taxes, the filing of tax returns, the administration of tax contests and other related tax matters.
NOW, THEREFORE, in consideration of the mutual obligations and undertakings contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined):
Affiliate means, with respect to any specified person, a person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the specified person.
Code means the Internal Revenue Code of 1986, as amended, or any successor thereto, as in effect with respect to the taxable period in question.
Consolidated Group means the affiliated group of corporations (within the meaning of Section 1504 of the Code) of which Sears Holdings is the common parent (and any successor group).
Final Determination shall mean the final resolution of liability for any Tax with respect to a taxable period (i) by Internal Revenue Service Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the Internal Revenue Service (the IRS), or by a comparable form under the laws of other jurisdictions; except that a Form 870 or 870-AD or comparable form that reserves (whether by its terms or by operation of the law) the right of the taxpayer to file a claim for a refund and/or the right of the Taxing Authority to assert a further
deficiency shall not constitute a Final Determination; (ii) by a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and may not be appealed; (iii) by a closing agreement or accepted offer in compromise under Section 7121 or 7122 of the Code, or comparable agreements under the laws of other jurisdictions; (iv) by any allowance of a refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the Taxing Authority jurisdiction; or (v) by any other final disposition, including by reason of the expiration of the applicable statute of limitations.
Member has the meaning assigned in Treasury Regulation Section l.1502-1.
Post-Closing Tax Period means any taxable period beginning after the Rights Closing Date and, with respect to a taxable period that begins on or before such date and ends thereafter, the portion of such taxable period beginning after the Rights Closing Date.
Pricing Adjustment shall mean an adjustment by a Taxing Authority of any transfer pricing arrangement or other intercompany transaction between Sears Holdings or any of its Subsidiaries (on the one hand) and any of the SHO Companies (on the other hand) with respect to any Post-Closing Tax Period.
Pre-Closing Tax Period means any taxable period ending on or before the Rights Closing Date and, with respect to a taxable period that begins on or before such date and ends thereafter, the portion of such taxable period ending on the Rights Closing Date.
Pre-Closing Taxes means any Taxes (other than Unpaid Non-Income Taxes) that are imposed on, allocated or attributable to or incurred or payable by the SHO Business for any Pre-Closing Tax Period, provided that Pre-Closing Taxes shall be computed without regard to the carryback of any Tax Benefit Item from a Post-Closing Tax Period. For purposes of calculating Pre-Closing Taxes, any liability for Taxes attributable to a Tax period that begins before and ends after the Rights Closing Date shall be apportioned between the portion of such period ending on such date and the portion of such period beginning after such date (a) in the case of real and personal property Taxes, by apportioning such Taxes on a per diem basis and (b) in the case of all other Taxes, on the basis of a closing of the books, provided, that exemptions, allowances or deductions that are calculated on an annual basis shall be apportioned on a per diem basis.
Separate Return Taxable Income means, with respect to each taxable period or portion thereof and each state or locality for which the allocation is being computed, the amount of income calculated by multiplying the separate entitys or group of entities (as applicable) tax base for that state or locality by the State Groups apportionment formula for that state or locality, and taking into consideration nonapportionable items of income for that separate entity or group of entities (as applicable). If during any taxable period an SHO Company ceases to be a State Affiliated Company in any state or locality, the Separate Return Taxable Income for such taxable period in such state or locality shall be calculated as if the taxable period of such SHO Company ended on the date that such SHO Company ceased to be a State Affiliated Company in such state or locality.
2
SHO Business means the business and assets contributed to SHO pursuant to the Separation Agreement.
State Affiliated Companies means all entities that Sears Holdings determines are included in a State Combined or Consolidated Return or that any jurisdiction determines under applicable law are included in a State Combined or Consolidated Return.
State Combined or Consolidated Return means a single state or local Tax Return filed for (i) one or more of Sears Holdings and its Subsidiaries as well as (ii) one or more SHO Companies.
State Group means any group of corporations filing a State Combined or Consolidated Return.
Subsidiary means a corporation, limited liability company, partnership or other entity, whether or not such entity is treated as such for tax purposes.
Tax or Taxes means any and all forms of taxation, whenever created or imposed by a Taxing Authority, and, without limiting the generality of the foregoing, shall include net income, alternative or add-on minimum, estimated, gross income, sales, use, ad valorem, gross receipts, value added, franchise, profits, license, transfer, recording, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profit, custom duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, together with any related interest, penalties or other additions to tax, or additional amounts imposed by any such Taxing Authority.
Taxing Authority means a national, foreign, municipal, state, federal or other governmental authority responsible for the administration of any Tax.
Tax Benefit Item means any net operating loss, unused foreign Tax credit, unused charitable deduction, unused capital loss, or similar unused Tax benefit item arising with respect to the SHO Companies in a given taxable period, computed as though the SHO Companies had independently filed a federal, state or local Tax Return for such taxable period including all of the SHO Companies.
Tax Controversy means any pending or threatened audit, dispute, suit, action, proposed assessment or other proceeding relating to Taxes.
Tax Return means any return, filing, questionnaire or other document, including requests for extensions of time, filings made with estimated Tax payments, claims for refund and amended returns, that may be filed for any taxable period with any Taxing Authority in connection with any Tax (whether or not a payment is required to be made with respect to such filing) or any information reporting requirement.
Unpaid Non-Income Taxes means any Taxes (other than income Taxes) that are imposed on, allocated or attributable to or incurred or payable by the SHO Business or the SHO Companies for any Pre-Closing Tax Period, provided that Unpaid Non-Income Taxes shall include Taxes only to the extent such Taxes are accrued and unpaid as of the Rights Closing Date. For purposes of calculating Unpaid Non-Income Taxes, any liability for Taxes attributable to a Tax period that begins before and ends after the Rights Closing Date shall be apportioned between the portion of such period ending on such date and the portion of such period beginning after such date (a) in the case of real and personal property Taxes, by apportioning such Taxes on a per diem basis and (b) in the case of all other Taxes, on the basis of a closing of the books, provided, that exemptions, allowances or deductions that are calculated on an annual basis shall be apportioned on a per diem basis.
ARTICLE II
PREPARATION AND FILING OF TAX RETURNS
Section 2.01. Sears Holdings Consolidated Group Tax Returns .
Sears Holdings shall timely prepare and file (or cause to be timely prepared and filed) all federal income Tax Returns for the Consolidated Group. The SHO Companies shall provide to Sears Holdings all financial data and any other information and documentation reasonably requested by Sears Holdings in connection with the filing of any such federal income Tax Returns.
3
Section 2.02. State Combined or Consolidated Returns .
(a) Sears Holdings or one or more of its Subsidiaries shall prepare all State Combined or Consolidated Returns. To the extent permitted by law, Sears Holdings (or one of its Subsidiaries) shall timely file each such State Combined or Consolidated Return. If Sears Holdings (or one of its Subsidiaries) is not permitted to file any such State Combined or Consolidated Return, an SHO Company shall file such State Combined or Consolidated Return. The person responsible pursuant to the forgoing for filing any such State Combined or Consolidated Return shall timely pay (or cause to be timely paid) any Tax that is due in connection with any such State Combined or Consolidated Return. The SHO Companies shall provide to Sears Holdings all financial data and any other information and documentation reasonably requested by Sears Holdings in connection with the preparation of any such State Combined or Consolidated Return.
(b) To the extent reasonably requested by the SHO Companies, Sears Holdings shall (i) consult with the SHO Companies regarding the preparation of a State Combined or Consolidated Return if the SHO Companies are responsible for any portion of the Taxes reported thereon and (ii) deliver any such State Combined or Consolidated Return to the SHO Companies for review and comment no later than five days prior to the date on which such State Combined or Consolidated Return is due. Sears Holdings shall consider in good faith any changes to such State Combined or Consolidated Tax Return reasonably requested by the SHO Companies, to the extent that such changes relate to items for which the SHO Companies have responsibility hereunder.
Section 2.03. Other Tax Returns of the SHO Companies .
(a) The SHO Companies shall timely prepare and file, or cause to be timely prepared and filed, all appropriate Tax Returns relating to all Taxes attributable to the SHO Companies business other than those described in sections 2.01 and 2.02 herein.
(b) To the extent any Tax Return described in Section 2.03(a) would result in Pre-Closing Taxes and Taxes other than Pre-Closing Taxes, Sears Holdings or one or more of its Subsidiaries shall prepare such Tax Return. The SHO Companies shall provide to Sears Holdings all financial data and any other information and documentation reasonably requested by Sears Holdings in connection with the preparation of any such Tax Return. A SHO Company shall file such Tax Return and shall timely pay (or cause to be timely paid) any Tax that is due in connection with any such Tax Return. To the extent reasonably requested by the SHO Companies, Sears Holdings shall (i) consult with the SHO Companies regarding the preparation of such Tax Return and (ii) deliver such Tax Return to the SHO Companies for review and comment no later than five days prior to the date on which such Tax Return is due. Sears Holdings shall consider in good faith any changes to such Tax Return reasonably requested by the SHO Companies, to the extent that such changes relate to items for which the SHO Companies have responsibility hereunder. Within 15 days of filing any such Tax Return, Sears Holdings shall pay SHO the amount of Pre-Closing Taxes shown on such Tax Return.
ARTICLE III
ALLOCATION AND PAYMENT OF CONSOLIDATED FEDERAL TAXES
Section 3.01. Payment of Consolidated Federal Income Tax . Sears Holdings shall be responsible for all payments of federal income Tax due with respect to the Consolidated Group.
Section 3.02. Carrybacks . In the event any federal Tax Benefit Item of the SHO Companies for any taxable period after they cease being Members of the Consolidated Group is eligible to be carried back to a taxable period while the SHO Companies were Members of the Consolidated Group, the SHO Companies shall, where possible, elect to carry such amounts forward to subsequent taxable periods. If the SHO Companies are required by law to carry back any such federal Tax Benefit Item, the SHO Companies shall be entitled to a payment at the time and to the extent that such Tax Benefit Item reduces the federal income Tax liability of the Consolidated Group. For purposes of computing the amount of the payment described in this section 3.02, one or more federal Tax Benefit Items shall be considered to have reduced the Consolidated Groups federal income Tax liability in a given taxable period by an amount equal to the difference, if any, between (i) the amount of the Consolidated Groups federal income Tax
4
liability for the taxable period computed without regard to such federal Tax Benefit Item or Items and (ii) the amount of the Consolidated Groups federal income Tax liability for the taxable period computed with regard to such federal Tax Benefit Item or Items. For the avoidance of doubt, if the SHO Companies are required to carry back a federal Tax Benefit Item, such federal Tax Benefit Item shall reduce the Consolidated Groups federal income Tax liability only after all federal Tax Benefit Items of Sears Holdings have been applied to reduce the Consolidated Groups federal income Tax liability in such taxable period. Appropriate reconciliation payments shall be made in the event that it is subsequently determined that a Tax Benefit Item did not reduce the Consolidated Groups federal income Tax liabilities, including by reason of any such Tax Benefit Item being subsequently disallowed in whole or in part or by reason of other Tax benefits becoming available.
ARTICLE IV
ALLOCATION AND PAYMENT OF
COMBINED/CONSOLIDATED STATE AND LOCAL TAXES
Section 4.01. Payment of Combined/Consolidated State and Local Tax . With respect to Post-Closing Tax Periods, the SHO Companies shall pay to Sears Holdings, or Sears Holdings shall pay to the SHO Companies (in the case of a State Combined or Consolidated Return filed by an SHO Company, or in the case of payments with respect to Tax Benefit Items pursuant to section 4.02(d)), at the times provided by section 4.03, the amounts determined under section 4.02.
Section 4.02. Allocation of Combined/Consolidated State and Local Tax . The state and local Tax liability of the SHO Companies and all the other State Affiliated Companies for each State Combined or Consolidated Return shall be calculated in the following manner:
(a) An allocation of Tax (or payment attributable to a state or local Tax Benefit Item) pursuant to this Article IV shall be made to the SHO Companies only if Sears Holdings determines that an SHO Company has a nexus presence in a state or locality for which the allocation of Tax or payment attributable to a state or local Tax Benefit Item is being determined. If Sears Holdings has no nexus presence in a state or locality, then all Tax or payments attributable to a state or local Tax Benefit Item shall be allocated to the SHO Companies.
(b) Each allocation of Tax pursuant to this Article IV shall be computed between the SHO Companies as one group and all other State Affiliated Companies as a separate group.
(c) Except as otherwise provided herein (including section 7.03), with respect to any State Combined or Consolidated Tax Return that is an income Tax Return, the Tax allocated to the SHO Companies shall equal the product of (i) the statutory rate imposed by the relevant state or locality for the Tax covered by such Tax Return and (ii) the amount (if any) of positive Separate Return Taxable Income for the SHO Companies with respect to such Tax Return. For purposes of this section 4.02(c), the SHO Companies allocated Tax shall not be reduced by the SHO Companies carrybacks and carryovers of state or local Tax Benefit Items from other taxable periods (such items being addressed by section 4.02(d)).
5
(d) Sears Holdings shall pay to the SHO Companies, in accordance with section 4.03, the amount, if any, by which one or more state or local Tax Benefit Items of the SHO Companies arising in a Post-Closing Tax Period reduced a State Combined or Consolidated Return Tax liability with respect to any taxable period for which a State Combined or Consolidated Return is filed by Sears Holdings after the date of this Agreement but only to the extent that Sears Holdings receives the benefit of such reduction (taking into account the provisions of this Agreement). In computing the amount of the payment under this section 4.02(d), one or more state or local Tax Benefit Items shall be considered to have reduced the State Combined or Consolidated Return Tax liability in a given taxable period by an amount equal to the difference, if any, between (i) the amount of the State Combined or Consolidated Return Tax liability with respect to the taxable period computed without regard to such state or local Tax Benefit Item or Items and (ii) the amount of the State Combined or Consolidated Return Tax liability with respect to the taxable period computed with regard to such state or local Tax Benefit Item or Items. Appropriate reconciliation payments shall be made in the event that it is subsequently determined that a Tax Benefit Item did not reduce the State Combined or Consolidated Return Tax liability in a given taxable period, including by reason of any such Tax Benefit Item being subsequently disallowed in whole or in part or by reason of other Tax benefits becoming available. In no event shall the amount paid by Sears Holdings under this section 4.02(d) with respect to any state or local Tax Benefit Item exceed the amount that the SHO Companies would have received if they had independently filed a state or local Tax Return including all of the SHO Companies. SHO shall pay to Sears Holdings, in accordance with section 4.03 herein, the amount, if any, by which one or more state or local Tax Benefit Items of Sears Holdings or any of its Subsidiaries reduced a State Combined or Consolidated Return Tax liability with respect to any taxable period for which a State Combined or Consolidated Return is filed after the date of this Agreement but only to the extent that an SHO Company receives the benefit of such reduction (taking into account the provisions of this Agreement). For the avoidance of doubt, the provisions of this section 4.02(d) are subject to section 7.03.
(e) With respect to any State Combined or Consolidated Return that is not an income Tax Return, the applicable state or local Tax liability shall be allocated among the SHO Companies and all the other State Affiliated Companies pro rata based on the Tax that would have been paid by the SHO Companies as one group, on the one hand, and all other State Affiliated Companies as a separate group, on the other hand.
Section 4.03. Payment .
(a) The computation of the state or local Tax allocations, as well as any required payment to and from Sears Holdings, shall be made within 15 days after Sears Holdings or any of its Affiliates (other than the SHO Companies), or any SHO Company, makes a payment to, or receives a payment credit or offset from, any Taxing Authority pursuant to this Article IV. All decisions relating to the allocation and payment of Taxes under this Article IV shall be made at the reasonable discretion of Sears Holdings.
(b) The same method used for the calculation of estimated Tax for any State Combined or Consolidated Return shall be used to determine the amount of estimated Tax allocated to the SHO Companies. With regard to any estimated Tax that is calculated based upon income of a prior taxable period, the payments under this Agreement shall also be calculated based upon such income and appropriate adjustments made when the final Tax Return is filed with respect to such estimated Tax. For estimated Tax calculated in any other manner, the payments under this Agreement shall be determined based upon the principles of section 4.02.
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Section 4.04. Carrybacks . In the event any state Tax Benefit Item of the SHO Companies with respect to any taxable period after they cease being State Affiliated Companies is eligible to be carried back to a taxable period while the SHO Companies were State Affiliated Companies, the SHO Companies shall, where possible, elect to carry such amounts forward to subsequent taxable periods. If the SHO Companies are required by law to carry back any such state Tax Benefit Item, the SHO Companies shall be entitled to a payment to the extent that such a payment would be required under the terms of section 4.02(d).
ARTICLE V
PAYMENT OF OTHER TAXES
Section 5.01 Other Taxes . All Taxes of (or with respect to) an SHO Company shall be paid by the SHO Companies, other than (i) Taxes of the Consolidated Group, (ii) Taxes reportable on a Tax Return described in Section 2.02(a) (which the SHO Companies shall pay to the extent required by Article IV), and (iii) Pre-Closing Taxes.
Section 5.02. Unpaid Non-Income Taxes . Notwithstanding any other provision of this Agreement, SHO shall be responsible for and pay all Unpaid Non-Income Taxes.
ARTICLE VI
TAX DEFICIENCIES AND REFUNDS
6.01. Pre-Closing Taxes . Sears Holdings shall be responsible for (and shall indemnify the SHO Companies from and against) all Pre-Closing Taxes, including any Pre-Closing Taxes resulting from any audit, amendment, other change or adjustment. Any refund of Pre-Closing Taxes (whether by payment, credit, offset against other Taxes due or otherwise) shall be for the benefit of (and paid to) Sears Holdings.
6.02. Post-Closing State Group Taxes . Subject to section 7.03, if as a result of any audit, amendment, other change or adjustment to the state or local Taxes of any State Group there is an additional amount of such state or local Taxes (other than Pre-Closing Taxes) due and payable or a refund of such state or local Taxes (other than Pre-Closing Taxes) previously paid (whether by payment, credit, offset against other Taxes due or otherwise), the obligations of the parties shall be redetermined under section 4.02 as if the adjustments made as a result of such audit were included as part of the original Tax Return filed and any payments made under this Agreement shall be adjusted or reimbursed in accordance with the foregoing.
ARTICLE VII
COOPERATION AND TAX CONTROVERSY
Section 7.01. Cooperation .
(a) Sears Holdings and the SHO Companies shall cooperate fully at such time and to the extent reasonably requested by the other party in connection with the preparation and
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filing of any Tax Return or the conduct of any Tax Controversy concerning any issues or any other matter contemplated hereunder. Such cooperation shall include, without limitation, (i) the retention and provision on demand of books, records, documentation or other information relating to any Tax Return until the later of (x) the expiration of the applicable federal or state statute of limitation (giving effect to any extension, waiver, or mitigation thereof) and (y) in the event any claim has been made under this Agreement for which such information is relevant, until a Final Determination with respect to such claim; (ii) the filing or execution of any document that may be necessary or reasonably helpful in connection with the filing of any Tax Return, or claim for a refund of Taxes previously paid, by either party, or in connection with any Tax Controversy addressed in the preceding sentence (including a requisite power of attorney); and (iii) the use of the parties' best efforts to obtain any documentation from a governmental authority or a third party that may be necessary or helpful in connection with the foregoing. Each party shall make its employees and facilities reasonably available on a mutually convenient basis to facilitate such cooperation.
(b) Sears Holdings and the SHO Companies shall use reasonable efforts to keep each other advised as to the status of Tax Controversies involving any issue which could give rise to any liability of the other party under this Agreement. Sears Holdings and the SHO Companies shall each promptly notify the other of any inquiries by any Taxing Authority or any other administrative, judicial or other governmental authority that relate to any Tax that may be imposed on the other or any Affiliate of the other that might give rise to any liability under this Agreement. Sears Holdings shall have sole control of any Tax Controversy relating to the Consolidated Group or to any Pre-Closing Taxes. Sears Holdings shall have sole control of any Tax Controversy relating to any State Combined and Consolidated Return, provided, that in the case of any such Tax Controversy that may affect Taxes for which the SHO Companies have responsibility hereunder, the SHO Companies may participate in such Tax Controversies at their own expense. If the potential liability of the SHO Companies under this Agreement relating to any Tax Controversy exceeds $500,000, Sears Holdings shall not settle or concede such Tax Controversy without the prior written consent of the SHO Companies, not to be unreasonably withheld, conditioned or delayed.
Section 7.02. Contest Provisions . Subject to the cooperation provisions in section 7.01, Sears Holdings shall have the right to resolve any difference or disagreement on any matter that arises out of the application and interpretation of this Agreement; provided, however, that Sears Holdings shall (i) in good faith cooperate and consult with the SHO Companies in an effort to resolve any differences with respect to Sears Holdings position with regard to such matter, (ii) in good faith consider the SHO Companies position on such matter and (iii) advise the SHO Companies of the reason for rejecting any such recommendation for alternative positions.
Section 7.03. Certain Adjustments . Notwithstanding sections 4.02 and 6.02, in the event there is a Pricing Adjustment with respect to any Tax Return that results in additional taxable income to Sears Holdings, SHO or any of their respective Subsidiaries (or any tax group that includes any such person), (i) if such adjustment is with respect to a State Combined or Consolidated Tax Return, the adjustments arising from such Pricing Adjustment shall be disregarded in applying sections 4.02 and 6.02 to the extent necessary in order to put Sears Holdings (and its Subsidiaries) or SHO (and its Subsidiaries), as the case may be, in the same after tax position with respect to such State Combined or Consolidated Tax Return as such person
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would have occupied if there had been no such additional taxable income (as determined by Sears Holdings in good faith) and (ii) after the application of clause (i) (but without duplication) or if clause (i) does not apply, as the case may be, (A) SHO shall indemnify Sears Holdings for any additional Tax that Sears Holdings (or any of its Subsidiaries) would otherwise bear as a result of such additional taxable income and (b) Sears Holdings shall indemnify SHO for any additional Tax that the SHO Companies would otherwise bear as a result of such additional taxable income. The amount of any payment under this section 7.03 shall be increased by any Taxes incurred by the person receiving such payment as a result of the receipt of such payment. Any payment required under this section 7.03 shall be made within 15 days after the indemnified party makes a payment to any Taxing Authority as a result of a Pricing Adjustment. In the event that, following a Pricing Adjustment with respect to a Tax Return, Sears Holdings determines that it is appropriate to apply that Pricing Adjustment to another Tax Return or in filing other Tax Returns going forward, this section 7.03 (and sections 4.02 and 6.02) shall be applied as if a Pricing Adjustment had been made with respect to such other Tax Returns.
ARTICLE VIII
MISCELLANEOUS
Section 8.01. Effective Date . This Agreement applies to all matters related to any Tax Returns filed, Taxes paid, adjustments made in respect of any Tax, and any other matters involving Taxes on or after the Rights Closing Date between or among (i) Sears Holdings or any of its Subsidiaries (other than the SHO Companies) and (ii) the SHO Companies. This Agreement will not become effective unless it has been approved by the Audit Committee of the Board of Directors of Sears Holdings.
Section 8.02. Complete Agreement . This Agreement constitutes the entire agreement of the parties concerning the subject matter hereof. Any other agreements, whether or not written, in respect of any Tax between or among Sears Holdings and the SHO Companies shall be terminated and have no further effect. This Agreement may not be amended except by an agreement in writing signed by the parties hereto. This Agreement is being executed on August 30, 2012 and shall supersede any version of this Agreement that was executed previously.
Section 8.03. Notices . Notices under this Agreement are sufficient if given by nationally recognized overnight courier service, certified mail (return receipt requested), or email or facsimile with electronic confirmation or personal delivery to the other Party at the address below:
If to SHO: | Sears Hometown and Outlet Stores, Inc. | |
3333 Beverly Road | ||
Hoffman Estates, IL 60179 | ||
Attn.: General Counsel | ||
Facsimile: ( ) |
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If to Sears Holdings: | Sears Holdings Corporation | |
3333 Beverly Road B2-131B | ||
Hoffman Estates, IL 60179 | ||
Attn.: Vice President, Tax | ||
Facsimile: (847) 286-4908 | ||
With a copy to: | Sears Holdings Corporation | |
3333 Beverly Road B6-210B | ||
Hoffman Estates, IL 60179 | ||
Attn: General Counsel | ||
Facsimile: (847) 286-2471 |
Notice is effective: (i) when delivered personally, (ii) three business days after sent by certified mail, (iii) on the business day after sent by a nationally recognized courier service, or (iv) on the business day after sent by email or facsimile with electronic confirmation to the sender. A Party may change its notice address by giving notice in accordance with this Section 8.03 .
Section 8.04. Governing Law; Jurisdiction; Waiver of Jury Trial .
(a) Governing Law . This Agreement will be construed in accordance with, and governed by, the federal laws of the United States, including the Lanham Act, and the internal laws of the State of Illinois, other than its conflict of laws principles and the Illinois Franchise Disclosure Act. This Agreement will not be subject to any of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.
(b) Jurisdiction . Each of the Parties submits, for itself and its property, to the exclusive jurisdiction of all Illinois state courts and federal courts of the United States of America sitting in Cook County, Illinois, and all appellate courts to each thereof, in all actions and proceedings arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of all judgments relating thereto, and each of the Parties (A) will commence all such actions and proceedings only in such courts, (B) will cause all claims in respect of all such actions and proceedings to be heard and determined in such Illinois state court or, to the extent permitted by law, in such federal court, (C) waives, to the fullest extent it may legally and effectively do so, all objections that it may now or hereafter have to the laying of venue of all such actions and proceedings in any such Illinois state or federal court, and (D) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such actions and proceedings in all such Illinois state and federal courts. A final judgment in any such action or proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party irrevocably consents to service of process in the manner provided for notices in Section 8.03. Nothing in this Agreement will affect the right of any Party to serve process in any other manner permitted by Applicable Law.
(c) Waiver of Jury Trial . Each Party acknowledges that each controversy that may arise under this Agreement is likely to involve complicated and difficult issues and, therefore,
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it irrevocably and unconditionally waives all rights it may have to a trial by jury in respect of any litigation directly or indirectly arising out of or relating to this Agreement or the transactions contemplated hereby. Each Party certifies and acknowledges that (A) it understands and has considered the implications of such waivers, (B) it makes such waivers voluntarily, and (C) it has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 8.04(c).
Section 8.05. Successors and Assigns . A partys rights and obligations under this Agreement may not be assigned without the prior written consent of the other party. All of the provisions of this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. If any party to this Agreement forms or acquires one or more Subsidiaries which become Members of the Consolidated Group or a State Affiliated Company, such party will cause any such Subsidiary to be bound by the terms of this Agreement, and this Agreement shall apply to any such Subsidiary in the same manner and to the same extent as the current party.
Section 8.06. Intended Third Party Beneficiaries . This Agreement is solely for the benefit of the parties to this Agreement and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without this Agreement.
Section 8.07. Legal Enforceability . Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of the prohibition or unenforceability without invalidating the remaining provisions. Any prohibition or unenforceability of any provision of this Agreement in any jurisdiction shall not invalidate or render unenforceable the provision in any other jurisdiction.
Section 8.08. Expenses . Unless otherwise expressly provided in this Agreement, each party shall bear any and all expenses that arise from its respective obligations under this Agreement. In the event either party to this Agreement brings an action or proceeding for the breach or enforcement of this Agreement, the prevailing party in such action or proceeding, whether or not such action or proceeding proceeds to final judgment, shall be entitled to recover as an element of its costs, and not as damages, such reasonable attorneys fees as may be awarded in the action or proceeding in addition to whatever other relief to which the prevailing party may be entitled.
Section 8.09. Counterparts . This Agreement may be executed and delivered (including by facsimile transmission) in counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement.
Section 8.10. Change in Law . If, after the date this Agreement is executed, as a result of an amendment to the Code, the promulgation of proposed, temporary or final regulations, the issuance of a ruling by a Taxing Authority, the decision of any court, or a change in any applicable state or local law, Sears Holdings believes that it is necessary or helpful to amend the provisions of this Agreement in order to preserve the rights and benefits contemplated herein, each of the parties hereto agrees to negotiate in good faith all such amendments and modifications as shall be necessary or appropriate in order to preserve as nearly as possible for the parties hereto the rights and benefits contemplated herein.
[Remainder of page intentionally left blank; signature page to follow]
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above.
SEARS HOLDINGS CORPORATION | ||
By: |
|
Name: | Lawrence J. Meerschaert | |
Title: | Vice-President, Tax |
SEARS HOMETOWN AND OUTLET STORES, INC | ||
By: |
|
Name: | W. Bruce Johnson | |
Title: | Chief Executive Officer and President |
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Exhibit 10.10
Execution Version
EMPLOYEE TRANSITION AND ADMINISTRATIVE SERVICES AGREEMENT
THIS EMPLOYEE TRANSITION AND ADMINISTRATIVE SERVICES AGREEMENT (this Agreement ), dated as of August 31, 2012, is made by and between (i) Sears Holdings Management Corporation on behalf of itself and its Affiliates ( SHMC or the Service Provider ); and (ii) Sears Hometown and Outlet Stores, Inc. ( SHO ), Sears Authorized Hometown Stores, LLC ( Hometown ), and Sears Outlet Stores, L.L.C. ( Outlet and together with SHO and Hometown, collectively the SHO Group ).
RECITALS
WHEREAS, Service Provider is a wholly owned subsidiary of Sears Holdings Corporation ( SHLD ), and SHLD has determined that it would be appropriate, desirable and in the best interests of SHLD and the shareholders of SHLD to separate the SHO Business from SHLD; and
WHEREAS, SHLD and SHO have entered into the Separation Agreement, dated August 8, 2012 (the Separation Agreement ), pursuant to which SHLD intends to distribute to its stockholders its entire interest in the SHO Business by way of a Rights Offering; and
WHEREAS, after the Rights Offering, it is contemplated by the parties that certain employees working for the SHO Business will be transferred to the SHO Group, and Service Provider will provide certain administrative services to the SHO Group for a certain period of time, all on the terms and conditions set forth herein; and
NOW, THEREFORE , in consideration of the foregoing and mutual covenants and agreements contained herein and in the Separation Agreement, and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Capitalized Terms . Capitalized terms used but not defined in this Agreement shall have the meanings ascribed to them in the Separation Agreement.
1.2 Certain Defined Terms . For the purposes of this Agreement:
Affiliate means (solely for purposes of this Agreement and for no other purpose) (i) with respect to SHO, its Subsidiaries, and (ii) with respect to the Service Provider, SHLD and the subsidiaries of SHLD (other than Sears Canada, Inc.).
Benefit Plan means, with respect to an entity, each plan, program, policy, agreement, arrangement or understanding that is a deferred compensation, executive compensation, incentive bonus or other bonus, pension, profit sharing, savings, retirement,
severance pay, salary continuation, life, death benefit, health, hospitalization, sick leave, vacation pay, disability or accident insurance or other employee benefit plan, program, agreement or arrangement, including any employee benefit plan (as defined in Section 3(3) of ERISA) sponsored, maintained or contributed to by such entity or to which such entity is a party or under which such entity has any obligation; provided that no SHLD Restricted Stock Award, nor any plan under which any such SHLD Restricted Stock Award is granted, shall constitute a Benefit Plan under this Agreement. In addition, no Employment Agreement shall constitute a Benefit Plan for purposes hereof.
Benefits Transition Period has the meaning set forth in Section 3.4 (f) .
Cash Retention Award or Other Cash Retention Award has the meaning set forth in Section 3.6.
COBRA means continuation of group health coverage provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended and regulations promulgated thereunder.
Code means the U.S. Internal Revenue Code of 1986, as amended and regulations promulgated thereunder.
Continuing Plans has the meaning set forth in Section 3.4(f) .
Employment Agreement means any individual employment, retention, incentive bonus, severance or other individual compensatory agreement between any employee and a member of the SHLD Group or the SHO Group.
ERISA means the Employee Retirement Income Security Act of 1974, as amended and regulations promulgated thereunder.
Party means (a) SHO, Hometown, and Outlet, on the one hand, and (b) SHMC, on the other hand.
Person is defined in the Separation Agreement, but for convenience is duplicated here, provided that the definition in the Separation Agreement controls. Person means any individual, partnership, firm, corporation, limited liability company, association, trust, joint venture, unincorporated organization, other entity or Governmental Authority, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act.
Plan Payee means, as to an individual who participates in a Benefit Plan, such individuals dependents, beneficiaries, alternate payees and alternate recipients, as applicable under such Benefit Plan.
Separation Agreement is defined in the Recitals hereof.
SHLD Benefit Plan means, as of the Rights Closing Effective Time, any Benefit Plan sponsored, maintained or made available by any member of the SHLD Group. SHLD Benefit Plan shall also mean any multi-employer plan (as defined in Section 3(37) of
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ERISA) to which any member of the SHLD Group contributes for the benefit of its employees. For the avoidance of doubt, no member of the SHLD Group shall be deemed to sponsor or maintain any Benefit Plan if its relationship to such Benefit Plan is solely to administer such Benefit Plan or provide to SHO any reimbursement in respect of such Benefit Plan. The SHLD Benefit Plans (excluding any multi-employer plans) shall be those Benefit Plans sponsored, maintained or made available solely by one or more members of the SHLD Group following the Rights Closing Effective Time. SHLD Benefit Plans shall not include the SHO AIP and the SHO LTIP upon the assignment and assumption of such plans by SHO as of the Rights Closing Effective Time.
SHLD Common Stock means the common stock of SHLD, par value $0.01 per share.
SHLD DC Plan means each of the following qualified defined contribution plans: the Sears Holdings 401(k) Savings Plan, the Lands End, Inc. Retirement Plan, and the Sears Holdings Puerto Rico Savings Plan.
SHLD means Sears Holdings Corporation.
SHLD Employment Agreement means all Employment Agreements to which any member of the SHLD Group is a party and to which no member of the SHO Group is a party or beneficiary as of the Rights Closing Effective Time. SHLD Employment Agreements shall not include any Employment Agreement originally between a member of the SHLD Group and a SHO Employee that is assigned to and assumed by the SHO Group as of the Rights Closing Effective Time, in accordance with Section 3.3(d) below. The SHLD Employment Agreements shall be the responsibility of one or more members of the SHLD Group following the Rights Closing Effective Time.
SHLD Group is defined in the Separation Agreement, but for convenience is duplicated here, provided that the definition in the Separation Agreement controls. SHLD Group means, collectively, SHLD and all of its Subsidiaries other than members of the SHO Group.
SHLD Restricted Stock Award has the meaning set forth in Section 3.6 .
SHLD Severance Plan has the meaning set forth in Section 3.4(e) .
SHLD Pension Plan has the meaning set forth in Section 3.4(b)(i) .
SHLD SRIP has the meaning set forth in Section 3.4(b)(ii) .
SHLD Welfare Plan means each SHLD Benefit Plan that is a Welfare Plan.
SHO AIP has the meaning set forth in Section 3.5 .
SHO Benefit Plan means any Benefit Plan sponsored, maintained or made available by any member of the SHO Group, and any Benefit Plan made available to SHO Employees by a designee at the direction of SHO. During the applicable Benefits Transition
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Period, the Continuing Plans shall be deemed SHO Benefit Plans, which are made available by SHO to eligible SHO Employees. No member of the SHLD Group shall be deemed to sponsor or maintain any SHO Benefit Plan if its relationship to such Benefit Plan is solely to administer such Benefit Plan or provide to SHO or any SHO Employee (or Plan Payee) any reimbursement in respect of such Benefit Plan. In addition, SHLD is not responsible for any federal or state liability that SHO, the SHO Benefit Plan, or SHOs designee may incur due to the relationship between SHO and the designee, or the structure of the SHO Benefit Plan.
SHO Employee is defined in Section 3.1 .
SHO Employee Liabilities means all potential or actual employment-related, employee benefits-related, or other Liabilities, whether arising on or after the Rights Closing Effective Time, with respect to: (a) SHO Employees (and their respective Plan Payees); (b) any other individuals asserting rights or obligations stemming from their services to or in connection with the SHO Group or the SHO Business; (c) SHO Employment Agreements; and (d) the SHO Benefit Plans, except as otherwise provided in this Agreement or the Separation Agreement.
SHO Employment Agreement means any Employment Agreement (a) between the SHLD Group and a SHO Employee who is transferred to SHO as of the Rights Closing Effective Time, or (b) to which any member of the SHO Group is a party and to which no member of the SHLD Group is a party. The SHO Employment Agreements shall be the sole responsibility of one or more members of the SHO Group as of the Rights Closing Effective Time.
SHO Group is defined in the Separation Agreement, but for convenience is duplicated here, provided that the definition in the Separation Agreement controls. SHO Group means, collectively, SHO, Hometown, Outlet, and all other Persons that hereafter become a Subsidiary of SHO.
SHO LTIP has the meaning set forth in Section 3.5 .
SHO Welfare Plan means each SHO Benefit Plan that is a Welfare Plan, including Welfare Plans sponsored or maintained by SHO or by a designee of SHO and made available to SHO Employees, and including the Continuing Plans, as of the Rights Closing Effective Time or during the Benefits Transition Period.
Welfare Plan means each Benefit Plan that provides life insurance, health care, dental care, vision care, employee assistance programs (EAP), accidental death and dismemberment insurance, disability, severance, vacation or other group welfare or fringe benefits, including, but not limited to, a benefit that is an employee welfare benefit plan as described in Section 3(1) of ERISA.
1.3 Other . In this Agreement (i) include, includes, and including are inclusive and mean, respectively, include without limitation, includes without limitation, and including without limitation, (ii) or is disjunctive but not necessarily exclusive, (iii) will expresses an imperative, an obligation, or a requirement, (iv) numbered section and article references refer to sections and articles, respectively, of this Agreement unless otherwise specified, (v) unless otherwise indicated all references to a number of days will mean calendar days unless otherwise specified and all references to months or years will mean calendar months or years, and (vi) $ or Dollars will mean U.S. Dollars.
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ARTICLE II
TERM
2.1 General Term . This Agreement shall be in effect commencing immediately following the Rights Closing Effective Time specified in the Separation Agreement and continuing until 5:00 p.m. (Central Time) on the last day of the sixty-sixth month following the Rights Closing Effective Time, subject to earlier termination in accordance with Section 6.1 .
ARTICLE III
TREATMENT OF SHO EMPLOYEES ON AND AFTER THE EFFECTIVE DATE
3.1 Transfer of Employees .
(a) On the Rights Closing Effective Time, (a) all employees of the SHO Group ( Existing SHO Group Employees ) will remain employees of the SHO Group; and (b) all employees of the SHLD Group who are properly coded in the HRIS systems under code SHS, and all other employees of the SHLD Group who are then working primarily for the SHO Business, shall be transferred from the SHLD Group to a member of the SHO Group or its designee in accordance with applicable Law ( Transferred Employees ). The Existing SHO Group Employees and the Transferred Employees are referred to collectively as the SHO Employees . As a result, members of the SHO Group or their designees will be or become the employers of all of the SHO Employees.
(b) For the avoidance of doubt: (i) SHO Employees shall include all employees described above who are on a leave of absence, whether paid or unpaid, from which such employee is permitted to return (in accordance with his or her employers personnel policies, as applicable, or applicable Law, as of the Rights Closing Effective Time ( Inactive SHO Employee ); and (ii) the parties shall complete Schedule 4.1 hereto prior to the Rights Closing Effective Time, constituting a list of all the SHO Employees (including employees on leave), and such schedule shall be binding on the parties.
(c) Service Provider and/or its Affiliates and the SHO Group shall take reasonable steps to effect an orderly transfer of the Transferred Employees as of the Rights Closing Effective Time and the applicable employment-related data related to the SHO Employees (including but not limited to salary, payroll, benefit coverage, and compensation history) to the SHO Group, effective as of the Rights Closing Effective Time (or such earlier date as may be agreed by the parties). Notwithstanding the foregoing, SHMC shall retain copies of or continue to have access to such employment-related data as needed to provide the Administrative Services contemplated herein. The SHO Group shall pay Service Provider reasonable charges for its and its Affiliates services and expenses in connection with the transfer of employees and the transfer of applicable information. In the event that the SHO Group does not accept the transfer of any SHO Employee, or any SHO Employee elects not to
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continue in his or her employment, then the SHO Group shall be responsible for, and shall reimburse Service Provider for, the costs and liabilities arising out of or relating to Service Providers or its Affiliates termination or retention of such employees, including without limitation any severance-related liability to which such SHO Employee is or claims to be entitled.
(d) The terms of this Agreement (including the obligations of SHO pursuant to this Article IV ) shall apply to any Inactive SHO Employee, and SHMC shall deliver to SHO a list of the names of all Inactive SHO Employees as of the Rights Closing Effective Time and SHO shall maintain and update such list and provide thereafter to SHMC as needed to provide the Administrative Service contemplated hereunder. Until the earlier of the date on which an Inactive SHO Employee is able to return to active employment status, and presents him or herself for work, and the end of the Benefits Transition Period, SHMC shall (a) provide to such Inactive Service Employee (and each beneficiary or eligible dependent thereof) coverage or eligibility for coverage under the applicable SHLD Benefit Plans, subject to the terms, conditions and continued availability of such plans, and (b) administer, on behalf of SHO, all claims relating to employee benefit obligations with respect to such Inactive SHO Employee (and each beneficiary or eligible dependent thereof); provided , however , that SHO shall reimburse SHMC for all costs associated with all such Inactive Service Employees in accordance with Section 5.1 and 5.5 of this Agreement to the extent Service Provider is required to make any payments during the Benefits Transition Period or thereafter under SHLD Benefit Plans in effect as of the Rights Closing Effective Time and/or during the Benefits Transition Period.
3.2 Notice Requirements . The SHO Group shall bear any liability that may accrue to the SHO Employees or to any unit of government under the Worker Adjustment and Retraining Notification Act of 1988, as amended (the WARN Act ), or any similar state Law, arising out of (a) the transactions under the Separation Agreement and this Agreement, including the transfer of employees pursuant hereto, and (b) any actions any action taken by the SHO Group after the Rights Closing Effective Time.
3.3 Assignment and Assumption of Liabilities . Effective as of the Rights Closing Effective Time, Service Provider hereby assigns and SHO hereby assumes and/or retains, all of the following liabilities, obligations and agreements with respect to the SHO Employees, whether arising before or after the Rights Closing Effective Time, except as expressly otherwise provided in Section 3.4 (for purposes of this Agreement Assumed Liabilities ):
(a) the existing collective bargaining agreements;
(b) all of the following obligations of Service Provider with respect to the SHO Employees: (i) accrued but unpaid salaries, wages, overtime, bonuses/incentives, including without limitation the incentive programs referred to in Section 3.3(e) below and the related payroll taxes; (ii) liabilities for accrued but unpaid vacation, illness and other approved leaves of absence; and (iii) liabilities for insurance and pension contributions to multi-employer plans, if any, pursuant to the terms of any applicable collective bargaining agreement;
(c) all liabilities and requirements under COBRA with respect to all SHO Employees and their respective Plan Payees who, immediately prior to the Rights Closing
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Effective Time, were participating in, or entitled to present or future benefits under the SHLD Welfare Plans (which shall be deemed to be a SHO Welfare Plan during the Benefits Transition Period), pursuant to COBRA or who have a COBRA qualifying event (as defined in Section 4980B of the Code) on or after the Rights Closing Effective Time;
(d) all liabilities arising out of or relating to all SHO Employment Agreements;
(e) all liabilities arising out of or relating to claims made by or with respect to SHO Employees under any SHLD Severance Plan;
(f) all accruals and outstanding liabilities arising out of or relating to (i) fiscal year 2012 under the SHLD AIP and (ii) the 2010, 2011 and, if applicable as of the Rights Closing Effective Time, the 2012 fiscal year accruals and liabilities under SHLD LTIP, to the extent attributable to Transferred Employees, in accordance with Section 3.5 ;
(g) all liabilities arising out of or relating to any SHO Cash Retention Award or Other Cash Retention Award, in accordance with Section 3.6 ;
(h) all other Liabilities with respect to the employment, service, termination of employment or termination of service of any SHO Employees, their respective Plan Payees, and other service providers (including any individual who is, or was, an independent contractor, temporary employee, temporary service worker, consultant, freelancer, agency employee, leased employee, on-call worker, incidental worker, or nonpayroll worker of any member of SHO or in any other employment, non-employment, or retainer arrangement, or relationship with any member of SHO), in each case to the extent arising in connection with or as a result of employment with or the performance of services for the SHO Business from and after the Rights Closing Effective Time, and
(i) all other SHO Employee Liabilities, except as excluded under Section 3.4(b), (c) and (d) .
Effective as of the Rights Closing Effective Time, SHO shall be solely responsible for all the SHO Assumed Liabilities, and SHMC and its Affiliates shall not have any obligation for SHO Employee Liabilities. SHMC will provide copies of all SHO Employment Agreements and other assumed documents to SHO. SHMC shall use reasonable efforts to transfer or cause to be transferred to SHO documentation related to such SHO Employment Agreements, including offer letters, agreements and other instruments reasonably required for the maintenance and administration of the SHO Employment Agreements
3.4 Cessation of Participation and Allocation of Liabilities With Respect to Benefit Plans .
(a) Benefit Plans Generally . Except as otherwise specifically provided in Section 3.4(f) of this Agreement, as of the Rights Closing Effective Time, each SHO Employee (and each such individuals Plan Payees) shall cease participation in all SHLD Benefit Plans (subject to COBRA obligations, which are assumed by the SHO Group pursuant to Section 3.3(c) above) and, as of such time, SHO shall or shall cause another member of the SHO Group to have in effect or make available such SHO Benefit Plans, including Continuing Plans during the Benefits Transition Period, as are necessary to comply with its obligations pursuant to this Agreement.
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(b) Pension Benefits .
(i) As of the Rights Closing Effective Time, each SHO Employee who is a participant in the Sears Holdings Pension Plan (the SHLD Pension Plan ) (which is a frozen defined benefit pension plan) will cease to actively participate in the SHLD Pension Plan and will be treated as a terminated participant or retiree, as applicable, under the SHLD Pension Plan. No additional service will accrue under the SHLD Pension Plan after such date for any purpose (e.g., eligibility or vesting) with respect to a SHO Employee until or unless such SHO Employee again becomes a SHLD employee. Notwithstanding any other provision contained herein, neither SHO nor its Affiliates will have any Liability with respect to the SHLD Pension Plan for any SHO Employee, and their respective Plan Payees, except as required by Law.
(ii) As of the Rights Closing Effective Time, each SHO Employee who is a participant in the Sears, Roebuck and Co.s Supplemental Retirement Income Plan (the SHLD SRIP ) (which is a frozen, non-qualified deferred compensation plan that supplements the pension benefit under the SHLD Pension Plan for certain participants of the SHLD Pension Plan) will cease to actively participate in the SHLD SRIP and will be treated as a terminated participant or retiree, as applicable, under the SHLD SRIP. No additional service will accrue under the SHLD SRIP after such date for any purpose (e.g., eligibility or vesting). Notwithstanding any other provision contained herein, neither SHO nor any SHO Affiliate will have any Liability with respect to the SHLD SRIP for any SHO Employee, and their respective Plan Payees, except as required by Law.
(iii) As soon as practicable after the Rights Closing Effective Time, the recordkeeper for the SHLD Pension Plan and SHLD SRIP will inform the SHO Employees who are participants in the SHLD Pension Plan and SHLD SRIP of their rights thereunder; and SHLD will process distributions in accordance with the terms of the SHLD Pension Plan and SHLD SRIP, as applicable.
(c) DC Plans .
(i) As of the Rights Closing Effective Time, each SHO Employee who is a participant in a SHLD DC Plan will cease to actively participate in such SHLD DC Plan and each such SHO Employee will be treated as a terminated participant under the SHLD DC Plan, and no additional service will accrue under the SHLD DC Plan after such date for any purpose (e.g., eligibility or vesting) until or unless such SHO Employee again becomes an SHLD employee. Notwithstanding any other provision contained herein, neither SHO nor any SHO Affiliate will have any Liability with respect to an SHLD DC for any SHO Employee, and their respective Plan Payees, except as required by Law.
(ii) As soon as practicable after the Rights Closing Effective Time, SHO Employees will be informed of their options with respect to their account balances under the SHLD DC Plans.
(d) Employee Stock Purchase Plan . All SHO Employees shall cease active participation in the Sears Holdings Corporation Associate Stock Purchase Plan (the SHLD Associate Stock Purchase Plan ) with respect to offering periods ending after the Rights Closing
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Effective Time and shall be treated in the same manner as other similarly situated terminated employees of SHMC or its Affiliates. For the avoidance of doubt, the SHO Employees who participated in the SHLD Associate Stock Purchase Plan prior to the Rights Closing Effective Time shall continue to participate in any offering period under SHLD Associate Stock Purchase Plan ending prior to the Rights Closing Effective Time (subject to any action taken by any such SHO Employee who is participating in this plan to terminate his or her participation prior to the Rights Closing Effective Time). SHO will have no Liability with respect to the SHLD Associate Stock Purchase Plan for any SHO Employee, except as required by Law.
(e) Severance Plans . All SHO Employees shall cease to be eligible to participate under any transition pay plan sponsored by SHLD ( SHLD Severance Plans ) as of the Rights Closing Effective Time. Service Provider (including its Subsidiaries and Affiliates) shall have no Liability or obligation under any SHLD Severance Plan with respect to SHO Employees, and the transfer of an employees of the SHO Group to SHO shall not entitle any such SHO Employee to severance-related pay or benefits under any SHLD Severance Plan. To the extent the SHO Group establishes a severance plan or policy, SHMC shall provide Administrative Services with respect to such plan or policy in accordance with Article IV and Appendix B .
(f) Welfare Plans .
(i) Continuing Plans . As of the Rights Closing Effective Time, the SHO Employees will be eligible to continue to participate in certain SHLD Welfare Plans, as described in, and for the periods and subject to the limitations described in, Appendix B (such plans referred to as the Continuing Plans ), to the extent they were eligible to participate in such plans prior to the Rights Closing Effective Time or become eligible to participate during the Benefits Transition Period (as defined herein). Notwithstanding anything herein to the contrary, participation in such plans is subject to the terms, conditions and continued availability and maintenance of such plans, as they may change from time to time, and SHMC and its Affiliates shall have the right to terminate and modify such plans from time to time; provided that unless required by Law or by a third party carrier or service provider, SHMC and its Affiliates shall not initiate a change in such plans that is targeted to exclude the SHO Employees. With respect to each Continuing Plan, the period from the Rights Closing Effective Time through the date on which such Continuing Plan ceases to be available to the SHO Employees, whether by operation, expiration, or termination of such plan or otherwise, is referred to as the Benefits Transition Period . During the Benefits Transition Period, SHMC will be the third party administrator with respect to the Continuing Plans on behalf of SHO, and SHO will be the fiduciary of such plans for ERISA purposes with respect to SHO Employees participating in a Continuing Plan.
(ii) Expiration of Continuing Plans . The Benefits Transition Period for a Continuing Plan shall cease as of the earlier of (A) the end of the applicable Benefits Transition Period as set forth in Appendix B , or (B) the effective date of a SHO Benefit Plan established to replace such Continuing Plan, as of which date the SHO Employees shall cease to participate or be eligible to participate in such Continuing Plan.
(iii) Other Plans . Except with respect to the Continuing Plans as described in Section 3.4(f)(i) above, all SHO Employees shall cease to be eligible to participate in any SHLD Welfare Plan (subject to COBRA continuation coverage rights, if any) as of the Rights Closing Effective Time.
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3.5 Incentive Plans .
(a) Annual Incentive Plan . The SHO Employees shall cease to be eligible to receive any incentive award under the Sears Holdings Annual Incentive Plan ( SHLD AIP ) as of the Rights Closing Effective Time. SHO and the SHO Group shall, prior to or as of the Rights Closing Effective Time, establish an Annual Incentive Plan ( SHO AIP ), effective as of the Rights Closing Effective Time, and shall be solely responsible for all annual incentive awards that become payable under the terms of the SHO AIP for 2012 and any other performance period ending on or after the Rights Closing Effective Time. All accruals and outstanding liabilities arising out of or relating to fiscal year 2012 attributable to Transferred Employees under the SHLD AIP will be transferred to and assumed by SHO and the SHO Group under the SHO AIP as of the Rights Closing Effective Time or prior to the payment date, as agreed by the parties prior to the Rights Closing Effective Time. SHO and the SHO Group hereby accept and agree to such assumption and agree to pay all such liabilities under the SHO AIP.
(b) Long-Term Incentive Plans . The SHO Employees shall cease to be eligible to receive any incentive award under the Sears Holdings Corporation Long-Term Incentive Program ( SHLD LTIP ) as of the Rights Closing Effective Time. SHO and the SHO Group shall, prior to or as of the Rights Closing Effective Time, establish a Long-Term Incentive Program ( SHO LTIP ), effective as of the Rights Closing Effective Time, and shall be solely responsible for all incentive awards that become payable under the terms of the SHO LTIP for 2012 and any other performance period ending on or after the Rights Closing Effective Time. All accruals and outstanding liabilities arising out of or relating to (i) the close out of the 2010-2012 and 2011-2013 incentive programs under the SHLD LTIP with respect to the SHO Employees and (ii) the 2012-2014 incentive program, if any, will be transferred to and assumed by SHO and the SHO Group under the SHO LTIP as of the Rights Closing Effective Time or prior to the payment date, as agreed by the parties prior to the Rights Closing Effective Time. SHO and the SHO Group hereby accept and agree to such assumption and agree to pay all such liabilities the SHLD LTIP.
(c) SHO also shall be solely responsible for any other incentives or bonuses that have been awarded to SHO Employee as of or after the Rights Closing Effective Time that become payable to SHO Employees under any other SHO incentive or bonus program with respect to 2012 and any other performance period ending on or after the Rights Closing Effective Time.
3.6 Restricted Stock Awards; Cash Retention Awards .
(a) Any unvested restricted stock award with respect to SHLD Common Stock including any cash right or award issued with respect to such restricted stock award ( SHLD Restricted Stock Award ) that was granted under or pursuant to any equity compensation plan or arrangement of SHLD, that, as of the Rights Closing Effective Time, is held by any SHO Employee, shall be forfeited in accordance with its terms. As of the Rights Closing Effective Time, SHO will award each such SHO Employee equivalent cash retention award ( SHO
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Cash Retention Award ), which will continue to be subject to the same (remaining) vesting schedule as the SHLD Restricted Stock Award it replaces. Equivalent value with respect to the forfeited portion of the SHLD Restricted Stock Award constituted by SHLD Common Stock will be determined based upon the market closing price of SHLD Common Stock on the day before the Rights Closing Effective Time during regular trading hours. That closing price will be multiplied by the number of forfeited shares (rounded down to the nearest whole share) for each award to arrive at the dollar value of the Replacement Cash Retention Award. To the extent a SHO Employee also has unvested cash rights or awards issued with respect to his or her unvested SHLD Restricted Stock Award, this amount shall be added to arrive at the value of a SHO Cash Retention Award. All SHO Cash Retention Awards shall be assigned to and assumed by the SHO Group as of the Rights Closing Effective Time in accordance with Section 3.3 .
(b) Any outstanding SHLD employee retention award payable in cash that was awarded to, and as of the Rights Closing Effective Time is held by, any SHO Employee ( SHLD Cash Retention Awards ) shall be assigned to and assumed by the SHO Group as of the Rights Closing Effective Time in accordance with Section 3.3 ( Other Cash Retention Award ).
3.7 No Duplication or Acceleration of Benefits. Notwithstanding anything to the contrary in this Agreement or the Separation Agreement, no SHO Employee shall receive benefits under a SHLD Benefit Plan that duplicate benefits provided by the corresponding SHO Benefit Plan. Furthermore, unless expressly provided for in this Agreement or the Separation Agreement or required by applicable Law, no provision in this Agreement shall be construed to create any right to accelerate vesting or entitlements to any compensation or Benefit Plan on the part of any SHO Employee or former SHO Employee, except as specifically provided for under SHO Employment Agreement or Cash Retention Award or Other Cash Retention Award.
3.8 Service Crediting under SHO Benefit Plans .
(a) General . From and after the Rights Closing Effective Time or after the Benefits Transition Period, as applicable, SHO shall, and shall cause its Affiliates, and successors to, provide credit under the SHO Benefit Plans to SHO Employees for their service with SHO and its predecessors and affiliates (including but not limited to service for the SHO Business, the SHO Group, Service Provider and SHLD) for all purposes to the same extent that such service was recognized under the relevant SHLD Benefit Plans prior to the Rights Closing Effective Time or under the relevant Continuing Plan prior to the lapse of the Benefits Transition Period. Service shall be credited under SHO Benefit Plans for all purposes, including but not limited to, determining eligibility to participate, vesting, and eligibility to retire; provided , however , that service shall not be recognized to the extent that such recognition would result in the duplication of benefits.
(b) Noncontinuous Employees . If a former employee of the SHO Group or SHLD Group (such Group, the Original Group ) becomes employed by a member of the other Group (such Group, the Transferee Group ) without having been continuously employed by a member of the Original Group from the Rights Closing Effective Time through the date such former employee commences active employment with a member of the Transferee Group, then the Benefits Plans of the Transferee Group will not recognize for any purpose such individuals
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service with the Original Group before or after the Rights Closing Effective Time, except to the extent required by Law or the terms of any such Benefit Plan. If a former employee is rehired by his or her Original Group then all such individuals service shall be recognized by the Benefit Plans of the Original Group to the extent required by Law the terms of any such Benefit Plan.
3.9 Assignment of Employment Agreements . All SHO Employment Agreements will be assigned to and assumed by SHO, pursuant to Section 3.3 . SHMC will provide copies of all SHO Employment Agreements and other assumed documents to SHO. SHMC shall use reasonable efforts to transfer or cause to be transferred to SHO documentation related to such SHO Employment Agreements, including offer letters, agreements and other instruments reasonably required for the maintenance and administration of the SHO Employment Agreements.
3.10 Administration of SHO Benefit Plans . As of and after the Rights Closing Effective Time, SHO or its delegate shall be exclusively responsible for administering each SHO Benefit Plan, excluding Continuing Plans, and each SHO Employment Agreement in accordance with its terms and for all obligations and liabilities with respect to the SHO Employment Agreements and all benefits owed to individuals who are parties to the SHO Employment Agreements, whether entered into before, on or after the Rights Closing Effective Time. SHO shall not assume sponsorship, maintenance or administration of any Benefit Plan or Employment Agreement that is not a SHO Benefit Plan or a SHO Employment Agreement or receive or assume any assets or liabilities in connection with any such Benefit Plan or Employment Agreement. Further, SHO agrees to enforce the non-competition provision and related definition of Sears Competitor under any Employment Agreement assumed by SHO as of the Rights Closing Effective Time, with respect to any termination occurring after the Rights Closing Effective Time with protective covenants still in effect after the Rights Closing Effective Time and during the term of the Services Agreement.
3.11 Plan-Related Litigation . Notwithstanding anything herein to the contrary, the management of the defense of all litigation related to the SHLD Benefit Plans, the SHLD Employment Agreements, the SHO Benefit Plans and the SHO Employment Agreements shall be governed by the Separation Agreement, and this Agreement shall govern the allocation of Liabilities related to any such litigation.
3.12 Workers Compensation . Except as otherwise expressly provided below, the SHLD Group shall be responsible for all workers compensation Liabilities relating to, arising out of or resulting from any claim by a SHO Employee resulting from an accident or other work-related injury that occurs prior to the Rights Closing Effective Time; provided , however , that with respect to claims by SHO Employees relating to, arising out of or resulting from an accident or other work-related injury that occurs prior to the Rights Closing Effective Time, the provisions of Section 8.1(b) of the Separation Agreement shall apply. Except as otherwise expressly provided below, the SHO Group shall be solely responsible for all workers compensation Liabilities relating to, arising out of or resulting from any claim by a SHO Employee resulting from an accident or other work-related injury occurring on or following the Rights Closing Effective Time. With respect to any claim by a SHO Employee relating to, arising out of or resulting from an occupational disease (an OD Claim ) which becomes manifest at any time prior to, on or after the Rights Closing Effective Time, if different from the allocation outlined above based on the date the claim arose, Liabilities with respect to such claim
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shall be allocable by and between the SHLD Group and the SHO Group in a manner consistent with the manner in which such liabilities are allocated in accordance with the provisions of applicable Law between the respective issuers of workers compensation coverage purchased by each such entity, provided , however , that to the extent any portion of an OD Claim is deemed to have arisen on a date prior to the Rights Closing Effective Time, such claim shall be subject to the provisions of Section 8.1(b) of the Separation Agreement. The SHO Group and the SHLD Group shall each use its commercially reasonable best efforts to cooperate with each other and their respective carriers in respect of any such OD Claim, in order to carry out the intent of the immediately preceding sentence, and comply with the terms of the underlying contracts or policies covering such SHO Employee with respect to any such OD Claim and any applicable law.
3.13 Cooperation . Service Provider and SHO shall, and shall cause their respective Affiliates to use reasonable best efforts to cooperate with respect to any employee compensation or benefits matters that Service Provider or SHO, as applicable, reasonably determines require the cooperation of both Service Provider and SHO in order to accomplish the objectives of this Agreement. Without limiting the generality of the preceding sentence, (a) Service Provider and SHO shall cooperate in coordinating each of their respective payroll systems in connection with the transfers of SHO Employees to the SHO Groups payroll as of the Rights Closing Effective Time, and (b) Service Provider shall transfer records to the SHO Group as reasonably necessary for the proper administration of the participation of SHO Employees in any SHO Benefit Plan, to the extent such records are in Service Providers possession. The obligations of SHO and Service Provider to cooperate pursuant to this Section 3.13 shall remain in effect until all audits of all Benefit Plans and certification of goals and payments under a SHLD AIP or SHLD LTIP, with respect to which the other Party may have information, have been completed or the applicable statute of limitations with respect to such audits has expired.
ARTICLE IV
ADMINISTRATIVE SERVICES
4.1 Administrative Services . During the term of this Agreement, Service Provider (or its Subsidiaries or Affiliates) will provide to the SHO Group certain human resource administrative and business process outsourcing services, as described in Statements of Work ( SOWs ) to be entered into between the Parties or as otherwise agreed in writing by the Parties (such services referred to as the Administrative Services ). The Administrative Services shall include aspects of payroll administration services, time and attendance, employee scheduling, human resources and benefits administration, employee contact center and support services, recruiting and learning support, compensation management support, leadership development, and other human resources and benefits-related services. Service Provider may provide the Administrative Services directly or through a designee, or may subcontract out all or a portion of the Administrative Services. Except as otherwise provided in the applicable Statement of Work, nothing in this Agreement shall give Service Provider an exclusive right to provide, or require the SHO Group to purchase exclusively from Service Provider, any administrative services.
4.2 Use of Services . The SHO Group agrees to the following with regard to its use of the Administrative Services:
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(a) The SHO Group, and not Service Provider, will be solely responsible for all decisions relating to the relationship between the SHO Group and SHO Employees.
(b) The SHO Group will be responsible for the manner in which it uses Administrative Services, including the manner in which it interprets and acts upon any guidance or recommendation provided by Service Provider.
(c) The SHO Group will be responsible for the consequences of any instruction or request SHO may give to Service Provider.
(d) The SHO Group shall use Administrative Services in accordance with the terms and conditions of this Agreement as well as any policies established by Service Provider (or its Subsidiaries or Affiliates) from time to time (provided such policies shall not limit or otherwise modify the terms of this Agreement, including the parties rights or obligations hereunder).
(e) The SHO Group shall not resell, directly or indirectly, the Administrative Services or any portion thereof to any Party other than SHO, its Subsidiaries or Affiliates.
4.3 SOWs . All SOWs must be in writing and signed by both parties to be effective. In the event of a conflict among the terms of the various documents that at any given time constitute this Agreement, the following order of precedence shall apply: (a) any Amendment thereto (as defined below) shall control over any conflicting terms in the document that it is amending (e.g., a SOW or this Agreement); and (b) the Agreement shall control over any conflicting terms of an SOW, unless the SOW specifically references conflicting terms of this Agreement that the SOW is changing.
4.4 Inherent Services . If any services, functions, tasks, activities, or other responsibilities not specifically described in any SOW but which are reasonably required for the proper performance and provision of the Administrative Services described in any SOW to the same extent and in the same manner as if specifically described herein (collectively, Inherent Services ), such services, functions, tasks, activities, and responsibilities shall be deemed to be included within the scope of the Administrative Services to be provided hereunder, as if such services, functions, tasks, activities, and responsibilities were specifically described in this Agreement or a SOW.
4.5 Standard of Care . Except as otherwise set forth in this Agreement, Service Provider does not assume any responsibility under this Agreement other than to render the Administrative Services in good faith, without willful misconduct or gross negligence. Service Provider makes no other guarantee, representation, or warranty of any kind (whether express or implied) regarding any of the Services provided hereunder, and expressly disclaims all other guarantees, representations, and warranties of any nature whatsoever, whether statutory, oral, written, express or implied, including any warranties of merchantability or fitness for a particular purpose and any warranties arising from course of dealing or usage of trade. Service Provider will only be obligated to provide Services in a manner consistent with past practice (including prioritization among projects for Service Provider, Service Providers Affiliates, and SHO). Notwithstanding anything herein to the contrary, Service Provider shall not provide any legal services or legal advice to the SHO Group, the SHO Group is not entitled to rely on Service Provider for legal advice and counsel, nor shall Service Providers advice be construed as legal advice.
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4.6 Good Faith Cooperation; Alternatives . Service Provider and the SHO Group will use good faith efforts to cooperate with each other in all matters relating to the provision and receipt of the Administrative Services, including acquisition of required third-party contractor consents (if any). If Service Provider reasonably believes it is unable to provide any Service because of a failure to obtain third-party contractor consents or because of impracticability, Service Provider will notify the SHO Group promptly after Service Provider becomes aware of such fact and the parties will cooperate to determine the best alternative approach.
4.7 Use of Third Parties . Service Provider may use any Affiliate or any unaffiliated third-party contractor to provide the Administrative Services to the extent the Affiliate or the unaffiliated third-party contractor provides comparable services to Service Provider or, if not, if the SHO Group gives its prior written consent (which consent the SHO Group will not unreasonably withhold or delay).
4.8 Assets of the SHO Group . During the term of this Agreement, (i) Service Provider and its Affiliates and third-party contractors may use, at no charge, all of the software and other assets, tangible and intangible, of the SHO Group (together, the Assets ) to the extent necessary to perform the Administrative Services, and (ii) the SHO Group will consult with Service Provider prior to upgrading or replacing any of the Assets that are necessary for Service Provider to provide the Administrative Services.
4.9 Ownership of Data and Other Assets . Neither Party will acquire any right, title or interest in any Asset that is owned or licensed by the other and used to provide the Administrative Services. All data provided by or on behalf of a Party to the other Party for the purpose of providing the Administrative Services will remain the property of the providing Party; provided, however, that with respect to any Continuing Plans, Service Provider shall have the right to retain all data needed to satisfy record retention best practices and ERISA reporting and disclosure requirements. To the extent the provision of any Administrative Service involves intellectual property, including software or patented or copyrighted material, or material constituting trade secrets, neither Party will copy, modify, reverse engineer, decompile or in any way alter any of such material, or otherwise use such material in a manner inconsistent with the terms and provisions of this Agreement, without the express written consent of the other Party. All specifications, tapes, software, programs, services, manuals, materials, and documentation developed or provided by Service Provider or its Affiliates and utilized in performing this Agreement, will be and remain the property of Service Provider or its Affiliates and may not be sold, transferred, disseminated, or conveyed by the SHO Group to any other entity or used other than in performance of this Agreement without the express written permission of Service Provider.
4.10 Termination of an Individual Service for Convenience by SHO . Subject to the next sentence, the SHO Group, upon 60-days prior written notice to Service Provider, may terminate for the SHO Groups convenience any individual Administrative Service at the end of a SHO fiscal month. The SHO Group may not terminate an individual Administrative Service if the termination would adversely affect Service Providers ability to perform another Administrative Service. If any individual Administrative Service is terminated, the
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Administrative Service Fee shall be reduced by the amount of the reduction in Service Providers variable costs attributable to the terminated Administrative Service, which reduction amount SHO and Service Provider shall determine by good faith negotiations. The SHO Group agrees to reimburse Service Provider for any costs incurred in the termination of such a service at the request of the SHO Group.
4.11 Adjustments. If after the Effective Date, Service Provider determines in good faith that items included in the Administrative Services cannot be provided or need to be adjusted, then upon Service Providers demonstration of such facts, the Parties shall in good faith negotiate an appropriate adjustment to the Administrative Services. In addition, if there is a change in legislation, adoption of a regulation or other matters that affect Service Providers ability to provide certain of the Administrative Services, then upon Service Providers demonstration of such facts, the Parties shall in good faith negotiate an appropriate adjustment to the Administrative Services to be provided.
ARTICLE V
PAYMENTS BY SHO
5.1 Fee for Administrative Services . In consideration for the Administrative Services, the SHO Group shall pay to Service Provider the fees and cost reimbursements set forth on Appendix A (collectively, the Administrative Service Fee ), in the manner set forth on Appendix A . The Administrative Service Fee will not include amounts payable under the Services Agreement. The payment of the Administrative Service Fee shall be made by wire transfer to an account to be designated by Service Provider, at such times as shall be agreed between the parties. The payment of the Administrative Service Fee shall not be subject to any right of setoff.
5.2 Audit Rights . The SHO Group shall have the right, from time to time upon reasonable prior notice and during normal business hours, to inspect Service Providers records as reasonably necessary to verify the calculation of costs and fees payable by the SHO Group to Service Provider under this Agreement, including third party vendor statements and accounts.
5.3 Recalculation of Administrative Service Fees . The parties acknowledge and agree that the Administrative Service Fee was calculated based on the expectation that the fee will compensate Service Provider for its costs related to the provision of Administrative Services under this Agreement (including wages, benefits, and insurance, but excluding costs of SHO Claims covered by the indemnification provisions of this Agreement, costs of termination or severance which are otherwise to be reimbursed by the SHO Group, and costs of additional services) plus the profit margin described on Appendix A . If after the date hereof Service Provider in good faith determines that the Administrative Services Fee was miscalculated, or did not fully take into account all costs (other than the excluded costs referred to in the preceding sentence), or otherwise does not compensate Service Provider for such costs plus such profit margin, then upon Service Providers demonstration of such facts, the parties shall in good faith negotiate an appropriate adjustment to the Administrative Service Fee. In addition, if there is a change in legislation, adoption of a regulation or other matters that result in an increase or decrease in the cost or amount of services from those currently being projected by Service Provider, then upon Service Providers demonstration of such facts, the parties shall in good faith negotiate an appropriate adjustment to the Administrative Service Fee.
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5.4 Covered Administrative Services . The Administrative Services Fee shall be for the Administrative Services which shall be more fully described in SOWs or other agreements to be agreed to prior to the Rights Closing Effective Time. In the event that SHO desires Service Provider to provide additional or more comprehensive services, the Parties shall negotiate with respect to the provision of such services and the fees therefore.
5.5 Expenses . In addition to the Administrative Service Fee, the SHO Group will reimburse Service Provider for all other reasonable out-of-pocket expenses actually incurred in its performance of the Administrative Services, that are not included in the Administrative Service Fee ( Expenses ). To the extent reasonably practicable, Service Provider will provide the SHO Group with notice of such Expenses prior to incurring them. The SHO Group shall reimburse Service Provider for or will pay directly any or all third-party contractors providing services to or for the benefit of the SHO Group.
5.6 Taxes; Insurance . Fees do not include applicable taxes. The SHO Group will be responsible for the payment of all taxes payable in connection with the Administrative Services including sales, use, excise, value-added, business, service, goods and services, consumption, withholding, and other similar taxes or duties, including taxes incurred on transactions between and among Service Provider, its Affiliates, and third-party contractors, along with any related interest and penalties ( Transaction Taxes ). The SHO Group will reimburse Service Provider for any deficiency relating to Transaction Taxes that are the SHO Groups responsibility under this Agreement. Notwithstanding anything in this Section 5.6 to the contrary, each Party will be responsible for its own income and franchise taxes, employment taxes, and property taxes. Each Party will provide to the other Party any resale exemption, multiple points of use certificates, treaty certification and other exemption information reasonably requested by the other Party.
ARTICLE VI
TERMINATION
6.1 Termination of this Agreement .
(a) Subject to the next sentence, either Party may terminate this Agreement in the event of a material breach of this Agreement by the other Party if the breach is curable by the breaching Party and the breaching Party fails to cure the breach within thirty (30) days following its receipt of written notice of the breach from the non-breaching Party. If the breach is not curable by the breaching Party, the non-breaching Party may immediately terminate this Agreement following the non-breaching Partys delivery of notice to the breaching Party.
(b) Either Party may terminate this Agreement (whichever Party is entitled to terminate, the Terminating Party ) effective immediately upon thirty (30)-days advance written notice to the other Party if (i) the Terminating Party or any of its Affiliates terminates the Separation Agreement as a result of a material breach of, or a material default by, the other Party or its Affiliates of their obligations in the Separation Agreement, (ii) the Terminating Party or any of its Affiliates terminates a License Agreement in accordance with its terms as a result of a
17
material breach of, or a material default by, the other Party or its Affiliates of their obligations in the License Agreement, (iii) the Terminating Party or any of its Affiliates terminates the Merchandising Agreement in accordance with its terms as a result of a material breach of, or a material default by, the other Party or its Affiliates of their obligations in the Merchandising Agreement, or (iv) the Terminating Party or any of its Affiliates terminates the Shop Your Way Rewards Retail Establishment Agreement dated August 8, 2012 between SHO and Service Provider (the SYW Agreement ) in accordance with its terms as a result of a material breach of, or a material default by, the other Party or its Affiliates of their obligations in the SYW Agreement. License Agreement means each of the following, each dated August 8, 2012: the Store License Agreement between Hometown and SHMC; the Store License Agreement between Sears Home Appliance Showrooms, LLC and SHMC; the Store License Agreement between Outlet and SHMC; and the Trademark License Agreement between SHO and Sears, Roebuck and Co.
(c) Service Provider may terminate this Agreement if a Stockholding Change (as defined in the Services Agreement) occurs.
(d) The SHO Group and Service Provider each may terminate this Agreement after the Rights Closing Effective Time, upon at least one years prior written notice to the other delivered after the Rights Closing Effective Time (provided such termination date shall be at the end of a payroll period).
ARTICLE VII
INDEMNIFICATION AND INSURANCE
7.1 Indemnification by SHO Group . The SHO Group will defend, indemnify, and hold harmless Service Provider and its Affiliates and their respective Representatives, from and against any and all costs, liabilities, losses, penalties, expenses and damages (including reasonable attorneys fees) of every kind and nature ( Losses ) arising from or relating to third-party claims, demands, litigation, and suits related to or arising out of the SHO Employees, the employment or termination of the SHO Employees, or this Agreement (including the performance or nonperformance of services under this Agreement) (together SHO Claims ), except to the extent that such SHO Claims are caused by: (i) a failure by Service Provider to comply with reasonable instructions from the SHO Group; or (ii) any grossly negligent act or omission, willful misconduct, or willful failure of Service Provider, its Affiliates, or their respective Representatives in performance of this Agreement. Without limitation, SHO Claims shall include any claims, demands, litigation and suits arising under or relating to out, or out of, any labor, employment, benefit or other matter relating to any SHO Employee or any former SHO Employee or any alleged or claimed SHO Employee, any claims relating to whether an individual is or is not considered a SHO Employee, and any claims with respect to hiring, failure to hire, firing, promoting, disciplining, discrimination, harassment, classification, or other matter relating to any SHO Employee or any former SHO Employee, alleged or claimed.
7.2 Indemnification by Service Provider . Service Provider will defend, indemnify, and hold harmless the SHO Group and their respective Affiliates, and their respective Representatives, from and against any and all costs, liabilities, losses, penalties, expenses and damages (including reasonable attorneys fees) of every kind and nature arising from third-party
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claims, demands, litigation, and suits, that: (a) relate to bodily injury or death of any person or damage to real and/or tangible personal property directly caused by the gross negligence or willful misconduct of Service Provider or its Affiliates during the performance of the Services, or (b) relate to the infringement of any copyright or trade secret by an Asset owned by Service Provider or its Affiliates and used by Service Provider in the performance of the Services (together, SP Claims ). Notwithstanding the obligations set forth above in this Section 7.2 , Service Provider will not defend or indemnify the SHO Group, their respective Affiliates, or their respective Representatives to the extent that such SP Claims are caused by: (i) a breach of any provision of this Agreement by any member of the SHO Group; (ii) any grossly negligent act or omission, willful misconduct, or willful failure of any member of the SHO Group, their respective Affiliates, or their respective Representatives in performance of this Agreement; or (iii) with respect to infringement claims: (A) any SHO Group members use of the Asset in combination with any product or information not provided by Service Provider; (B) Any SHO Group members distribution, marketing or use for the benefit of third parties of the Asset; (C) any SHO Group members use of the Asset other than as contemplated by this Agreement; or (D) information, direction, specification or materials provided by or on behalf of any SHO Group member. SHO Claims and SP Claims are each individually referred to as a Claim.
7.3 Procedure . In the event of a Claim, the indemnified Party will give the indemnifying Party as well as the Service Provider Legal Department prompt notice in writing of the Claim; but the failure to provide such notice will not release the indemnifying Party from any of its obligations under this Article except to the extent the indemnifying Party is materially prejudiced by such failure. Upon receipt of such notice the indemnifying Party may assume the defense of the Claim, and if it does assume it will be entitled to control the defense of the Claim at its expense and through counsel of its choice, by giving notice of its intention to do so to the indemnified Party within twenty (20) business days of the receipt of such notice from the indemnified Party. The indemnifying Party will not, without the prior written consent of the indemnified Party, (i) settle or compromise any Claim or consent to the entry of any judgment that does not include as an unconditional term thereof the delivery by the claimant or plaintiff to the indemnified Party of a written release from all liability in respect of the Claim or (ii) settle or compromise any Claim in any manner that may adversely affect the Indemnified Party other than as a result of money damages or other monetary payments that are indemnified hereunder. The indemnified Party will have the right at its own cost and expense to employ separate counsel and participate in the defense of any Claim.
7.4 Limitation of Liability . Except for (a) each Partys indemnity and defense obligations as set forth in Sections 7.1 , 7.2 , and 7.3 and other liabilities to unaffiliated third parties, and (b) a Partys breach of its confidentiality obligations, in no event will either Party be liable for any consequential, incidental, indirect, special, or punitive damages, losses or expenses (including business interruption, lost business, lost profits, or lost savings) even if it has been advised of their possible existence. The sole liability of Service Provider and its Affiliates for any and all claims in any manner related to this Agreement will be the payment of direct damages, not to exceed (for all claims in the aggregate) the Fees received by Service Provider under this Agreement. Notwithstanding anything in this Agreement to the contrary, Service Provider will not be liable for damages caused by Service Providers third-party contractors; however, to the extent permitted in a TP Agreement, Service Provider will pass through to SHO applicable rights and remedies under the respective TP Agreement.
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7.5 Performance . SERVICE PROVIDER MAKES NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, THAT THE SERVICES PROVIDED HEREUNDER ARE OR WILL BE ADEQUATE OR SUFFICIENT (AS TO QUANTITY, QUALITY OR TYPE) TO MEET THE NEEDS (INCLUDING ANY SPECIFICALLY IDENTIFIED NEEDS) OR OBJECTIVES OF SHO WITH RESPECT TO THE CONDUCT OF THE BUSINESS. EXCEPT AS SET FORTH IN THIS AGREEMENT, THE SERVICES ARE PROVIDED ON AN AS-IS BASIS.
7.6 Insurance . The SHO Group warrants and represents to Service Provider that it has in force at the Rights Closing Effective Time of this Agreement, and will maintain during this Agreement, the following insurance coverage and minimum limits. Such coverage shall be provided at the SHO Groups sole cost and expense and shall and purchased from companies having a rating of A- VII or better in the current Bests Insurance Reports published by A.M. Best Company:
(a) Commercial General Liability, with coverage including, but not limited to, premises/operations, contractual, personal and advertising injury, and products/completed operations liabilities, with limits of at least $5,000,000 per occurrence for bodily injury and property damage combined. Limits of liability requirements may be satisfied by a combination of Commercial General Liability and Umbrella Excess Liability policies
(b) Comprehensive automobile liability insurance covering all owned, hired, and non-owned SHO vehicles, with minimum limits of One Million and No/100 Dollars ($1,000,000.00) combined single limit per occurrence for bodily injury and property damage liability. The SHO Group warrants that all persons operating the SHO Groups vehicles are duly licensed and covered under the SHO Groups automobile liability insurance policy without exception.
(c) Workers compensation insurance coverage on its employees (including the SHO Employees), individual owners who work in the business and not included in SHO Employees, and any SHO Group subcontractor employees or independent contractors. Alternatively, with respect to any SHO Group subcontractors or independent contractors, the SHO Group shall require its subcontractors and independent contractors to maintain workers compensation insurance coverage if the SHO Group has not obtained workers compensation coverage for SHO Group subcontractors or independent contractors. The SHO Group shall keep certificates of insurance documenting such coverage on file and provide them to Service Provider upon request. The SHO Group agrees to reimburse and indemnify Service Provider for any costs or expenses incurred by Service Provider as a result of the SHO Groups breach of this provision or the failure of any subcontractor or independent contractor of the SHO Group to maintain workers compensation insurance coverage.
(d) All SHO Group insurance policies required herein shall provide for thirty (30) days written notice to Service Provider prior to cancellation or non-renewal of the coverage. All such insurance policies shall be endorsed to waive any and all rights of subrogation against Service Provider, its parent company, and its Subsidiaries and Affiliates. Service Provider, its parent company and its Subsidiaries and Affiliates shall be named as additional insureds, with the standard separation of Insureds provision or an endorsement for cross-liability coverage.
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The policies shall be endorsed to state that coverage is primary, and non-contributory with other available coverage, both at no additional cost or expense to Service Provider
(e) The SHO Group shall submit certificates of insurance to Service Provider evidencing all insurance required pursuant to this Agreement within thirty (30) days of execution of this Agreement and at any renewal or replacement of such policies.
ARTICLE VIII
CONFIDENTIAL INFORMATION, WORK PRODUCT, AND INFORMATION
SECURITY
8.1 Confidential Information .
(a) Confidential Information means all non-public information received by a Party, its Affiliates, and their respective Representatives (together, the Receiving Party ) relating to the other Party, its Affiliates, and their respective Representatives (together, the Disclosing Party ), in connection with this Agreement, including information concerning SHO Employees, pricing, service history, customer information and lists (except to the extent that these may be shared under privacy laws and regulations), employee information, sourcing and third party contractor information, costs, product specifications and methods of operations, business plans, strategies, financial information, information technology information, and other proprietary information, regardless of the manner or medium in which it is furnished to or otherwise obtained by the Receiving Party; provided , that the term Confidential Information does not include information which (i) is or becomes generally available to the public other than as a result of a disclosure by the Receiving Party in violation of this Agreement, (ii) is or was available to the Receiving Party on a non-confidential basis prior to its disclosure to the Receiving Party by the Disclosing Party, provided that such information did not become available to the Receiving Party, from a Person who, to the Receiving Partys knowledge and at the time of receipt by the Receiving Party of the relevant information, is bound by a confidentiality agreement with respect to such information with (or other confidentiality obligation to) the Disclosing Party or another Person or (iii) was or becomes available to the Receiving Party on a non-confidential basis from a source other than the Disclosing Party, provided that such source is or was (at the time of receipt of the relevant information) not, to the Receiving Partys knowledge, bound by a confidentiality agreement with respect to such information with (or other confidentiality obligation to) the Disclosing Party or another Person.
(b) The Receiving Party will not disclose, and will cause its Affiliates and Representatives not to disclose, any Confidential Information of the Disclosing Party to any Person; provided , however, that each Party will be responsible in any event for the acts or omissions of its Affiliates and Representatives to whom it discloses the Disclosing Partys Confidential Information; and provided , further, that Confidential Information may be disclosed only:
(i) to the Receiving Partys Affiliates and Representatives in the normal course of performance of Receiving Partys obligations under this Agreement;
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(ii) by the Receiving Party to the extent required by applicable Law, rule or regulation (including complying with any oral or written questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process to which such Party is subject), with prior notice, if legally permitted, to the Disclosing Party;
(iii) by the Receiving Party, if such Person determines in good faith that such disclosure is required in order to comply with such Persons obligations under the federal or state securities laws, rules or regulations, the rules of the NASD or the Nasdaq Stock Market or any other similar body), with prior notice, if legally permitted, to the Disclosing Party; or
(iv) with the prior written consent of the Disclosing Party.
(c) Nothing contained herein will prevent the use (subject, to the extent possible, to a protective order) of Confidential Information in connection with the assertion or defense of any claim by or against the other Party.
(d) Each Party acknowledges that if it breaches this Agreement, the other Party may be irreparably and immediately harmed and may not be made whole by monetary damages. Accordingly, the Disclosing Party, in addition to any other remedy to which it may be entitled in law or equity, is entitled to pursue any injunction or injunctions to prevent breaches of this Agreement and to compel specific performance of this Agreement, without the need for proof of actual damages.
(e) If Service Providers agreement (or that of a Subsidiary or an Affiliate) with an unaffiliated third-party contractor performing services hereunder ( TP Agreement ) includes confidentiality terms that are less restrictive than this Agreement (i.e., the TP Agreement permits broader sharing or disclosure of confidential information than permitted in this Agreement), then, notwithstanding anything in this Agreement to the contrary, the less-restrictive confidentiality terms of the TP Agreement will (i) control over this Agreement and (ii) govern Service Providers rights and obligations in this Agreement regarding the sharing of SHO Confidential Information with the unaffiliated third-party contractor, but in each circumstance only to the extent necessary to permit the unaffiliated third-party contractor to perform the services.
8.2 IT Information Security . The SHO Group, to the extent it uses information technology systems not provided by Service Provider, and Service Provider will comply with the provisions of SHMCs IT information security policy, as the same may be revised by SHMC and provided to the SHO Group from time to time, with respect to their activities under this Agreement, including but not limited to data relating to SHO Employees.
ARTICLE IX
MISCELLANEOUS
9.1 Expenses . Except as otherwise provided herein, each Party will bear its own expenses with respect to the transactions contemplated by this Agreement.
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9.2 Waiver of Compliance . Any failure of a Party to comply with any obligation, covenant, agreement or condition in this Agreement may be waived in writing by the other Party, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition will not operate as a waiver of, or estoppel with respect to, any subsequent or other failure.
9.3 Amendment . This Agreement may not be amended except by a written amendment signed by each Party.
9.4 Assignment . The SHO Group may not assign its rights or obligations under this Agreement without the prior written consent of Service Provider, to be withheld in Service Providers absolute discretion. A Stockholding Change will constitute an assignment of this Agreement by the SHO Group for which assignment Service Providers prior written consent will be required. Service Provider may freely assign its rights and obligations under this Agreement to any of its Affiliates without the prior consent of SHO; provided, that any such assignment will not relieve Service Provider of its obligations hereunder. This Agreement will be binding on, and will inure to the benefit of, the successors and assigns of the parties.
9.5 Notices . All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement must be in writing and will be deemed to have been duly given (a) when delivered by hand, (b) three (3) business days after it is mailed, certified or registered mail, return receipt requested, with postage prepaid, (c) on the same business day when sent by facsimile if the transmission is completed before 5:00 p.m. recipients time, or one business day after the facsimile is sent, if the transmission is completed on or after 5:00 p.m. recipients time or (d) one (1) business day after it is sent by Express Mail, Federal Express or other courier service, as follows:
(a) if to Service Provider:
Sears Holdings Management Corporation
3333 Beverly Road B5-119A
Hoffman Estates, IL 60179
Attention: Senior Vice President-Finance
Facsimile: (847) 286-1699
with a copy to:
Sears Holdings Management Corporation
3333 Beverly Road, B6-210B
Hoffman Estates, IL 60179
Attention: General Counsel
Facsimile: (847) 286-2471
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(b) | if to the SHO Group, or any member thereof: |
Sears Authorized Hometown Stores, LLC
Sears Outlet Stores, L.L.C.
Sears Hometown and Outlet Stores, Inc.
3333 Beverly Road B4-150A
Hoffman Estates, IL 60179
Attention: Senior Vice President and Chief Operating Officer
Facsimile: (847) 286-7838
with a copy to:
Sears Hometown and Outlet Stores, Inc.
3333 Beverly Road B6-260A
Hoffman Estates, IL 60179
Attention: General Counsel
Facsimile: (847) 286-0266
or such other address as the person to whom notice is to be given has furnished in writing to the other parties. A notice of change in address will not be deemed to have been given until received by the addressee.
9.6 Survival . The provisions of Articles III, V, VI, VII, VIII, and IX will survive any termination or expiration of this Agreement.
9.7 Headings . The article and section headings contained in this Agreement are inserted for reference purposes only and will not affect the meaning or interpretation of this Agreement.
9.8 No Third Party Rights . Except for the indemnification rights under this Agreement of any Service Provider or SHO indemnitee in their respective capacities as such, this Agreement is intended to be solely for the benefit of the parties and is not intended to confer any benefits upon, or create any rights in favor of, any person other than the parties.
9.9 Counterparts . This Agreement may be executed by facsimile and in any number of counterparts, each of which will be deemed to be an original, and all of which together will be deemed to be one and the same instrument.
9.10 Severability . If any provision of this Agreement is declared by any court of competent jurisdiction to be illegal, invalid, void or unenforceable, such provision will (to the extent permitted under applicable Law) be construed by modifying or limiting it so as to be legal, valid and enforceable to the maximum extent compatible with, and possibly under, applicable Law, and all other provisions of this Agreement will not be affected and will remain in full force and effect.
9.11 Entire Agreement . This Agreement (including the appendices hereto), as well as the Separation Agreement and the Services Agreement, constitute the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. In the event of any conflict between the Separation Agreement and the Services Agreement, the provisions of this Agreement shall control with respect to any matter relating to the SHO Employees.
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9.12 Force Majeure . Neither Party will be responsible to the other for any delay in or failure of performance of its obligations under this Agreement, or under any order placed pursuant to this Agreement, to the extent such delay or failure is attributable to any act of God, act of terrorism, fire, accident, war, embargo or other governmental act, or riot; provided , however , that the Party affected thereby gives the other Party prompt written notice of the occurrence of any event which is likely to cause any delay or failure setting forth its best estimate of the length of any delay and any possibility that it will be unable to resume performance; provided , further , that said affected Party will use its commercially reasonable efforts to expeditiously overcome the effects of that event and resume performance.
9.13 Fair Construction; Joint and Several Liability . This Agreement will be deemed to be the joint work product of the parties without regard to the identity of the draftsperson, and any rule of construction that a document will be interpreted or construed against the drafting Party will not be applicable. All representations, warranties, indemnification and other obligations of the SHO Group hereunder shall be the joint and several obligations of the SHO Group, and all representations, warranties, indemnification and other obligations of the Service Provider hereunder shall be the joint and several obligations of the Service Provider
9.14 No Agency . Nothing in this Agreement creates a relationship of agency, partnership, or employer/employee between Service Provider and the SHO Group and it is the intent and desire of the parties that the relationship be and be construed as that of independent contracting parties and not as agents, partners, joint venturers or a relationship of employer/employee.
9.15 Services Operating Committee; Dispute Resolution; Mediation .
(a) Services Operating Committee . The Services Operating Committee established pursuant to the Services Agreement (the Services Operating Committee ) will address all day-to-day operational, financial, and other issues that may arise with respect to this Agreement, including its interpretation, the parties intent reflected in this Agreement, and the policies and practices between Service Provider and its Affiliates and the businesses comprising SHOs businesses in effect immediately prior to the Rights Closing Effective Time, and all Disputes (as defined below). The Services Operating Committee will discuss all of these issues and will attempt to resolve informally all Disputes in accordance with the applicable provisions of the Services Agreement.
(b) Dispute Resolution by the Services Operating Committee .
(i) If a Dispute arises, neither Party may take any formal legal action (such as seeking to terminate this Agreement, seeking mediation in accordance with Section 9.15(c) , or instituting or seeking any judicial or other legal action, relief, or remedy with respect to or arising out of this Agreement) unless the Party has first (i) delivered a notice of dispute (the Dispute Notice ) to all of the members of the Services Operating Committee and (ii) complied with the terms of this Section 9.15(b) . At the first monthly meeting of the Services Operating Committee following the delivery of the
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Dispute Notice (the Dispute Meeting) the Operating Committee will attempt to resolve all of the Disputes that are the subject the Dispute Notice. Each Party will cause its members on the Services Operating Committee to negotiate in good faith to resolve all Disputes in a timely manner. If by the 10 th day following the Dispute Meeting the Services Operating Committee has not resolved all of the Disputes (the Resolution Failure Date ) the parties will proceed to mediate the unresolved Disputes ( Unresolved Disputes ) in accordance with Section 9.15(c).
(ii) Subject to the next sentence, Dispute means each claim, controversy, dispute, and disagreement between, on the one hand, SHO or any of its Affiliates, or any of their respective shareholders, officers, directors, agents, employees, legal representatives (including attorneys in their representative capacity), successors and assigns and, on the other hand, Service Provider or any of its Affiliates, employees, legal representatives (including attorneys in their representative capacity), successors and assigns, in each case arising out of or relating to a Partys performance, or failure to perform, one or more of its obligations in this Agreement.
(c) Mediation of Unresolved Disputes . Service Provider and SHO will in good faith attempt to resolve all Unresolved Disputes by non-binding mediation. Service Provider and SHO will negotiate in good faith to determine the mediator, the mediators compensation and related costs, and the applicable rules for the mediation. If by the 15 th day following the Resolution Failure Date Service Provider and SHO have been unable to settle an Unresolved Dispute the obligations of Service Provider and SHO in this Section 9.15(c) will terminate with respect to the Unresolved Dispute.
9.16 Condition Precedent to the Effectiveness of this Agreement . This Agreement will not become effective until it has been approved by the Audit Committee of the Board of Directors of SHLD.
9.17 Governing Law; Jurisdiction; Waiver of Jury Trial .
(a) This Agreement will be governed by, and construed in accordance with, the laws of the State of Illinois, without giving effect to the conflicts of law principles thereof. This Agreement will not be subject to any of the provisions of the United Nations Convention on Contracts for the International Sale of Goods.
(b) Each of the parties irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any Illinois state court or Federal court of the United States of America, in either case sitting in Cook County, Illinois, and any appellate court to any thereof, in any action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby or for recognition or enforcement of any judgment relating thereto, and each of the parties irrevocably and unconditionally (i) agrees not to commence any such action or proceeding except in such courts, (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in such Illinois state court or, to the extent permitted by law, in such Federal court, (iii) waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any such action or proceeding in any such Illinois state or Federal court, and (iv) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such
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action or proceeding in any such Illinois state or Federal court. A final judgment in any such action or proceeding will be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Each Party irrevocably consents to service of process in the manner provided for notices in Section 9.5 . Nothing in this Agreement will affect the right of any Party to serve process in any other manner permitted by Law.
(c) EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH OF THE PARTIES HERETO HEREBY ( i ) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (ii) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, AS APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.17(c) .
* * * * *
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IN WITNESS WHEREOF, Service Provider and SHO have caused this Agreement to be executed on the date first written above by their respective duly authorized officers.
Sears Holdings Management Corporation | ||
By: | ||
Name: |
||
Title: |
Sears Authorized Hometown Stores, LLC | ||
By: | ||
Name: |
||
Title: |
Sears Outlet Stores, L.L.C. | ||
By: | ||
Name: |
||
Title: |
Sears Hometown and Outlet Stores, Inc. | ||
By: | ||
Name: |
||
Title: |
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LIST OF APPENDICES
Appendix A | Administrative Service Fee | |
Appendix B | Continuing Plans and Other Benefits-Related Services |
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Appendix A
Administrative Service Fee and Cost Reimbursement
1. For each of the first 24 months during the Term (the Base ASP ) the monthly Administrative Service Fee will be $30.58 per SHO employee during the month (the Base Rate). The Base Rate has been determined by the following formula ($1,896,822 divided by 12) divided by 5,169 (the Base Employee Number ). The amount of $1,896,822 is Service Providers total annual costs to provide the Administrative Services during the Base ASP and includes a 30% profit margin. The number of SHO employees for each month during the Base ASP will be determined by the following formula: number of SHO employees at the beginning of the month plus the number of SHO employees at the end of the month, divided by 2.
2. For each of the next two 12-month periods and the final period beginning on the first day following the end of second 12-month period and ending on the last day of the 66 th month following the Rights Closing Effective Time (each a Remaining ASP ), SHO and Service Provider will negotiate in good faith to determine the monthly per employee Administrative Service Fee for the Remaining ASP, which negotiations will reflect the following understandings with respect to the amount of the Administrative Service Fee (clauses a and b being subject to clause d):
a. | The monthly per employee Administrative Service Fee will reflect all of Service Providers costs and expenses to provide the Administrative Services (together, the Total Costs ); |
b. | The monthly per employee Administrative Service Fee will reflect, as Service Providers profit margin, an amount equal to 30% of Service Providers Total Costs; |
c. | The number of SHO employees for each month during each Remaining ASP will be determined by the following formula: number of SHO employees at the beginning of the month plus the number of SHO employees at the end of the month, divided by 2; and |
d. | The monthly per employee Administrative Service Fee for the first Remaining ASP will not be greater than 120% of the Base Rate, and the monthly per employee Administrative Service Fee for each of the second Remaining ASP and the third Remaining ASP will not be greater than 120% of the per employee Administrative Service Fee for the immediately preceding Remaining ASP. |
3. SHO also will be billed for and pay Service Provider for all gross payroll, compensation related and other direct costs incurred or paid by Service Provider in connection with the services provided hereunder, which shall include, and not be limited to all wages (standard and overtime), bonuses, commissions, severance and termination payments, taxes, insurance costs, benefits, contributions and other direct costs for the SHO Employees. All costs, fees, and reimbursements will be payable by SHO to Service Provider in a manner agreed to by the parties prior to the Rights Closing Effective Time provided that all payroll-related payments shall be funded by SHO in advance of the applicable payroll payment date (including but not limited to the first payroll date).
A - 1
4. SHO will reimburse Service Provider for (a) all costs that are reimbursable by SHO in accordance with the Agreement and (b) for all services that Service Provider performs at SHOs request and that are not Administrative Services covered by the Administrative Service Fee. In addition, if Service Provider uses a vendor that is not an Affiliate of Service Provider to provide the Administrative Services and during any Remaining ASP the vendor increases its prices to provide the Administrative Services, SHO will reimburse Service Provider for the amount of the increase.
A - 2
Appendix B
Continuing Plans and Other Benefits-Related Service s
Business |
Services Provided |
|
CONTINUING PLANS |
1. Active Group Health Coverage under the Sears Holdings Medical Plan, Dental Plan and Flexible Benefits Plan 1
a. Benefits Transition Period Effective as of the Rights Closing Effective Time through no later than December 31, 2013.
b. Post-Rights Closing Effective Time (and so referred to as Post-Separation), Service Provider to act as third party administrator on behalf of SHO, which will continue to offer the Sears Holdings Medical Plan, Dental Plan and Flexible Benefits Plan to eligible SHO Employees without interruption post spin
2. COBRA Continuation Coverage 2
c. Post-Separation, Service Provider to provide COBRA continuation coverage for medical, dental and health care flexible spending account (FSA), as third party administrator of these plans on behalf of SHO, to SHO employees (and their qualified beneficiaries) participating in these plans who incur a qualifying event under COBRA post-Separation, provided, however, as of January 1, 2014 (or earlier if SHO establishes a SHO Benefit Plan to replace a particular Continuing Plan before January 1, 2014), SHO shall assume COBRA continuation coverage for SHO employees (and their qualified beneficiaries) who incur a qualifying event post-Separation.
3. Other Benefits 3
d. Refer to Exhibit B-1 for a summary of the other benefits sponsored or made available by Service Provider (or a Service Provider affiliate), indicating what was offered to SHO Employees pre-Separation and what will be offered post-Separation, during the Benefits Transition Period.
e. Any benefit program of Service Provider (or an Affiliate) not listed in this Appendix B or Exhibit B-1 as offered post-Separation is not intended to be available to SHO Employees post-Separation. |
1 |
Each SHO Employee will continue to be responsible for the employee portion of his/her active group health coverage, which will continue to be deducted, pre-or post-tax, as applicable, from pay. Coverage will be subject to the terms and conditions and the continued availability of each such plan. |
2 |
Each SHO Employee (or qualified beneficiary) who incurs a qualifying event under COBRA will be responsible for the cost of COBRA continuation coverage at a rate equal to 102% of the full cost of continued medical and dental coverage. Additional costs related to such COBRA coverage will be paid by SHO. Coverage will be subject to the terms and conditions and the continued availability of each such plan. |
3 |
.Each SHO Employee will continue to be responsible for the employee portion of his/her coverage under any of the other benefits, which will continue to be deducted, pre-or post-tax, as applicable, from such SHO Employees SHO pay. |
B - 1
Business |
Services Provided |
|
4. Benefits Administration Continuing Plans
With respect to benefit programs sponsored by Service Provider (or an Affiliate), which will be Continuing Plans for eligible SHO Employees during the Benefits Transition Period, Service Provider will continue to select and manage consultants, brokers, vendors and the like, as necessary to handle:
Plan design and eligibility; Day to day operations of the benefit programs; Benchmarking; Plan contract performance guarantees; and Government required filings (e.g. Form 5500 and SAR filings) |
B - 2
Exhibit B-1: Other Continuing Plans
During the Benefits Transition Period, continued participation by associates of SHO under the following other Continuing Plans will continue to be offered to otherwise eligible SHO Employees, according to the following table, as if SHO sponsored or made these benefits available with Service Provider (or an Affiliate) acting as the third party administrator, subject to the terms and conditions and the continued availability of each such program:
Other Benefit Programs |
Participation Pre- Separation |
Participation
Post-
Separation |
Benefits Transition
Period |
|||
Short-Term Disability Program |
ü | ü | See note 1 below | |||
Company Paid Life Insurance |
ü | ü | See note 1a below | |||
Long-Term Disability Program |
ü | ü | See note 1 below | |||
Optional Life Insurance |
ü | ü | See note 1a below | |||
Business Travel Accident Insurance |
ü | ü | See note 1 below | |||
WorkLife Solutions |
ü | ü | See note 1 below | |||
Commuter Benefit Program |
ü | ü | See note 1 below | |||
Adoption Assistance Program |
ü | ü | See note 1 below | |||
Starbridge Program |
ü | ü | See note 1 below | |||
Voluntary Benefits Program |
ü | ü | See note 1 below | |||
Employee Assistance Program (EAP) |
ü | ü | See note 1 below | |||
Associate Stock Purchase Plan |
ü | NO | N/A | |||
401(k) Savings Plan |
ü | NO | N/A 2 | |||
Pension Plan (Frozen) |
ü | NO | N/A | |||
Transition Pay Plans |
ü | NO | N/A 2 |
1. | With respect to the noted plans, the Benefits Transition Period shall end as of December 31, 2013, subject to earlier termination in accordance with the definition of Benefits Transition Period in the Agreement. |
1a. | With respect to the noted plans, the Benefits Transition Period shall end as of December 31, 2012, unless the insurer for these plans notifies SHMC by the Rights Closing Effective Time that SHO Employees can continue coverage under these plans through December 31, 2013, in which case the Benefits Transition Period for these plans shall be December 31, 2013, all subject to earlier termination in accordance with the definition of Benefits Transition Period in the Agreement. |
2. | If the SHO Group establishes a severance plan or policy or 401(k) plan, the Service Provider will, to the extent it is providing payroll services as part of the Administrative Services, handle payment of the severance-related payments and payroll deferrals with respect to such 401(k) plan. |
B - 3
Exhibit 10.11
SEARS HOMETOWN AND OUTLET STORES, INC.
UMBRELLA INCENTIVE PROGRAM
SECTION 1
GENERAL
1.1. Purpose . The Sears Hometown and Outlet Stores, Inc. Umbrella Incentive Program (the UIP) is a performance-based program. The UIP is designed to motivate the salaried employees of Sears Hometown and Outlet Stores, Inc. (the Company) and its Subsidiaries (as defined in Section 9), to achieve significant, lasting change that successfully positions the Company for future growth. Performance goals under the UIP align Participants financial incentives with the financial goals of the Company. Awards under the UIP are designed to vary commensurately with achieved performance. Both Awards structured to satisfy the requirements for performance-based compensation outlined in regulations issued under Section 162(m) of the Internal Revenue Code (Code Section 162(m)) and Awards not so structured may be issued hereunder. The UIP is hereby effective as of the Rights Closing Date as defined in the Separation Agreement by and between Sears Holdings Corporation (Sears Holdings) and the Company (Effective Date).
The Committee may make an Award to an Eligible Employee under the UIP, or from time to time may establish under the UIP annual and long-term incentive plans for specific performance periods for specified groups of Eligible Employees, and make Awards under such plans, consistent with the terms of the UIP. References throughout this document to Awards under the UIP shall also refer to Awards under any annual or long-term incentive plan established pursuant to the UIP. All Awards hereunder, including Awards under any annual or long-term incentive plan established pursuant hereto, that are intended to constitute performance-based compensation within the meaning of Code Section 162(m) and the regulations thereunder are contingent on shareholder approval of the UIP, as provided in subsection 3.1.
1.2. Operation, Administration, and Definitions . The operation and administration of the UIP, including the Awards made under the UIP, shall be subject to the provisions of Section 6 (relating to operation and administration). Capitalized terms in the UIP shall be defined as set forth in the UIP (including the definitional provisions of Section 9).
SECTION 2
PARTICIPATION
2.1. Eligible Employee . The term Eligible Employee means those salaried employees of the Company or a Subsidiary who are designated as Eligible Employees by the Committee (as such term is defined in subsection 6.2 and further described in Section 7). Subject to the terms and conditions of the UIP, the Committee shall determine and designate, from time to time, from among the Eligible Employees, those persons who shall be granted one or more Awards under the UIP, and thereby become Participants in the UIP. Notwithstanding the foregoing, with respect to any annual incentive plan or long-term incentive plan established under the UIP, the term Eligible Employee shall mean those salaried and hourly employees of the Company or a Subsidiary who are designated as Eligible Employees under the terms of the applicable annual incentive plan or long-term incentive plan and thereby become Participants under such incentive plan.
2.2. New Hires . The Committee may designate as Participants those salaried employees whom the Committee determines have been newly hired or promoted into the group of Eligible Employees, provided that the terms and conditions of Awards to such individuals shall be subject to such adjustments as the Committee deems necessary or desirable to qualify such Awards as performance-based compensation for purposes of Code Section 162(m), if such Awards are intended to meet the requirements of Code Section 162(m) and the regulations thereunder. Notwithstanding the foregoing, with respect to any annual incentive plan or long-term incentive plan established under the UIP, the eligibility of newly hired employees shall be determined in accordance with the terms of the applicable incentive plan.
SECTION 3
AWARDS
3.1 Awards . An Award may be granted under the UIP in the form of a Cash Incentive Award or a Stock Award.
(a) A Cash Incentive Award is a grant of a right to receive a payment of cash (or, in the discretion of the Committee, shares of Stock having Fair Market Value, as of the date of payment, equivalent to the cash otherwise payable) that is contingent upon achievement of performance goals for the applicable performance period, as established by the Committee.
(b) A Stock Award is a grant of shares of Stock, which grant shall be subject to risk of forfeiture or other restrictions that will lapse upon the achievement of performance goals for the applicable performance period, as established by the Committee.
The grant of an Award may also be subject to such other conditions, restrictions and contingencies as determined by the Committee. Except as otherwise provided in this Section 3, Awards are intended to be performance-based compensation as that term is used in regulations issued under Code Section 162(m), and shall comply with the requirements of this Section 3 to the extent such compliance is determined by the Committee to be required for the Awards to be treated as performance-based compensation. With respect to Awards that are intended to constitute performance-based compensation within the meaning of Code Section 162(m) and the regulations issued thereunder, any such Award shall be contingent upon shareholder approval of the UIP or any amendment to the UIP requiring shareholder approval under Code Section 162(m) and the regulations issued thereunder, and no amount shall be paid under any such Award unless and until shareholder approval has been obtained in accordance with Code Section 162(m) and the regulations issued thereunder.
2
3.2 Maximum Amount . For Awards that are intended to be performance-based compensation under Code Section 162(m) and the regulations issued thereunder, the maximum value payable under all such Awards granted to any one individual during any (i) consecutive thirty-six (36) month period shall not exceed $15,000,000, and (ii) consecutive forty-eight (48) month period shall not exceed $20,000,000. Awards that are not intended to constitute performance-based compensation under Code Section 162(m) and the regulations issued thereunder are not subject to the foregoing limits.
3.3 Performance Goals . The performance goals established for the performance period established by the Committee with respect to Awards intended to constitute performance-based compensation under Code Section 162(m) and the regulations thereunder shall be objective (as that term is described in regulations under Code Section 162(m)), and shall be established in writing by the Committee not later than ninety (90) days after the beginning of the performance period (but in no event after 25% of the performance period has elapsed), and while the outcome as to the performance goals is substantially uncertain. The performance goals established by the Committee may be with respect to corporate performance, operating group or sub-group performance, individual company performance, other group or individual performance, or division performance, and shall be based on one or more of the Performance Measures described in subsection 3.6, below.
3.4 Attainment of Performance Goals . A Participant otherwise entitled to receive an Award intended to meet the requirements of performance-based compensation under Code Section 162(m) and the regulations thereunder for any performance period shall not receive a settlement of the Award until the Committee has determined that the applicable performance goal(s) have been attained. To the extent that the Committee exercises discretion in making the determination required by this subsection, such exercise of discretion may not result in an increase in the amount of the payment with respect to an Award intended to meet the requirements of performance-based compensation under Code Section 162(m) and the regulations thereunder.
3.5 Partial Achievement . The terms of an Award may provide that partial achievement of the performance goals may result in a payment or vesting based upon the degree of achievement.
3.6 Performance Measures .
(a) Generally . Performance measures may be based on any one or more or any combination (in any relative proportion) of the following: share price, market share, cash flow, revenue, revenue growth, earnings per share, operating earnings per share, operating earnings, earnings before interest, taxes, depreciation and amortization, return on equity, return on assets, return on investment, net income, net income per share, economic value added, market value added, store sales growth, customer satisfaction performance goals measured by independent customer satisfaction surveys and employee opinion survey results measured by an independent firm, and strategic business objectives, consisting of one or more objectives based on meeting specific cost or profit targets or margins, business expansion goals and goals relating to acquisitions or divestitures. Each goal, with respect to a performance period, may be expressed on an absolute and/or relative basis, may be based on the Company as a whole or on any one or
3
more business units of the Company, or its Subsidiaries, and may be based on or otherwise employ comparisons based on internal targets, the past performance of the Company or of any one or more business units of the Company or its Subsidiaries, and/or the past or current performance of other companies, or an index.
(b) Extraordinary Item s . In establishing any performance goals, the Committee may, no later than the date such performance goals are established in accordance with subsection 3.3, provide for the exclusion of the effects of the following items, to the extent identified in the audited financial statements of the Company, including footnotes, or in the Management Discussion and Analysis of Financial Condition and Results of Operations accompanying such financial statements: (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) extraordinary, unusual, and/or nonrecurring items of gain or loss; (iv) gains or losses on acquisitions or divestitures or store closings; (v) domestic pension expenses (if any); (vi) noncapital, purchase accounting items; (vii) changes in tax or accounting principles, regulations or laws; (viii) mergers or acquisitions; (ix) integration costs disclosed as merger related; (x) accruals for reorganization or restructuring programs; (xi) investment income or loss; (xii) foreign exchange gains and losses; and (xiii) tax valuation allowances and/or tax claim judgment or settlements. To the extent the exclusion of any item affects Awards intended to constitute performance-based compensation under Code Section 162(m), such exclusion shall be specified in a manner that satisfies the requirements of Code Section 162(m) and the regulations thereunder, including without limitation the requirement that performance goals be objectively determinable.
3.7 Non-Performance-Based Compensation . Nothing in this Section 3 shall preclude the Committee, the Company, or any Subsidiary from granting Awards that are not intended to be performance-based compensation under Code Section 162(m) and the regulations thereunder; provided, however, that, at the time of grant of Awards by the Committee, the Committee shall designate whether such amounts are intended to constitute performance-based compensation within the meaning of Code Section 162(m) and the regulations thereunder. To the extent that the provisions of this Section 3 reflect the requirements applicable to performance-based compensation under Code Section 162(m) and the regulations thereunder, such provisions shall not apply to any Award which is not intended to satisfy such performance-based compensation requirements.
SECTION 4
DISTRIBUTION
4.1. General . Subject to Sections 5 and 6, the shares of Stock or the cash that result from an Award, granted with respect to a particular performance period, shall be distributed, in a single lump sum, as soon as practicable after the first Committee meeting after the results for the applicable performance period are available to the Committee (or in the case of Awards not intended to satisfy the requirements of Code Section 162(m) and the regulations thereunder, such time as specified by the Committee in the Award). Notwithstanding anything herein to the contrary, as to Awards intended to meet the requirements of performance-based compensation under Code Section 162(m) and the regulations thereunder, no distribution shall be made
4
hereunder until after the Committee has certified the attainment of the performance goals and the amount to be paid to each Participant. Further, each Award shall be paid to each Participant no later than the date that is the 15 th day of the third month following the last day of the relevant performance period or such other date as required by Code Section 409A to avoid treatment of the Award as deferred compensation subject to Code Section 409A. The date as of which payment is made in accordance with this subsection 4.1 is referred to herein as the payment date.
4.2. Termination and Other Provisions . All distributions are subject to the provisions of Sections 5 and 6, below.
SECTION 5
TERMINATION
5.1. The effect of death, disability, or termination of employment on a Participants right to receive an Award (whether payable in cash or Stock) shall be determined by the Committee under the terms of the Award (or the terms of the annual or long term incentive plan under which the Award is granted) and may depend both on the reason for the termination, if applicable, and the point in the performance period at which the event occurs, subject to the requirements of Code Section 162(m) and the regulations thereunder in the case of Awards intended to constitute performance-based compensation under that Code Section.
SECTION 6
OPERATION AND ADMINISTRATION
6.1. Source of Awards . In the case of Awards under the UIP that are settled in shares of Stock, such shares shall be distributed under a stock plan adopted by the Company and approved by the shareholders thereof that provides for the issuance of Stock in satisfaction of Awards hereunder (which in no event shall be an employee stock purchase plan). In the event of any conflict between this document and such stock plan, the provisions of the stock plan shall govern.
6.2. Committee . The UIP is administered by the Compensation Committee of the Board of Directors of the Company (the Committee), as further described at Section 7. Any determinations by the Committee regarding the UIP are binding on all Participants. The Committee may make changes that it deems appropriate for the effective administration of the UIP. Subject to subsection 6.3, these changes may not increase the benefits to which Participants may become entitled under an Award, nor change the pre-established measures in goals that have been approved with respect to any Award that is intended to constitute performance-based compensation under Code Section 162(m) and the regulations thereunder.
6.3. Discretion . Notwithstanding anything in the UIP to the contrary, prior to the settlement of any Award, the Committee may (i) reduce the amount of such Award, or the number of shares of Stock or amount of cash to be delivered in connection with such Award, and (ii) with respect to Awards that are not intended to constitute performance-based compensation under Code Section 162(m) and the regulations thereunder, change the pre-established measures in goals that have been approved for such Award and increase the amount of such Award or the number of shares of Stock or amount of cash to be delivered in connection with such Award.
5
6.4. General Restrictions . Notwithstanding any other provision of the UIP, the Company shall have no obligation to deliver any shares of Stock or make any other distribution of benefits under the UIP unless such delivery or distribution complies with all applicable laws (including, without limitation, the requirements of the Securities Act of 1933, as amended), and the applicable requirements of any securities exchange or similar entity.
6.5. Tax-Withholding . All distributions under an Award are subject to withholding of all applicable taxes, and the Committee may condition the delivery of any shares or other benefits under an Award on satisfaction of the applicable withholding obligations. To the extent permitted by the Committee, such withholding obligations may be satisfied (i) through cash payment by the Participant, (ii) through the surrender of shares of Stock which the Participant already owns (provided, however, that to the extent shares described in this clause (ii) are used to satisfy more than the minimum statutory withholding obligation, as described below, then, except as otherwise provided by the Committee, payments made with shares of Stock in accordance with this clause (ii) shall be limited to shares held by the Participant for not less than six months prior to the payment date (or such other period of time as the Companys accountants may require), or (iii) through the surrender of shares of Stock to which the Participant is otherwise entitled under the UIP; provided, however, that such shares under this clause (iii) may be used to satisfy not more than the Companys minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).
6.6. Settlement of Awards . The obligation to make payments and distributions with respect to Awards may be satisfied through cash payments, the delivery of shares of Stock, or a combination thereof, subject, in the case of settlement in shares, to the terms of the stock plan under which the Stock is issued. Satisfaction of any such obligations under an Award, which is sometimes referred to as the settlement of the Award, may be subject to such conditions, restrictions and contingencies as the Committee shall determine. Each Subsidiary shall be liable for payment of cash due under the UIP with respect to any Participant to the extent that such benefits are attributable to the services rendered for that Subsidiary by the Participant. Any disputes relating to liability of a Subsidiary for cash payments shall be resolved by the Committee.
6.7. Transferability . Except as otherwise provided by the Committee, Awards under the UIP are not transferable except as designated by the Participant by will or by the laws of descent and distribution.
6.8. Form and Time of Elections . Unless otherwise specified herein, each election required or permitted to be made by any Participant or other person entitled to benefits under an Award, and any permitted modification, or revocation thereof, shall be in writing filed with the Committee at such times, in such form, and subject to such restrictions and limitations, not inconsistent with the terms of the UIP, as the Committee shall require.
6
6.9. Agreement with Company . Any Award under the UIP shall be subject to such terms and conditions, not inconsistent with the UIP, as the Committee shall, in its sole discretion, prescribe. The terms and conditions of any Award to any Participant shall be reflected in such form of written (including electronic) document as is determined by the Committee. A copy of such document shall be provided to the Participant, and the Committee may, but need not, require that the Participant sign a copy of such document. Such document is referred to as an Award Agreement regardless of whether any Participant signature is required.
6.10. Action by Company or Subsidiary . Any action required or permitted to be taken under the UIP by the Company or any Subsidiary shall be by resolution of its respective board of directors, or by action of one or more members of the board of directors of such company (including a committee of the board) who are duly authorized to act for such board with respect to the applicable action, or (except to the extent prohibited by applicable law or applicable rules of any securities exchange or similar entity) by a duly authorized officer of such company.
6.11. Gender and Number . Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular.
6.12. Limitation of Implied Rights .
(a) Neither a Participant nor any other person shall, by reason of participation in the UIP, acquire any right in or title to any assets, funds or property of the Company or any Subsidiary whatsoever, including, without limitation, any specific funds, assets, or other property which the Company or any Subsidiary, in its sole discretion, may set aside in anticipation of a liability under the UIP. A Participant shall have only a contractual right to the cash or Stock, if any, payable under the UIP, unsecured by any assets of the Company or any Subsidiary, and nothing contained in the UIP shall constitute a guarantee that the assets of the Company or any Subsidiary shall be sufficient to pay any benefits to any person.
(b) The UIP does not constitute a contract of employment, and selection as a Participant shall not give any participating employee the right to be retained in the employ of the Company or any Subsidiary, nor any right or claim to any benefit under the UIP, unless such right or claim has specifically accrued under the terms of the UIP. Except as otherwise provided in the UIP, no Award under the UIP shall confer upon the holder thereof any rights as a shareholder of the Company prior to the date on which the individual fulfills all conditions for receipt of such rights.
6.13. Evidence . Evidence required of anyone under the UIP may be by certificate, affidavit, document or other information, which the person charged with acting on such evidence considers pertinent and reliable, and which has been signed, made or presented by the proper party or parties.
7
6.14. Corporate Transaction . In the event of a corporate transaction involving the Company (including without limitation, any Stock dividend, Stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, sale of assets or subsidiaries, combination or exchange of shares), the Committee may adjust Awards to preserve, but in no event increase, the benefits or potential benefits of the Awards; provided, however, that no such adjustment may be made to the extent such adjustment would cause Awards that are intended to constitute performance-based compensation to cease to qualify as such under Code Section 162(m) and the regulations thereunder. Actions permitted under the preceding sentence by the Committee may include any adjustments that the Committee determines to be equitable (which may include, without limitation, (a) replacement of Awards with other Awards which the Committee determines have comparable value and which are based on stock of a company resulting from the transaction, and (b) cancellation of the Award in return for cash payment of the current value of the Award, determined as though the Award is fully vested at the time of the payment.
6.15. Governing Law . The UIP will be governed under the internal laws of the state of Illinois without regard to principles of conflicts of laws. The state and federal courts located in the state of Illinois shall have exclusive jurisdiction in any action, lawsuit or proceeding based on or arising out of the UIP.
6.16. Severability . If any provision(s) of the UIP shall be found invalid, illegal, or unenforceable, in whole or in part, then such provision(s) shall be modified or restricted so as to effectuate as nearly as possible in a valid and enforceable way the provisions hereof, or shall be deemed excised from the UIP, as the case may require, and the UIP shall be construed and enforced to the maximum extent permitted by law, as if such provision(s) had been originally incorporated herein as so modified or restricted or as if such provision(s) had not been originally incorporated herein, as the case may be.
SECTION 7
COMMITTEE
7.1. Administration . As provided in subsection 6.2, the authority to control and manage the operation and administration of the UIP shall be vested in the Committee.
7.2. Powers of Committee . The Committees administration of the UIP shall be subject to the following:
(a) As provided in subsection 2.1 above, the Committee shall have the authority and discretion to determine those salaried employees who are Eligible Employees and to select from among the Eligible Employees those persons who shall receive Awards.
(b) Subject to the other provisions of the UIP, the Committee shall have the authority and discretion to determine the time or times of receipt and the types of Awards, to establish the terms, conditions, restrictions, and other provisions of Awards, and (subject to the restrictions imposed by Section 8) to amend, cancel, or suspend
8
Awards. However (and subject at all times to the requirements of Code Section 162(m) and the regulations thereunder as to Awards that are intended to constitute performance-based compensation under that Section), to the extent that the Committee determines that the restrictions imposed by the UIP preclude the achievement of the material purposes of the Awards in jurisdictions outside the United States, the Committee shall have the authority and discretion to modify those restrictions as the Committee determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States.
(c) The Committee shall have the authority and discretion to interpret the UIP, to establish, amend, and rescind any rules and regulations relating to the UIP, to determine the terms and provisions of any Award Agreement made pursuant to the UIP, and to make all other determinations that may be necessary or advisable for the administration of the UIP.
(d) Any interpretation of the UIP by the Committee and any decision made by it under the UIP are final and binding on all persons.
7.3. Delegation by Committee . Except to the extent prohibited by applicable law or the applicable rules of a securities exchange or similar entity, or as would cause UIP Awards intended to constitute performance-based compensation under Code Section 162(m) and the regulations thereunder to fail to so qualify, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. The Committee may revoke any such allocation or delegation at any time.
7.4. Information to be Furnished to Committee . The Company and its Subsidiaries shall furnish the Committee with such data and information as it determines may be required for it to discharge its duties hereunder. The records of the Company and its Subsidiaries as to an employees or Participants employment, termination of employment, leave of absence, reemployment, and compensation shall be conclusive on all persons unless determined by the Company or the Committee to be incorrect. Participants and other persons entitled to benefits under the UIP must furnish the Committee such evidence, data or information as the Committee considers desirable to carry out the terms of the UIP, subject to any applicable privacy laws.
SECTION 8
AMENDMENT AND TERMINATION
The Board or the Committee may, at any time, amend or terminate the UIP, and the Board or the Committee may amend any Award; provided, that no amendment or termination may, in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely affect the rights of any Participant or beneficiary under any Award granted under the UIP prior to the date such amendment or termination is adopted by the Board or the Committee, and no amendment requiring shareholder approval, including, but not limited to, under Code Section 162(m) and the regulations thereunder may be made without consent of the shareholders of the Company.
9
Notwithstanding anything herein to the contrary, (i) no amendment shall be made that would cause the UIP not to comply with the requirements of Code Section 409A or any other applicable law or rule of any applicable securities exchange or similar entity, and (ii) the UIP and any Award thereunder may be amended without Participant consent to the extent that the Committee determines such amendment necessary to cause the UIP or Award to comply with the requirements of Code Section 409A or any other applicable law or rule of any applicable securities exchange or similar entity.
SECTION 9
DEFINED TERMS
In addition to the other definitions contained herein, the following definitions shall apply:
(a) Award . The term Award means any Cash Incentive Award or Stock Award as described in Section 3.1.
(b) Board . The term Board means the Board of Directors of the Company.
(c) Code . The term Code means the Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code.
(d) Fair Market Value . The term Fair Market Value shall mean the reported closing price of a share of Stock on the principal securities exchange or market on which the Stock is then listed or admitted to trading.
(e) Stock . The term Stock means shares of common stock of the Company.
(f) Subsidiary . The term Subsidiary means any company during any period in which it is a subsidiary corporation (as that term is defined in Section 424(f) of the Code) with respect to the Company.
10
Exhibit 10.12
SEARS HOMETOWN AND OUTLET STORES, INC.
ANNUAL INCENTIVE PLAN
SECTION 1
GENERAL
1.1. Purpose . The Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (AIP) is a performance-based incentive program. The purpose of the AIP is to reward eligible employees of Sears Hometown and Outlet Stores, Inc. (Company) and its participating subsidiaries and affiliates (collectively referred to as Employers), for sustained Company fiscal performance. The effective date of the AIP document is the Rights Closing Date as defined in the Separation Agreement by and between Sears Holdings Corporation (Sears Holdings) and the Company (Effective Date). For purposes of this document, the term Effective Date shall also refer to the effective date of an annual incentive plan established in the future by the Compensation Committee under the AIP. Both (a) Awards (as defined in Section 9) not structured to satisfy the requirements for performance-based compensation under Section 162(m) of the Internal Revenue Code (Code), and (b) Section 162(m) Awards (as defined in Section 9), which are structured to satisfy such requirements, may be issued under the AIP.
1.2. Operation, Administration and Definitions . The operation and administration of the AIP, including the Awards made under the AIP with respect to any Performance Period (as defined under subsection 3.3), shall be subject to the provisions of Section 7. Capitalized terms in the AIP shall be defined in the provision in which a term first appears or as set forth in Section 9. The AIP is established under, and constitutes a part of, the Sears Hometown and Outlet Stores, Inc. Umbrella Incentive Program (UIP)
1.3. Participating Employers . Each Employer whose eligible employees are covered by the AIP may be referred to herein as a Participating Employer.
SECTION 2
PARTICIPATION
2.1. Eligible Employee . Except as provided herein, Eligible Employee means as to any Performance Period an employee of the Company or a participating Subsidiary, who is designated by the Compensation Committee or Senior Corporate Compensation Executive as eligible to participate in an AIP as of such Performance Period. The Senior Corporate Compensation Executive shall make eligibility determinations under this Section 2 with respect to all Eligible Employees other than those who are Executives for whom compensation matters are under the purview of the Compensation Committee (as defined in Section 9), and the Compensation Committee shall make eligibility determinations with respect to all Executives. Once designated as eligible to participate, an Eligible Employee shall become a Participant in the applicable AIP; provided, however, that an otherwise Eligible Employee shall not be a Participant in the AIP with respect to any portion of a Performance Period during which he or she is participating under any other annual incentive program that is sponsored by the Company or any subsidiary or affiliate of the Company regardless of when awards under such program are paid.
2.2. New Hires; Changes in Status; Promotions and Demotions .
(a) New Hires . The Compensation Committee, the Senior Corporate Compensation Executive, or an authorized representative of either, as applicable, shall determine whether and when an employee who is a new hire is an Eligible Employee. The terms and conditions of any Award for such an individual shall be (i) based on the Target Annual Incentive for the new hires incentive-eligible position and (ii) subject to a fraction, the numerator of which is the number of full days on active payroll (except as otherwise provided in Section 6.2) during the applicable Performance Period (as defined in subsection 3.3) that the Eligible Employee was a Participant in the AIP and the denominator of which is the number of full days in such Performance Period.
(b) Changes in Status . The Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall determine whether and when an employee who has a change in status becomes or ceases to be an Eligible Employee during the Performance Period. The terms and conditions of any Award for such an individual shall be (i) based on the Target Annual Incentive for the incentive-eligible position and (ii) subject to a fraction, the numerator of which is the number of full days on active payroll (except as otherwise provided in Section 6.2) during the applicable Performance Period that the Eligible Employee was a Participant in the AIP and the denominator of which is the number of full days in such Performance Period.
(c) Promotion . If a Participant is promoted, the Award for such an individual shall be based on a pro-ration, whereby the Target Annual Incentive for the new position will apply to the remainder of the applicable Performance Period and the Target Annual Incentive for the immediately preceding incentive-eligible position will apply to the portion of such Performance Period immediately preceding the effective date of the promotion, subject to subsection 3.2.
(d) Demotions . If a Participant is demoted, the Award for such an individual shall be based on a pro-ration, whereby the Target Annual Incentive for the new incentive-eligible position (if any) will apply only to the remainder of the Performance Period and the Target Annual Incentive for the immediately preceding incentive-eligible position will apply only to the portion of the Performance Period immediately preceding the effective date of the demotion, subject to subsection 3.2.
SECTION 3
ANNUAL INCENTIVE AWARDS
3.1. Annual Incentive Awards . Except as provided herein, the Senior Corporate Compensation Executive shall determine, in its sole discretion, the Target Annual Incentive (as defined herein) for each Participant. Notwithstanding the forgoing, the Compensation Committee shall approve the Target Annual Incentives and the Awards for Executives (as defined in Section 9) under its purview.
(a) A Target Annual Incentive shall refer to the percentage of a Participants rate of base pay during a Performance Period, which may be reflected as a percentage of base pay or flat dollar amount.
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(b) The Target Incentive Award shall consist of a commitment by the Company to distribute, at the time specified in, and in accordance with the applicable provisions of, Section 5 below, a dollar amount based on a Participants Target Annual Incentive and based on actual performance of the Company and the Participant, as compared to established performance goals described in Section 4 below. The Target Incentive Award shall be subject to pro-ration (if applicable) and certification of the calculation of the final Award amount by the Compensation Committee or Senior Corporate Compensation Executive, as applicable.
(c) The Quarterly Incentive Award shall refer to the final quarterly portion of a Participants Target Incentive Award that is based on applicable quarterly performance goal(s) and measures, and, if any, is payable on a Quarterly Payment Date (as defined in subsection 5.1(b) below) or the Annual Payment Date (as defined in subsection 5.1(a) below), as determined by the Compensation Committee or Senior Corporate Compensation Executive, as applicable.
(d) The Annual Incentive Award shall refer to the final annual portion of a Participants Target Incentive Award payable on the Annual Payment Date, if any.
(e) Any Quarterly Incentive Award or Annual Incentive Award shall be satisfied by a distribution in accordance with Section 5 and subject to Sections 6 and 7.
3.2. Adjustments based on Status Changes during Performance Period . Notwithstanding anything in the AIP to the contrary, with respect to Awards that are not Section 162(m) Awards, and prior to the settlement of any such Award, if the Target Annual Incentive for a new incentive-eligible position (including if due to promotion or demotion) is lower or higher than the Target Annual Incentive for a Participants immediately prior position, the Participants Target Incentive Award may be adjusted by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, to ensure that the overall target cash compensation (i.e., the sum of base pay and Target Annual Incentive) for the new position is comparable to the overall target cash compensation for the immediately prior position.
3.3. Performance Period . The Performance Period refers to (a) with respect to the portion of an Award that is payable based on the Fiscal Year (as defined in Section 9), the applicable Fiscal Year, and (b) with respect to the portion of an Award that is payable based on a Fiscal Quarter (as defined in Section 9), the applicable Fiscal Quarter; in either case, as determined by the Compensation Committee or Senior Corporate Compensation Executive, as applicable. The amount of an Award, if any, shall be determined following completion of the applicable Performance Period in accordance with this Section 3 and Section 4.
3.4. Pro-ration .
(a) The Annual Incentive Award and applicable Quarterly Incentive Awards, if any, of a Participant who experiences a status change or position change shall be pro-rated based on the number of days worked on active payroll in each incentive-eligible position during the applicable Performance Period.
(b) The Annual Incentive Award and applicable Quarterly Incentive Awards, if any, of a Participant who experiences a demotion or promotion shall be pro-rated based on the Target Annual Incentives in effect during the applicable Performance Period, subject to Sections 2.2 and 3.2 above.
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(c) The Annual Incentive Award and applicable Quarterly Incentive Awards, if any, of a Participant who experiences a disability or death, as described in subsections 6.1(b) and (c) respectively, shall be pro-rated based upon a fraction, the numerator of which is the number of days worked on active payroll in an incentive-eligible position during the applicable Performance Period and the denominator of which is the number of days in such Performance Period.
(d) The Annual Incentive Award and applicable Quarterly Incentive Awards, if any, of a Participant who experiences an unpaid leave of absence during the applicable Performance Period shall be pro-rated in accordance with subsection 6.2(a).
(e) Notwithstanding anything herein to the contrary, with respect to the 2012 fiscal year Performance Period, a Participants continuous period of participation under the Sears Holdings Corporation Annual Incentive Plan for the 2012 fiscal year immediately prior to the Rights Closing Date shall be taken into account.
3.5. Reimbursement of Excess Awards . If the Companys financial statements or approved performance measures under the AIP are the subject of a restatement due to error or misconduct, to the extent permitted by governing law, in all appropriate cases, the Company will seek reimbursement of Excess Awards paid under the AIP to Executives (and any other Participant who is determined to have known of or been involved in any such misconduct) for the relevant performance period(s). For purposes of the AIP, an Excess Award means the positive difference, if any, between (a) the Annual Incentive Award and/or Quarterly Incentive Awards paid to an Executive and (b) the Annual Incentive Award and/or Quarterly Incentive Awards that would have been paid to the Executive, had the Award been calculated based on the Companys financial statements or performance measures as restated. The Company will not be required to award Participants, including Executives, an additional AIP payment should the restated financial statements or performance measures result in a higher Annual Incentive Award or Quarterly Incentive Awards.
SECTION 4
GOALS AND PERFORMANCE
4.1. Company Goals and Performance . For each Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall establish in writing the performance goals and any particulars or components (including without limitation Targets or Thresholds) applicable to each business unit and, with respect to each Participant, his or her Assignment (as defined in Section 9). The performance goals and any particulars or components will be objectively measurable and any payment based upon the achievement of a specified percentage or level of performance.
(a) Goals . Except as otherwise approved by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, with respect to a Performance Period, the performance goals shall be based upon one or more of the performance measures identified in the UIP.
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(b) Performance . Except as otherwise approved by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, with respect to a Performance Period, the following concepts shall apply:
(i) Achievement of Target . With respect to each Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall establish a target level of achievement for each performance goal (Target), which may be reflected as annual or quarterly Targets. If achieved, payout of Awards to which that performance goal applies shall be at 100%, subject to any applicable modifiers or adjustments.
(ii) Achievement of Threshold . With respect to each Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall establish a threshold level of achievement that must be met with respect to a performance goal before any portion of an Award to which the performance goal applies is payable (Threshold), which may be reflected as annual or quarterly Thresholds. If achieved, payout of Awards to which that performance goal applies shall be at the Threshold percentage, subject to any applicable modifiers or adjustments.
(iii) Achievement Between Threshold and Target . In the event achievement of a performance goal falls between Threshold and Target with respect to a Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may establish a formula for determining payout levels between these two points, which payout shall be subject to any applicable modifiers or adjustments.
(iv) Payout Above Target . In the event achievement of a performance goal exceeds the Target with respect to a Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may establish a formula for determining payout levels above Target, which payout shall be subject to any applicable modifiers or adjustments. The Compensation Committee or Senior Corporate Compensation Executive, as applicable, also may provide for a maximum payout level or no maximum.
(v) Modifiers . Notwithstanding this subsection 4.1, for each Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall have the discretion to establish individual, team, department, store or other unit performance modifiers to an Annual Incentive Award or Quarterly Incentive Award, which enables the Award to be modified, positively (subject to subsection 4.2 below) or negatively, based on the performance of an individual, team, department, store or other unit with respect to a Performance Period.
(vi) Qualifiers . Notwithstanding this subsection 4.1, for each Performance Period, Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall have the discretion to establish qualifiers based on Company, business unit, store, department or other unit performance measures, which qualifiers would need to be achieved, in addition to
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achievement of the performance goals described above, in order for any Annual Incentive Award or Quarterly Incentive Award to be paid. Such qualifiers may or may not be (1) equivalent to specific AIP goals and thresholds, and (2) the same for all Participants.
4.2. Awards Subject to Code Section 162(m)
(a) General Rules .
(i) Notwithstanding anything in the AIP to the contrary, this Section 4.2 will apply to all Section 162(m) Awards. To the extent there is a conflict between the rules of this Section 4.2 and any other section in the AIP, the terms of this Section 4.2 will control.
(ii) In no event will positive discretion be applied, by the Compensation Committee or Senior Corporate Compensation Executive, to any Section 162(m) Award with respect to the Performance Period or as of the Payment Date (as defined under subsection 5.1(c) below). Modifiers described in Section 4.1(b)(v) shall not apply to any Section 162(m) Award.
(iii) To the extent that an Executive experiences a promotion or other change in status, no adjustment to a Section 162(m) Award shall be made if such adjustment would not otherwise meet the requirements of Code Section 162(m).
(b) Performance Measures . Section 162(m) Awards shall use the performance measures established under the UIP. As provided in the UIP, at the time of establishing the performance goals, the Compensation Committee may exclude the effects of extraordinary items in a manner that satisfies the requirements of Code Section 162(m).
(c) Establishment of Performance Goals . Section 162(m) Awards shall have the applicable objective performance goals and any particulars or components established in writing and approved by the Compensation Committee by the deadline established in the UIP, in accordance with Code Section 162(m) and the regulations issued thereunder.
(d) Attainment of Performance Goals . Distributions under Section 162(m) Awards shall not be made until the Compensation Committee has determined, and certifies in writing, that the performance goals have been satisfied.
(e) Maximum Award . Section 162(m) Awards are subject to the maximum award limits established under the UIP.
4.3. Additional Requirements . All Annual Incentive Awards and Quarterly Incentive Awards awarded under the AIP are subject to the provisions of Sections 5, 6 and 7.
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SECTION 5
DISTRIBUTION
5.1. Time of Payment . Subject to Sections 6 and 7, the Annual Incentive Awards and Quarterly Incentive Awards that are payable under the AIP, based on the Awards and payout formulas described at Sections 3 and 4, shall be distributed after the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, has determined the amount to be paid to each Participant, subject to the following:
(a) The Annual Incentive Award, if any, shall be distributed no later than the date that is the 15 th day of the third month following the last day of the relevant Performance Period; provided, however, that no distribution shall be made hereunder until after the Compensation Committee has certified the attainment of the performance goals and the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, has determined the amount to be paid to each Participant. Notwithstanding anything herein to the contrary, such distributions shall be made no later than required by Code Section 409A to avoid treatment of the AIP as a deferred compensation plan under Code Section 409A. The date as of which payment of an Annual Incentive Award is made in accordance with this subsection 5.1(a) shall be the Annual Payment Date.
(b) The Quarterly Incentive Awards, if any, shall be distributed, as follows:
(i) If payable quarterly, then with respect to the first three Fiscal Quarters of the Performance Period, within sixty (60) days of the close of the applicable quarter (or as soon as administratively feasible thereafter if later), and with respect to the fourth Fiscal Quarter of the Performance Period, no later than the date that is the 15 th day of the third month following the last day of the applicable fourth Fiscal Quarter; which may be referred to as a Quarterly Payment Date;
(ii) If payable annually, no later than the date that is the 15 th day of the third month following the last day of the applicable Fiscal Year that constitutes the Performance Period; and
(iii) Provided, however, that no distribution shall be made hereunder until after the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, has certified the attainment of the performance goals and the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, has determined the amount to be paid to each Participant.
(c) The Annual Payment Date and Quarterly Payment Date may be referred to herein generically the Payment Date.
5.2. Form of Payment . An Annual Incentive Award and Quarterly Incentive Awards shall generally be satisfied by a single, lump sum cash payment to the Participant, provided, however, that, at the discretion of the Compensation Committee, the Company may elect, by such deadline as specified under uniform and nondiscriminatory rules established by the Compensation Committee, to satisfy such Award by payment of shares of Company common
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stock (Stock) in lieu of cash, or a combination of cash and shares of Stock. The number of shares of Stock shall be equal to (a) the amount of the Award to be paid in stock in accordance with this subsection 5.2, divided by (b) the fair market value of a share of Stock as evidenced by its closing price, on the principal securities exchange or market on which the Stock is then listed or admitted, on the business day immediately preceding the date of distribution or, if the Stock is not traded on that date, on the next preceding date on which Stock was traded; provided that issuance of any shares of Stock in accordance with this subsection 5.2 shall be contingent on the availability of shares of Stock under any shareholder-approved plan of the Company providing for the issuance of Stock in satisfaction of the Awards hereunder (which in no event shall be an employee stock purchase plan).
SECTION 6
TERMINATION OF EMPLOYMENT; LEAVE OF ABSENCE; REINSTATEMENT
Any Award payable under this Section 6 shall be payable in accordance with Section 5.
6.1. Termination of Employment . If a Participant incurs a termination of employment before the applicable Payment Date (as defined in Section 5.1(c) above) for a Performance Period, the effect of termination of employment on a Participants right to receive an Award under the AIP shall depend on the reason for the termination, as described in this subsection 6.1.
(a) Voluntary Termination or Involuntary Termination . In the event that prior to the Payment Date of an Award, a Participant (i) voluntarily terminates employment (for any reason other than due to permanent and total disability (as defined in subsection (b) immediately below)) or (ii) is involuntarily terminated for any reason (other than death), such Participant shall forfeit his or her Award, except as prohibited by law. For the avoidance of doubt, if a Participant retires prior to the Payment Date of an Award, such Participant shall forfeit his or her Award.
(b) Disability . In the event that prior to the Payment Date of an Award, a Participant suffers a permanent and total disability (as defined in the Companys long-term disability program, regardless of whether the Participant is covered by such program) while employed by the Company or an Employer resulting in termination or retirement, subject to Section 7 below, such Participant shall be entitled to a distribution of the Award that would otherwise be payable to the Participant under Sections 3 and 4 above, pro-rated based upon a fraction, the numerator of which is the number of full days worked on active payroll in an incentive-eligible position during the applicable Performance Period and the denominator of which is the number of days in such Performance Period (or the number of days remaining in such Performance Period after the individual is assigned to an incentive-eligible position).
(c) Death . In the event that a Participant dies while employed by a Participating Employer but prior to the Payment Date of his or her Award, the estate of such Participant shall be entitled to a distribution of the Award, if any, payable in cash that would otherwise be payable to the Participant under Sections 3 and 4 above, pro-rated based upon a fraction, the numerator of which is the number of full days worked on active payroll in an incentive-eligible position during the applicable Performance Period and the denominator of which is the number of full days in such Performance Period (or the number of days remaining in such Performance Period after the individual is assigned to an incentive-eligible position).
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6.2. Leave of Absence .
(a) General . In the event that a Participant is on an unpaid leave of absence any time during the Performance Period or at the time of the Payment Date, subject to paragraphs (b) and (c) immediately below and Section 7, such Participant shall be entitled to a distribution of the Award that would otherwise be payable to the Participant under Sections 3 and 4 above, pro-rated based upon a fraction, the numerator of which is the number of full days worked on active payroll in an incentive-eligible position during the applicable Performance Period and the denominator of which is the number of days in such Performance Period.
(b) Short-Term Disability . In the event that a Participant is on a leave of absence due to short-term disability (including, for purposes of the AIP, paid maternity leave) any time during the Performance Period, subject to paragraphs (c) below and Section 7, the period of the leave of absence shall be treated as time on active payroll and will be credited toward the determination of the Participants Award and the Participant shall be entitled to payment of the Award in accordance with Section 5, even if the Participant is on the short-term disability leave of absence as of the Payment Date.
(c) Salary Continuation . In the event that a Participant is receiving salary continuation under a severance-related agreement or a Company-sponsored transition pay or severance pay plan as of the Payment Date, such Participant shall forfeit his or her Award.
6.3. Reinstatement . If a Participant who forfeited his or her Award with respect to a Performance Period as a result of a termination of employment is reinstated or rehired during the Performance Period, any Award attributable to the portion of such Performance Period prior to the termination of employment shall remain forfeited. Notwithstanding the foregoing, such a Participant shall be eligible for an Award based on a fraction, the numerator of which is the number of days worked on active payroll in an incentive-eligible position on or after the date of reinstatement or rehire during the Performance Period and the denominator of which is the number of days in such Performance Period.
SECTION 7
OPERATION AND ADMINISTRATION
7.1. Compensation Committee and Senior Corporate Compensation Executive .
(a) Compensation Committee . Notwithstanding paragraph (b) immediately below, the Compensation Committee:
(i) Shall approve the Target Annual Incentives and the Awards, including eligibility for Quarterly Incentive Awards, for Executives under its purview;
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(ii) With respect to Executives under its purview, shall have the authority and discretion to establish the terms, conditions, restrictions, and other provisions of such Awards, including without limitation the performance goals and the performance measures for each such Executives Assignment in accordance with Section 4, and to amend, cancel, or suspend Awards (in accordance with Section 8), subject to the requirements of Code Section 162(m), if applicable;
(iii) May make additional changes to the AIP that it deems appropriate for the effective administration of the AIP; provided however, that these changes may not increase the benefits to which Participants may become entitled under the AIP nor change the pre-established measures or goals that have been approved, except as explicitly provided in the AIP; and
(iv) Shall be responsible for all other duties and responsibilities allocated to the Compensation Committee under the terms and conditions of the AIP.
(b) Senior Corporate Compensation Executive . Except as provided in paragraph (a) immediately above, the Senior Corporate Compensation Executive:
(i) Shall Determine the Target Annual Incentive and Awards, including eligibility for Quarterly Incentive Awards, for Participants other than Executives under the purview of the Compensation Committee;
(ii) Shall have the authority to control and manage the operation and administration of the AIP;
(iii) Shall be responsible for the day-to-day administration of the AIP, including without limitation the exception process described in Section 7.2 below;
(iv) With respect to Participants other than Executives under the purview of the Compensation Committee and subject to the other provisions of the AIP, shall have the authority and discretion to determine the time or times of receipt of Awards, to establish the terms, conditions, restrictions, and other provisions of such Awards, and to amend, cancel, or suspend Awards (in accordance with Section 8), subject to the requirements of Code Section 162(m), if applicable; and
(v) Shall be responsible for all other duties and responsibilities allocated to the Senior Corporate Compensation Executive under the terms and conditions of the AIP.
(c) Any determinations by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, regarding this AIP are binding on all Participants.
(d) The Compensation Committee and the Senior Corporate Compensation Executive, as appropriate, shall have the authority and discretion to interpret the AIP, to establish, amend, and rescind any rules and regulations relating to the AIP and to make all other determinations that may be necessary or advisable for the administration of the AIP.
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7.2. Incentive Exceptions . The Senior Corporate Compensation Executive shall have the authority to receive and consider requests by business units of the Participating Employers for an exception to an established performance measure due to circumstances outside of the business units control. The Senior Corporate Compensation Executive may establish a procedure for reviewing and approving or rejecting an exception. Any exception determination shall be binding.
7.3. Discretion . Notwithstanding Section 7.2 or anything in the AIP to the contrary, with respect to Awards that are not Section 162(m) Awards, and prior to the settlement of any such Award, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may change the pre-established measures and goals that have been approved for such Award and increase or reduce the amount of such Award.
7.4. Tax Withholding . All distributions under the AIP are subject to withholding of all applicable taxes. In the case of Awards under the AIP that are settled in shares of Stock, if any, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may condition the delivery of any shares or other benefits under the AIP on satisfaction of the applicable withholding obligations. To the extent permitted by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, such withholding obligations may be satisfied: (a) through cash payment by the Participant; (b) through the surrender of shares of Stock which the Participant already owns (provided, however, that to the extent shares described in this paragraph (b) are used to satisfy more than the minimum statutory withholding obligation, as described below, then, except as otherwise provided by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, payments made with shares of Stock in accordance with this paragraph (b) shall be limited to shares held by the Participant for not less than six months prior to the Payment Date (or such other period of time as the Companys accountants may require)); or (c) through the surrender of shares of Stock to which the Participant is otherwise entitled under the AIP, provided, however, that such shares under this paragraph (c) may be used to satisfy not more than the Companys minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).
7.5. Source of Awards . In the case of Awards under the AIP that are settled in shares of Stock, such shares shall be distributed under a stock plan adopted by the Company and approved by the shareholders thereof that provides for the issuance of Stock in satisfaction of Awards hereunder, (which in no event shall be an employee stock purchase plan.) In the event of any conflict between this document and such stock plan, the provisions of the stock plan shall govern.
7.6. Settlement of Awards . The obligation to make payments and distributions with respect to Awards may be satisfied through cash payments, the delivery of shares of Stock, or a combination thereof, as provided under subsection 5.2, subject, in the case of settlement in shares, to the terms of the stock plan under which the Stock is issued. Satisfaction of any such obligations under an Award, which is sometimes referred to as the settlement of the Award, may be subject to such conditions, restrictions and contingencies as the Compensation
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Committee or Senior Corporate Compensation Executive, as appropriate, shall determine. Each Employer shall be liable for payment of an Award due under the AIP with respect to any Participant to the extent that such benefits are attributable to the services rendered for that Employer by the Participant. Any disputes relating to liability of an Employer for payment of an Award shall be resolved by the Compensation Committee or Senior Corporate Compensation Executive, as appropriate.
7.7. Transferability . Except as otherwise provided by the Senior Corporate Compensation Executive, Awards under the AIP are not transferable except as designated by the Participant by will or by the laws of descent and distribution.
7.8. Form and Time of Elections . Unless otherwise specified herein, any election required or permitted to be made by any Participant or other person entitled to benefits under the AIP, and any permitted modification, or revocation thereof, shall be in writing filed with the Senior Corporate Compensation Executive at such times, in such form, and subject to such restrictions and limitations, not inconsistent with the terms of the AIP, as the Senior Corporate Compensation Executive shall require.
7.9. Action by Company or Employer . Any action required or permitted to be taken under the AIP by the Company or any other Employer shall be by resolution of its board of directors, or by action of one or more members of the board of directors of such company (including a committee of the board) who are duly authorized to act for such board with respect to the applicable action, or (except to the extent prohibited by applicable law or applicable rules of any securities exchange or similar entity) by a duly authorized officer of such company.
7.10. Gender and Number . Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular.
7.11. Limitation of Implied Rights .
(a) Neither a Participant nor any other person shall, by reason of participation in the AIP, acquire any right in or title to any assets, funds or property of the Company or any Employer whatsoever, including, without limitation, any specific funds, assets, or other property which the Company or any Employer, in its sole discretion, may set aside in anticipation of a liability under the AIP. A Participant shall have only a contractual right to the cash, if any, payable under the AIP, unsecured by any assets of the Company or any Employer, and nothing contained in the AIP shall constitute a guarantee that the assets of the Company or any Employer shall be sufficient to pay any benefits to any person.
(b) The AIP does not constitute a contract of employment, and status as a Participant shall not give any Eligible Employee the right to be retained in the employ of the Company or any Employer, nor any right or claim to any benefit under the AIP, unless such right or claim has specifically accrued and vested under the terms of the AIP.
7.12. Evidence . Evidence required of anyone under the AIP may be by certificate, affidavit, document or other information, which the person charged with acting on such evidence considers pertinent and reliable, and which has been signed, made or presented by the proper party or parties.
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7.13. Information to be Furnished . The Company and the Participating Employers shall furnish the Compensation Committee and the Senior Corporate Compensation Executive with such data and information as it determines may be required for it to discharge its duties. The records of the Company and the Participating Employers as to an employees or Participants employment, termination of employment, leave of absence, reemployment, and compensation shall be conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to benefits under the AIP must furnish the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, such evidence, data or information as the Compensation Committee or Senior Corporate Compensation Executive considers desirable to carry out the terms of the AIP, subject to any applicable privacy laws.
7.14. Governing Law . The AIP will be governed under the internal laws of the state of Illinois without regard to principles of conflicts of laws. The state and federal courts located in the state of Illinois shall have exclusive jurisdiction in any action, lawsuit or proceeding based on or arising out of the AIP.
7.15. Severability . If any provision(s) of the AIP shall be found invalid, illegal, or unenforceable, in whole or in part, then such provision(s) shall be modified or restricted so as to effectuate as nearly as possible in a valid and enforceable way the provisions hereof, or shall be deemed excised from the AIP, as the case may require, and the AIP shall be construed and enforced to the maximum extent permitted by law, as if such provision(s) had been originally incorporated herein as so modified or restricted or as if such provision(s) had not been originally incorporated herein, as the case may be.
SECTION 8
AMENDMENT AND TERMINATION
The Company may amend or terminate the AIP at any time and for any reason in its sole discretion. No amendment shall be made that would cause the AIP not to comply with any applicable law or rule of any applicable securities exchange or similar entity, or cause Participants to experience adverse tax consequences under Code Section 409A. The AIP and any Award thereunder may be amended without Participant consent to the extent that the Compensation Committee (or its authorized representative) determines such amendment necessary to cause the AIP or any Award to comply with any applicable law or rule of any applicable securities exchange or similar entity or to prevent adverse tax consequences under Code Section 409A for Participants.
SECTION 9
DEFINED TERMS
9.1. Each capitalized term in the AIP is defined where it first appears herein or in this Section 9. In addition to the terms defined previously in the AIP, the following definitions shall apply:
(a) Assignment . The term Assignment refers to the performance goals and measure(s) that have been assigned by the Compensation Committee or Senior Corporate Compensation Executive, as appropriate, to a Participant, based upon position, location and/or business unit. Assignment also includes the weight of each performance measure assigned to the Participant.
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(b) Award . The term Award or Awards refers to any Annual Incentive Award(s) or Quarterly Incentive Award(s), as applicable, awarded under the AIP.
(c) Compensation Committee . The term Compensation Committee refers to the Compensation Committee of the Board of Directors of Sears Hometown and Outlet Stores, Inc.
(d) Code . The term Code means the Internal Revenue Code of 1986, as amended from time to time (and the regulations issued thereunder). A reference to any provision of the Code shall include reference to any successor provision of the Code (and the regulations issued thereunder).
(e) Executive . The term Executive refers to any employee of an Employer who holds a position of senior vice president or higher of Sears Hometown and Outlet Stores, Inc. (not of any subsidiary or affiliate) or any employee who is an officer under Section 16(b) of the Securities and Exchange Act of 1934 with respect to Sears Hometown and Outlet Stores, Inc.
(f) Fiscal Quarter . The capitalized term Fiscal Quarter refers to a fiscal quarter within the Fiscal Year of the Company.
(g) Fiscal Year . The capitalized term Fiscal Year refers to the fiscal year of the Company.
(h) Section 162(m) Award . The term Section 162(m) Award refers to any Award that is designated by the Compensation Committee as intended to meet the requirements for performance-based compensation under Code Section 162(m).
(i) Senior Corporate Compensation Executive . The term Senior Corporate Compensation Executive refers to the most senior human resources and compensation executive (or equivalent), or if he or she has explicitly delegated his or her duties with respect to the AIP, as provided herein, then the Senior Corporate Compensation Executive shall refer to such authorized representative to whom the duties of administering the AIP have been delegated.
SECTION 10
EXPIRATION OF AIP
The payment obligation under the AIP with respect to a specific Performance Period shall expire, subject to earlier termination pursuant to Section 8, on the date on which all Annual Incentive Awards and Quarterly Incentive Awards (if any) are paid in full or would have been payable in accordance with the provisions of the AIP with respect to such Performance Period. Notwithstanding this Section 10, the Companys right to reimbursement under Section 3.5 will continue to survive after the expiration of the AIP.
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Exhibit 10.13
SEARS HOMETOWN AND OUTLET STORES, INC.
LONG-TERM INCENTIVE PROGRAM
SECTION 1
GENERAL
1.1. Purpose . The Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program (LTIP) is a performance-based program. The LTIP is designed to motivate the executive leadership of Sears Hometown and Outlet Stores, Inc. (Company) and the participating Subsidiaries (as defined in Section 8) to achieve significant, lasting change that successfully positions the Company for future growth. Performance goals under the LTIP align Participants financial incentives with the financial goals of the Company. Awards (as defined in Section 8) under the LTIP are designed to vary commensurately with achieved performance . Both (a) Awards not structured to satisfy the requirements for performance-based compensation under Section 162(m) of the Code, and (b) Section 162(m) Awards, which are structured to satisfy such requirements, may be issued under the LTIP. The effective date of the LTIP document is the Rights Closing Date as defined in the Separation Agreement by and between Sears Holdings Corporation (Sears Holdings) and the Company (Effective Date). For purposes of this document, the term Effective Date shall also refer to the effective date of a long-term incentive program established in the future by the Compensation Committee under the LTIP.
1.2. Operation, Administration, and Definitions . The operation and administration of the LTIP, including the Awards made under the LTIP, shall be subject to the provisions of Section 6 (relating to operation and administration). Capitalized terms in the LTIP shall be defined as set forth in the LTIP (including as defined in Section 8). The LTIP is established under, and constitutes a part of, the Sears Hometown and Outlet Stores, Inc. Umbrella Incentive Program (UIP).
SECTION 2
PARTICIPATION
2.1. Eligible Employee . Except as provided herein, Eligible Employee means as to any Performance Period an employee of the Company or a participating Subsidiary, who is designated by the Compensation Committee or Senior Corporate Compensation Executive as eligible to participate in an LTIP as of such Performance Period. The Senior Corporate Compensation Executive shall make eligibility determinations under this Section 2 with respect to all Eligible Employees other than those who are Executives for whom compensation matters are under the purview of the Compensation Committee (as defined in Section 8), and the Compensation Committee shall make eligibility determinations with respect to all Executives. Once designated as eligible to participant, an Eligible Employee shall become a Participant in the applicable LTIP.
2.2. New Hires and Promotions to Eligible Employee Status . The Compensation Committee or Senior Corporate Compensation Executive, as applicable, may designate as Participants those employees whom the Compensation Committee or Senior Corporate Compensation Executive, as applicable, determines have been newly hired or promoted into the group of Eligible Employees identified in subsection 2.1 above. The Award of any Participant who was hired or promoted after the first day of the Performance Period (as described in
subsection 3.2) shall be subject to a fraction, the numerator of which is the number of full days remaining in the Performance Period beginning with the Participants date of hire or promotion, as applicable, and the denominator is the number of full days in the Performance Period.
2.3. Demotions from Eligible Employee Status . If a Participant is demoted below a position of divisional vice president (or equivalent), as of the date of such demotion, the individual will no longer be a Participant, will be deemed to have forfeited any unvested portion of his or her Award, and will receive no LTIP distribution under Section 4.
2.4. Other Changes in Status
(a) If a Participant is promoted or transferred after the Effective Date of the LTIP for a particular Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may make a second Target Incentive Award (as defined in subsection 3.1) to such individual and the total amount payable to such individual shall be based on a pro-ration, whereby the Target Incentive Award for the new position will apply to the remainder of the Performance Period and the Target Incentive Award for the immediately preceding long-term incentive-eligible position, if applicable, will apply to the portion of the Performance Period immediately preceding the effective date of the promotion.
(b) If a Participant is demoted after the Effective Date of the LTIP for a particular Performance Period, but is still an Eligible Employee, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may make a second Target Incentive Award to such individual and the total Award for such an individual shall be based on a pro-ration, whereby the Target Incentive Award for the new position will apply only to the remainder of the Performance Period and the Target Incentive Award for the immediately preceding position will apply only to the portion of the Performance Period immediately preceding the effective date of the demotion, and in either case an Award will only be paid if the Target for the full Performance Period is met.
SECTION 3
LTIP INCENTIVE AWARDS
3.1. Target Incentive Awards . As of and after the applicable Effective Date, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may award Target Incentive Awards (as defined in subsection 3.1(a) below) to each Participant designated by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, in an amount determined by the applicable entity in its sole discretion. In connection with such Awards, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall establish a Target and Threshold, as well as applicable award levels at the Target and Threshold achievement levels, under each objective performance goal or plan established under subsection 3.3 below; provided, however, that Threshold shall be expressed as a percentage of Target. The Senior Corporate Compensation Executive shall make the determinations referred to in this Section 3 with respect to all Participants other than those who are Executives for whom compensation matters are under the purview of the Compensation Committee.
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(a) A Target Incentive Award shall, at the date of grant, consist of a commitment by the Company to distribute, at the time specified in, and in accordance with the provisions of, Section 4 below, a designated amount based on a target level of performance.
(b) An LTIP Incentive Award refers to a percentage of a Participants Target Incentive Award payable on the payment date (as defined in subsection 4.1 below), if any, based on the actual performance relative to the objective performance goals during the Performance Period, subject to approval of the final award amount by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, and to the provisions of subsection 6.4
3.2. Performance Period . The Performance Period refers to the applicable Fiscal Years (as defined in Section 8) as determined by the Compensation Committee with respect to which an Award may be granted under the LTIP. The Compensation Committee shall determine the Fiscal Years that shall constitute the Performance Period for each long-term incentive program established under the LTIP; provided that, in the case of an employee who is newly hired or promoted into the group of Eligible Employees after the Effective Date, the Performance Period shall be such shorter period as established by the Compensation Committee or Senior Corporate Compensation Executive, if applicable. The amount of the LTIP Incentive Award shall be determined at the completion of the Performance Period in accordance with subsection 3.1 above and subsection 4.1 below.
3.3. Financial Goals and Performance . For each Performance Period, the Compensation Committee or Senior Corporate Compensation Executive shall establish in writing one or more performance plans that includes one or more objective performance goals and the required levels of performance as described in this Section 3.3. The Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall determine the level of performance for each performance plan, the performance plan to apply to each business unit, and which performance plan applies to each Participant.
(a) Goals . Except as otherwise approved by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, with respect to a Performance Period, the performance goals shall be based upon one or more of the performance measures identified in the UIP.
(b) Performance . Except as otherwise approved by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, with respect to a Performance Period, the following concepts shall apply:
(i) Achievement of Target . With respect to each Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall establish a target level of achievement for each performance goal (Target). If achieved, payout of Awards to which that performance goal applies shall be at 100%.
(ii) Achievement of Threshold . With respect to each Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall establish a threshold level of achievement that
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must be met with respect to a performance goal before any portion of an Award to which the performance goal applies is payable (Threshold). If achieved, payout of Awards to which that performance goal applies shall be at a specified percentage established in writing at the same time and manner as the Threshold achievement level is established.
(iii) Achievement Between Threshold and Target . In the event achievement of a performance goal falls between Threshold and Target with respect to a Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may establish a formula for determining payout levels between these two points in writing at the same time and manner as the achievement levels are established.
(iv) Payout Above Target . In the event achievement of a performance goal exceeds the Target with respect to a Performance Period, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may establish a formula for determining payout levels above Target in writing at the same time and manner as the Target achievement level is established. The Compensation Committee or Senior Corporate Compensation Executive, as applicable, also may provide for a maximum payout level or no maximum.
3.4. Awards Subject to Code Section 162(m) .
(a) General Rules .
(i) Notwithstanding anything in the LTIP to the contrary, this subsection 3.4 will apply to all Section 162(m) Awards. To the extent there is a conflict between the rules of this subsection 3.4 and any other section in the LTIP, the terms of this subsection 3.4 will control.
(ii) In no event will positive discretion be applied, by the Compensation Committee or Senior Corporate Compensation Executive, to any Section 162(m) Award with respect to a Performance Period or as of the payment date (as defined under subsection 4.1).
(iii) To the extent that an Executive experiences a promotion or other change in status, no adjustment to a Section 162(m) Award shall be made if such adjustment would not otherwise meet the requirements of Code Section 162(m).
(b) Performance Measures . Section 162(m) Awards shall use the performance measures established under the UIP. As provided in the UIP, at the time of establishing the performance goals, the Compensation Committee may exclude the effects of extraordinary items in a manner that satisfies the requirements of Code Section 162(m).
(c) Establishment of Performance Goals . Section 162(m) Awards shall have the applicable objective performance goals and any particulars or components established in writing and approved by the Compensation Committee by the deadline established in the UIP in accordance with Code Section 162(m).
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(d) Attainment of Performance Goals . Distributions under Section 162(m) Awards shall not be made until the Compensation Committee has determined, and certifies in writing, that the performance goals have been satisfied.
3.5. Limitation on Individual Awards . Notwithstanding anything herein to the contrary, the total LTIP Incentive Award paid to any Participant for a Performance Period pursuant to the LTIP shall in no event exceed $20 million.
3.6. Additional Requirements . All LTIP Incentive Awards awarded under the LTIP (and any Stock, as defined in Section 4.2, or cash otherwise distributable pursuant thereto) are subject to the provisions of Sections 4, 5 and 6.
3.7. Reimbursement of Excess Awards . If Companys financial statements or approved performance measures under the LTIP are the subject of a restatement due to error or misconduct, to the extent permitted by governing law, in all appropriate cases , the Company will seek reimbursement of Excess Awards paid under the LTIP to Executives (and any other Participant who is determined to have known of or been involved in any such misconduct) for the relevant performance period(s). For purposes of the LTIP, an Excess Award means the positive difference, if any, between (a) the LTIP Incentive Award paid to an Executive and (b) the LTIP Incentive Award that would have been paid to the Executive, had the Award been calculated based on the Companys financial statements or performance measures as restated. The Company will not be required to award Participants, including Executives, an additional LTIP payment should the restated financial statements or performance measures result in a higher LTIP Incentive Award.
SECTION 4
DISTRIBUTION
4.1. Time of Payment . Subject to Sections 5 and 6, the cash or shares of Stock, if any, that result from the payout formula described at Section 3 shall be distributed, in a single lump sum, as soon as practicable after the Compensation Committee or Senior Corporate Compensation Executive, as appropriate has determined and approved the amount to be paid to each Participant, which shall in no event be later than the date that is the 15 th day of the third month following the last day of the relevant Performance Period. Notwithstanding anything herein to the contrary, such distributions shall be made no later than required by Code Section 409A to avoid treatment of the LTIP as a deferred compensation plan under Code Section 409A. The date as of which payment is made in accordance with this subsection 4.1 is referred to herein as the payment date.
4.2. Form of Payment . An LTIP Incentive Award shall generally be satisfied by a distribution in cash to the Participant, provided, however, that, at the discretion of the Compensation Committee, the Company may elect, by such deadline as specified under uniform and nondiscriminatory rules established by the Compensation Committee, to satisfy such LTIP Incentive Award by payment of shares of Company common stock (Stock) in lieu of cash, or a combination of cash and shares of Stock. The number of shares of Stock shall be equal to (i) the amount of the Award to be paid in stock in accordance with this subsection 4.2, divided by (ii) the fair market value of a share of Stock as evidenced by its closing price, on the principal securities exchange or market on which the shares are then listed or admitted, on the business day immediately preceding the date of distribution or, if the Stock is not traded on that date, on
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the next preceding date on which Stock was traded; provided that issuance of any shares of Stock in accordance with this subsection 4.2 shall be contingent on the availability of shares of Stock under any shareholder-approved plan of the Company providing for the issuance of Stock in satisfaction of the Awards hereunder (which in no event shall be an employee stock purchase plan).
SECTION 5
TERMINATION OF EMPLOYMENT
The effect of termination of employment on a Participants right to receive a LTIP Incentive Award (whether payable in cash or Stock) depends on the reason for the termination, as described below.
5.1. Termination of Employment .
(a) Voluntary Termination or Involuntary Termination . In the event that a Participant (i) voluntarily terminates employment (for any reason other than due to permanent and total disability, as defined in the Companys long-term disability program, regardless of whether the Participant is covered by such program) or (ii) is involuntarily terminated for any reason (other than death) prior to the payment date (as defined in subsection 4.1 above) of his or her Award, such Participant shall forfeit all of his or her Award.
(b) Disability . In the event that, prior to the payment date (as defined in subsection 4.1 above) of his or her Award, a Participant suffers a permanent and total disability (as defined in the Companys long term disability program, regardless of whether the Participant is covered by such program) while employed by the Company or a Subsidiary, resulting in termination or retirement, subject to Section 6 below, such individual shall be entitled to receive a LTIP Incentive Award, equal to his or her Target Incentive Award, if any, that would otherwise be payable to the Participant under subsection 3.1 above, pro-rated through the date of termination in accordance with subsection 5.2 below; provided, however, that in no event shall a Participant receive any payment hereunder unless (i) the applicable performance measure (under subsection 3.3) for the period from the inception of the Performance Period through the last completed full month that occurs on or preceding the Participants date of termination is equal to or greater than the Target for that performance measure, pro-rated through the date of termination in accordance with subsection 5.2 below, (ii) the applicable performance measure is equal to or greater than the applicable Target for the Performance Period, and (iii) as of his date of termination, the Participant had been employed by one or more of the Company or a Subsidiary, for at least twelve (12) months of the Performance Period applicable to such individual.
(c) Death . In the event that a Participant dies while employed by the Company or a Subsidiary and prior to the payment date for his or her Award, his or her Target Incentive Award shall be pro-rated through the date of death, in accordance with subsection 5.2 below, and, subject to Section 6 below, his or her estate shall be entitled to receive a LTIP Incentive Award, equal to his or her prorated Target Incentive Award and payable in cash; provided, however, that in no event shall a payment be made with respect to a deceased Participant hereunder unless as of his date of death, (i) the
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applicable performance measure (under subsection 3.3) for the period from the inception of the Performance Period through the last completed full month that occurs on or preceding the Participants date of death is equal to or greater than the Target for that performance measure, prorated through the date of death in accordance with subsection 5.2 below, (ii) the applicable performance measure is equal to or greater than the Target for that performance measure for the Performance Period, and (iii) he had been employed by one or more of the Company or a Subsidiary, for at least twelve (12) months of the Performance Period applicable to such individual.
5.2. Pro-rations . Any pro-ration of a LTIP Incentive Award, Target Incentive Award, or Target performance measure, as applicable, under this Section 5 shall be based on a fraction, the numerator of which is the number of full months during the Performance Period in which the Participant was a Participant in the LTIP, and the denominator of which is the full number of months in the Performance Period, as adjusted in Section 2, if applicable. Notwithstanding anything herein to the contrary, with respect to the 2012 fiscal year, a Participants continuous period of participation under the Sears Holdings Corporation Long-Term Incentive Plan for the 2012 fiscal year immediately prior to the Rights Closing Date shall be taken into account.
SECTION 6
OPERATION AND ADMINISTRATION
6.1. Compensation Committee and Senior Corporate Compensation Executive . The authority to control and manage the operation and administration of the LTIP shall be vested in the Compensation Committee and the Senior Corporate Compensation Executive, as provided herein.
(a) Compensation Committee . Notwithstanding paragraph (b) immediately below, the Compensation Committee:
(i) Shall approve the Target Incentive Award and the Awards for Participants who are Executives under its purview;
(ii) With respect to Participants who are Executives, shall have the authority and discretion to establish the terms, conditions, restrictions, and other provisions of such Awards, and (subject to the restrictions imposed by subsection 6.4 and Section 7) to amend, cancel, or suspend Awards; provided, however (and subject to the requirements of Code Section 162(m), if applicable) that to the extent the Compensation Committee determines that the restrictions imposed by the LTIP preclude the achievement of the material purposes of the Awards in jurisdictions outside the United States, the Compensation Committee shall have the authority and discretion to modify those restrictions as the Compensation Committee determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States;
(iii) May make additional changes that it deems appropriate for the effective administration of the LTIP, subject to subsection 6.4 and provided that these changes may not increase the benefits to which Participants may become entitled under the LTIP, nor change the pre-established measures or goals that have been approved except as explicitly provided in the LTIP; and
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(iv) Shall be responsible for all other duties and responsibilities allocated to the Compensation Committee under the terms and conditions of the LTIP.
(b) Senior Corporate Compensation Executive . Except as provided in paragraph (a) immediately above, the Senior Corporate Compensation Executive:
(i) Shall determine the Target Incentive Award and the Awards for Participants other than Executives under the purview of the Compensation Committee;
(ii) Notwithstanding paragraph (a) above, shall have the authority and discretion to establish the terms, conditions, restrictions, and other provisions of such Awards, and (subject to the restrictions imposed by subsection 6.4 and Section 7) to amend, cancel, or suspend Awards;
(iii) Shall have the authority to control and manage the operation and administration of the LTIP with respect to all Participants, subject to the direction of the Compensation Committee with respect to Executives, except as otherwise provided in this LTIP;
(iv) Shall be responsible for the day-to-day administration of the LTIP except as otherwise provided in this LTIP; and
(v) Shall be responsible for all other duties and responsibilities allocated to the Senior Corporate Compensation Executive under the terms and conditions of the LTIP.
(c) The Compensation Committee and the Senior Corporate Compensation Executive, as appropriate, shall have the authority and discretion to interpret the LTIP, to establish, amend, and rescind any rules and regulations relating to the LTIP and to make all other determinations that may be necessary or advisable for the administration of the LTIP.
(d) Any determinations by the Compensation Committee or the Senior Corporate Compensation Executive, as applicable, regarding this LTIP are binding on the applicable Participants.
6.2. Source of Awards . In the case of Awards under the LTIP that are settled in shares of Stock, such shares shall be distributed under a stock plan adopted by the Company and approved by the shareholders thereof that provides for the issuance of Stock in satisfaction of Awards hereunder, (which in no event shall be an employee stock purchase plan.) In the event of any conflict between this document and such stock plan, the provisions of the stock plan shall govern.
6.3. Delegation by Compensation Committee . Except to the extent prohibited by applicable law or the applicable rules of a securities exchange or similar entity, or as would cause Section 162(m) Awards to not satisfy the requirements for performance-based compensation under Code Section 162(m), the Compensation Committee may allocate all or any
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portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it. The Compensation Committee may revoke any such allocation or delegation at any time.
6.4. Negative Discretion . Notwithstanding anything in the LTIP to the contrary, prior to the settlement of any LTIP Incentive Award, the Compensation Committee (or the Senior Corporate Compensation Executive with respect to Participants who are not under the purview of the Compensation Committee) may (a) reduce the amount of such Award, or the number of shares of Stock or amount of cash to be delivered in connection with such Award, and (b) with respect to Awards that are not Section 162(m) Awards, may change the pre-established measures in goals that have been approved for such Award and increase the amount of such Award or the number of shares of stock or amount of cash to be delivered in connection with such Award.
6.5. General Restrictions . Delivery of shares of Stock under the LTIP, in satisfaction of a LTIP Incentive Award, shall be subject to the following:
(a) Notwithstanding any other provision of the LTIP, the Company shall have no obligation to deliver any shares of Stock or make any other distribution of benefits under the LTIP unless such delivery or distribution complies with all applicable laws (including, without limitation, the requirements of the Securities Act of 1933), and the applicable requirements of any securities exchange or similar entity.
(b) To the extent that the LTIP provides for issuance of Stock certificates to reflect the issuance of shares of Stock, the issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any exchange or similar entity.
6.6. Tax Withholding . All distributions under the LTIP are subject to withholding of all applicable taxes. In the case of Awards under the LTIP that are settled in shares of Stock, if any, the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may condition the delivery of any shares or other benefits under the LTIP on satisfaction of the applicable withholding obligations. To the extent permitted by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, such withholding obligations may be satisfied: (a) through cash payment by the Participant; (b) through the surrender of shares of Stock which the Participant already owns (provided, however, that to the extent shares described in this paragraph (b) are used to satisfy more than the minimum statutory withholding obligation, as described below, then, except as otherwise provided by the Compensation Committee or Senior Corporate Compensation Executive, as applicable, payments made with shares of Stock in accordance with this paragraph (b) shall be limited to shares held by the Participant for not less than six months prior to the payment date (or such other period of time as the Companys accountants may require)); or (c) through the surrender of shares of Stock to which the Participant is otherwise entitled under the LTIP, provided, however, that such shares under this paragraph (c) may be used to satisfy not more than the Companys minimum statutory withholding obligation (based on minimum statutory withholding rates for Federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income).
6.7. Settlement of Awards . The obligation to make payments and distributions with respect to Awards may be satisfied through cash payments, the delivery of shares of Stock, or a combination thereof, as provided under subsections 4.1 and 4.2, subject, in the case of settlement
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in shares, to the terms of the stock plan under which the Stock is issued. Satisfaction of any such obligations under an Award, which is sometimes referred to as the settlement of the Award, may be subject to such conditions, restrictions and contingencies as the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall determine. Each Subsidiary shall be liable for payment of an Award due under the LTIP with respect to any Participant to the extent that such benefits are attributable to the services rendered for that Subsidiary by the Participant. Any disputes relating to liability of a Subsidiary for payment of an Award shall be resolved by the Compensation Committee or Senior Corporate Compensation Executive, as applicable.
6.8. Transferability . Except as otherwise provided by the Compensation Committee, Awards under the LTIP are not transferable except as designated by the Participant by will or by the laws of descent and distribution (including Awards originally determined by the Senior Corporate Compensation Executive).
6.9. Form and Time of Elections . Unless otherwise specified herein, each election required or permitted to be made by any Participant or other person entitled to benefits under the LTIP, and any permitted modification, or revocation thereof, shall be in writing filed with the Compensation Committee or Senior Corporate Compensation Executive, as applicable, at such times, in such form, and subject to such restrictions and limitations, not inconsistent with the terms of the LTIP, as the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall require.
6.10. Agreement With Company . Any Award under the LTIP shall be subject to such terms and conditions, not inconsistent with the LTIP, as the Compensation Committee or Senior Corporate Compensation Executive, as applicable, shall, in its sole discretion, prescribe. The terms and conditions of any Award to any Participant shall be reflected in such form of written (including electronic) document as is determined by the Compensation Committee. A copy of such document shall be provided to the Participant, and the Compensation Committee or Senior Corporate Compensation Executive, as applicable, may, but need not, require that the Participant sign a copy of such document. Such document is referred to as an Award Agreement regardless of whether any Participant signature is required.
6.11. Action by Company or Subsidiary . Any action required or permitted to be taken under the LTIP by the Company or any Subsidiary, if any, of the foregoing shall be by resolution of its board of directors, or by action of one or more members of the board of directors of such company (including a committee of the board) who are duly authorized to act for such board with respect to the applicable action, or (except to the extent prohibited by applicable law or applicable rules of any securities exchange or similar entity) by a duly authorized officer of such company.
6.12. Gender and Number . Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular.
6.13. Limitation of Implied Rights .
(a) Neither a Participant nor any other person shall, by reason of participation in the LTIP, acquire any right in or title to any assets, funds or property of the Company
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or any Subsidiary whatsoever, including, without limitation, any specific funds, assets, or other property which the Company or any Subsidiary, in its sole discretion, may set aside in anticipation of a liability under the LTIP. A Participant shall have only a contractual right to the cash or Stock, if any, payable under the LTIP, unsecured by any assets of the Company or any Subsidiary, and nothing contained in the LTIP shall constitute a guarantee that the assets of the Company or any Subsidiary shall be sufficient to pay any benefits to any person.
(b) The LTIP does not constitute a contract of employment, and selection as a Participant shall not give any participating employee the right to be retained in the employ of the Company or any Subsidiary, nor any right or claim to any benefit under the LTIP, unless such right or claim has specifically accrued under the terms of the LTIP. Except as otherwise provided in the LTIP, no Award under the LTIP shall confer upon the holder thereof any rights as a shareholder of the Company prior to the date on which the individual fulfills all conditions for receipt of such rights.
6.14. Evidence . Evidence required of anyone under the LTIP may be by certificate, affidavit, document or other information, which the person charged with acting on such evidence considers pertinent and reliable, and which has been signed, made or presented by the proper party or parties.
6.15. Information to be Furnished to the Compensation Committee or Senior Corporate Compensation Executive . The Company and the Subsidiaries shall furnish the Compensation Committee or Senior Corporate Compensation Executive, as applicable, with such data and information as it determines may be required for it to discharge its duties. The records of the Company and the Subsidiaries, as to an employees or Participants employment, termination of employment, leave of absence, reemployment, and compensation shall be conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to benefits under the LTIP must furnish the Compensation Committee or Senior Corporate Compensation Executive, as applicable, such evidence, data or information as such entity considers desirable to carry out the terms of the LTIP, subject to any applicable privacy laws.
6.16. Corporate Transaction . In the event of a corporate transaction involving the Company (including without limitation, any Stock dividend, Stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, sale of assets or subsidiaries, combination or exchange of shares), the Compensation Committee may adjust Awards to preserve but in no event increase the benefits or potential benefits of the Awards (including Awards originally determined by the Senior Corporate Compensation Executive); provided, however, that no such adjustment may be made to the extent such adjustment would cause Section 162(m) Awards to cease to qualify as performance-based compensation under Code Section 162(m). Actions permitted under the preceding sentence by the Compensation Committee may include any adjustments that the Compensation Committee determines to be equitable (which may include, without limitation, (a) replacement of Awards with other Awards which the Compensation Committee determines have comparable value and which are based on stock of a company resulting from the transaction, and (b) cancellation of the Award in return for cash payment of the current value of the Award, determined as though the Award is fully vested at the time of the payment.)
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6.17. Governing Law . The LTIP will be governed under the internal laws of the state of Illinois without regard to principles of conflicts of laws. The state and federal courts located in the state of Illinois shall have exclusive jurisdiction in any action, lawsuit or proceeding based on or arising out of the LTIP.
6.18. Severability . If any provision(s) of the LTIP shall be found invalid, illegal, or unenforceable, in whole or in part, then such provision(s) shall be modified or restricted so as to effectuate as nearly as possible in a valid and enforceable way the provisions hereof, or shall be deemed excised from the LTIP, as the case may require, and the LTIP shall be construed and enforced to the maximum extent permitted by law, as if such provision(s) had been originally incorporated herein as so modified or restricted or as if such provision(s) had not been originally incorporated herein, as the case may be.
SECTION 7
AMENDMENT AND TERMINATION
The Board or Compensation Committee may, at any time, amend or terminate the LTIP, or any Award, provided that no amendment or termination may, in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely affect the rights of any Participant or beneficiary under any Award granted under the LTIP prior to the date such amendment is adopted by the Board or the Compensation Committee, if applicable. No amendment shall be made that would cause the LTIP not to comply with the requirements of any applicable law or rule of any applicable securities exchange or similar entity, or cause Participants to experience adverse tax consequences under Code Section 409A. The LTIP and any Award thereunder may be amended without Participant consent to the extent that the Compensation Committee determines such amendment necessary to cause the LTIP or Award to comply with any applicable law or rule of any applicable securities exchange or similar entity, or to prevent adverse tax consequences under Code Section 409A for Participants.
SECTION 8
DEFINED TERMS
8.1. Each capitalized term in the LTIP is defined where it first appears herein or in this Section 8. In addition to the terms previously defined previously in the LTIP, the following definitions shall apply:
(a) Award . The term Award or Awards means any LTIP Incentive Award(s), whether settled in cash or Stock.
(b) Board . The term Board means the Board of Directors of the Company.
(c) Code . The term Code means the Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code (and the regulations issued thereunder).
(d) Compensation Committee . The term Compensation Committee refers to the Compensation Committee of the Board of Directors of Sears Hometown and Outlet Stores, Inc.
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(e) Executive . The term Executive refers to any employee of the Company or a participating Subsidiary who holds a position of senior vice president or higher of Sears Hometown and Outlet Stores, Inc. (not of any subsidiary or affiliate) or any employee who is an officer under Section 16(b) of the Securities and Exchange Act of 1934 with respect to Sears Hometown and Outlet Stores, Inc.
(f) Fiscal Year . The capitalized term Fiscal Year refers to the fiscal year of the Company.
(g) Section 162(m) Award . The term Section 162(m) Award refers to any Award that is designated by the Compensation Committee as intended to meet the requirements for performance-based compensation under Code Section 162(m).
(h) Senior Corporate Compensation Executive . The term Senior Corporate Compensation Executive refers to the most senior human resources and compensation executive (or equivalent) or if he or she has explicitly delegated his or her duties with respect to the LTIP, as provided herein, then the Senior Corporate Compensation Executive shall refer to such authorized representative to whom the duties of administering the LTIP have been delegated.
(i) Subsidiary . The term Subsidiary or Subsidiaries refers to any company during any period in which it is a subsidiary corporation (as that term is defined in Section 424(f) of the Code) with respect to the Company.
SECTION 9
EXPIRATION OF LTIP
A payment obligation under the LTIP with respect to a specific Performance Period shall expire, subject to earlier termination pursuant to Section 7, on the date on which all LTIP Incentive Awards (if any) for the Performance Period are paid in full or would have been payable in accordance with the provisions of the LTIP (or, if earlier, on the date that the Compensation Committee determines that the results are less than the Thresholds for the performance measures) with respect to such Performance Period. Notwithstanding this Section 9, the Companys right to reimbursement under Section 3.7 will continue to survive after the expiration of the LTIP.
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Exhibit 10.14
SEARS HOMETOWN AND OUTLET STORES, INC.
2012 STOCK PLAN
SECTION 1 . BACKGROUND AND PURPOSE
The name of this Plan is the Sears Hometown and Outlet Stores, Inc. 2012 Stock Plan. The purpose of this Plan is to promote the interests of the Company and its Subsidiaries through grants to Eligible Individuals of Restricted Stock, Stock Units, Options, and Stock Appreciation Rights in order (1) to attract and retain the services of Eligible Individuals, (2) to provide an additional incentive to each Eligible Individual to work to increase the value of Stock and (3) to provide each Eligible Individual with a stake in the future of the Company which corresponds to the stake of each Company shareholder.
SECTION 2 . DEFINITIONS
Each term set forth in this Section 2 shall have the meaning set forth opposite such term for purposes of this Plan and, for purposes of such definitions, the singular shall include the plural and the plural shall include the singular.
2.1. Board shall mean the Board of Directors of the Company.
2.2. Code shall mean the Internal Revenue Code of 1986, as amended.
2.3. Committee shall mean a Committee of the Board to which the responsibility to administer this Plan is delegated by the Board and which shall consist of at least two members of the Board, each of whom shall be a non-employee director within the meaning of Rule 16b-3 under the Exchange Act and each of whom shall be an outside director for purposes of Code Section 162(m).
2.4. Company shall mean Sears Hometown and Outlet Stores, Inc., a Delaware corporation, and any successor to such corporation.
2.5. Eligible Individual shall mean a key employee of or other individual performing services for the Company or a Subsidiary, as determined and designated by the Committee. An award may be granted to an employee or other individual performing services, in connection with hiring, retention or otherwise, prior to the date the employee or service provider first performs service for the Company or the Subsidiaries, provided such award shall not become vested prior to the date the employee or other service provider first performs such service. Notwithstanding the above, for purposes of ISOs, Eligible Individual shall be limited to a key employee of the Company or a Subsidiary, as determined and designated by the Committee.
2.6. Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
2.7. Fair Market Value shall mean, for any given date, the fair market value of the Stock as of such date, as determined by the Committee on a basis consistently applied based on actual transactions in Stock on the exchange on which the Stock generally has the greatest trading volume.
2.8. ISO shall mean an Option granted under Section 8 to purchase Stock and evidenced by an Option Agreement which provides that the Option is intended to satisfy the requirements for an incentive stock option under Code Section 422.
2.9. NQO shall mean an Option granted under Section 8 to purchase Stock and evidenced by an Option Agreement which provides that the Option shall not be treated as an incentive stock option under Code Section 422.
2.10. Option shall mean an ISO or a NQO.
2.11. Option Agreement shall mean the written agreement or instrument which sets forth the terms of an Option granted to an Eligible Individual under this Plan.
2.12. Option Price shall mean the price which shall be paid to purchase one share of Stock upon the exercise of an Option granted under this Plan.
2.13. Performance Period shall mean the period selected by the Committee during which performance is measured for purpose of determining the extent to which an award of SARs, Options, Restricted Stock, or Stock Units has been earned.
2.14. Plan shall mean this Sears Hometown and Outlet Stores, Inc. 2012 Stock Plan, as amended from time to time.
2.15. Restricted Stock shall mean Stock granted to an Eligible Individual pursuant to Section 7.
2.17. SAR Agreement shall mean the written agreement or instrument which sets forth the terms of a SAR granted to an Eligible Individual under this Plan.
2.18. SAR Share Value shall mean the figure which is set forth in each SAR Agreement and which is no less than the Fair Market Value of a share of Stock on the date the related SAR is granted.
2.19. Stock shall mean the common stock of the Company, par value $0.01 per share.
2.20. Stock Agreement shall mean the written agreement or instrument which sets forth the terms of a Restricted Stock grant or Stock Unit grant to an Eligible Individual under this Plan.
2.21. Stock Appreciation Right or SAR shall mean a right which is granted pursuant to the terms of Section 8 to the appreciation in the Fair Market Value of a share of Stock in excess of the SAR Share Value for such a share.
2.22. Stock Unit shall mean a right granted to an Eligible Individual pursuant to Section 7 to receive a payment in cash or shares based on the Fair Market Value of the number of shares of Stock described in such grant.
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2.23. Subsidiary shall mean any corporation which is a subsidiary corporation (within the meaning of Code Section 424(f)) of the Company.
SECTION 3 . SHARES RESERVED UNDER PLAN
3.1. Shares . There shall be reserved for issuance under this Plan 4,000,000 shares of Stock.
3.2. Share Counting . The shares of Stock described in Section 3.1 shall be reserved to the extent that the Company deems appropriate from authorized but unissued shares of Stock and from shares of Stock which have been reacquired by the Company. Furthermore, any shares of Stock issued pursuant to a Restricted Stock grant which are forfeited thereafter shall again become available for issuance under this Plan. The gross number of shares of Stock covered by a Stock Unit shall not again become available under Section 3.1 for issuance under this Plan; provided, however, if a Stock Unit is forfeited or settled in cash, the related shares of Stock shall again become available for issuance under this Plan. The gross number of shares of Stock covered by an Option or SAR, to the extent it is exercised, shall not again become available under Section 3.1 for issuance under this Plan; provided, however, if an Option or SAR is forfeited or settled in cash, if applicable, the related shares of Stock shall again become available for issuance under this Plan. Any shares of Stock which are (a) tendered to the Company to pay the Option Price of an Option, (b) tendered to the Company in satisfaction of any condition to a grant of Restricted Stock, or (c) used to satisfy a withholding obligation under Section 14.4, shall again become available under Section 3.1 for issuance under this Plan.
3.3. Use of Proceeds . The proceeds which the Company receives from the sale of any shares of Stock under this Plan shall be used for general corporate purposes and shall be added to the general funds of the Company.
SECTION 4 . EFFECTIVE DATE
Subject to the shareholders of the Company approving the adoption of this Plan, this Plan shall become effective on the Rights Closing Date as defined in the Separation Agreement by and between Sears Holdings Corporation (Sears Holdings) and the Company.
SECTION 5 . PLAN ADMINISTRATION
5.1. Authority of Committee . The Plan shall be administered by the Committee. Except as limited by law, or by the Articles of Incorporation or Bylaws of the Company, and subject to the provisions of this Plan, the Committee shall have full power, authority, and sole and exclusive discretion to construe, interpret and administer this Plan, including without limitation, the power and authority to make determinations relating to Plan grants and correct mistakes in Stock, Option, or SAR Agreements, and to take such other action in the administration and operation of this Plan as
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the Committee deems equitable under the circumstances. The Committee, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. In addition, the Committee shall have full and exclusive power to adopt such rules, regulations and guidelines for carrying out the Plan as it may deem necessary or proper, all of which power shall be executed in the best interests of the Company and in keeping with the objectives of the Plan. This power includes, but is not limited to, selecting award recipients and establishing all award terms and conditions.
5.2. Amendment of Awards . The Committee, in its sole discretion, may amend any outstanding award at any time in any manner not inconsistent with the terms of the Plan, provided that no outstanding, vested award may be amended without the grantees consent if the amendment would have a materially adverse effect on the grantees rights under the award. Notwithstanding the foregoing, the Committee, in its sole discretion, may amend an award if it determines such amendment is necessary or advisable for the Company to comply with applicable law (including Code Section 409A), regulation, rule, or accounting standard.
5.3. Delegation . To the extent permitted by applicable law, the Committee may delegate its authority as identified herein to one or more officers of the Company, including without limitation the authority to approve grants to Eligible Individuals other than any of the Companys officers. To the extent that the Committee delegates its authority to make grants as provided by this Section 5.3, all references in the Plan to the Committees authority to make grants and determinations with respect thereto shall be deemed to include the Committees delegate(s). Any such delegate shall serve at the pleasure of, and may be removed at any time by, the Committee.
5.4. Decisions Binding . In making any determination or in taking or not taking any action under the Plan, the Committee or its delegate(s) may obtain and may rely on the advice of experts, including employees of and professional advisors to the Company. Any action taken by, or inaction of, the Committee or its delegate(s) relating to or pursuant to the Plan shall be within the absolute discretion of the Committee or its delegate. Such action or inaction of the Committee or its delegate(s) shall be conclusive and binding on the Company, on each affected Eligible Individual and on each other person directly or indirectly affected by such action.
SECTION 6 . ELIGIBILITY
Eligible Individuals shall be eligible for the grant of awards under this Plan.
SECTION 7 . RESTRICTED STOCK AND STOCK UNITS
7.1. Committee Action .
(a) General . The Committee acting in its absolute discretion shall have the right to grant Restricted Stock and Stock Units to Eligible Individuals from time to time.
(b) Limitations . No Restricted Stock and Stock Unit grants in any combination may be made to an Eligible Individual in any calendar year with respect to more than 100,000 shares of Stock. Each Restricted Stock grant and each Stock Unit grant shall be evidenced by a Stock Agreement.
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7.2. Forfeiture Conditions . The Committee may make a Restricted Stock or Stock Unit grant subject to one or more employment, performance or other forfeiture conditions which the Committee acting in its absolute discretion deems appropriate under the circumstances, and the related Stock Agreement shall set forth each such forfeiture condition and the deadline for satisfying each such forfeiture condition. When a Stock certificate is issued for shares of Restricted Stock, such certificate shall be issued subject to (i) the conditions, if any, described in this Section 7.2 and Section 9 to, or for the benefit of, the Eligible Individual and (ii) a stock power in favor of the Company in order for the Company to effect any forfeitures of such Restricted Stock.
7.3. Rights Under Awards .
(a) Cash Dividends . Each Stock Agreement which evidences a Restricted Stock grant shall state whether the Eligible Individual shall have a right to receive any cash dividends which are paid after any shares of Restricted Stock are issued to him or her and before the first day that the Eligible Individuals interest in such Stock is forfeited. If such a Stock Agreement provides that an Eligible Individual has no right to receive a cash dividend when paid, such agreement shall set forth the conditions, if any, under which the Eligible Individual will be eligible to receive one, or more than one, payment in the future to compensate the Eligible Individual for the fact that he or she had no right to receive any cash dividends on his or her Restricted Stock when such dividends were paid. If such a Stock Agreement calls for any such payments to be made, the Company shall make such payments from the Companys general assets, and the Eligible Individual shall be no more than a general and unsecured creditor of the Company with respect to such payments. Unless otherwise set forth in the Stock Agreement which evidences a Stock Unit grant, if a cash dividend is paid on the shares of Stock described in a Stock Unit grant, such cash dividend shall be treated as reinvested in shares of Stock and shall increase the number of shares of Stock described in such Stock Unit grant.
(b) Stock and Other Dividends . Unless otherwise provided in the related Stock Agreement, and subject to such rules as the Committee shall adopt with respect to each dividend, if a Stock dividend is declared on a share of Restricted Stock, such Stock dividend shall be treated as part of the grant of the related Restricted Stock, and an Eligible Individuals interest in such Stock dividend shall be forfeited or shall become nonforfeitable at the same time as the Stock with respect to which the Stock dividend was paid is forfeited or becomes nonforfeitable. Unless otherwise set forth in the Stock Agreement which evidences a Stock Unit grant, and subject to such rules as the Committee shall adopt with respect to each dividend, if a Stock dividend is declared on any shares of Stock described in a Stock Unit grant, such dividend shall increase the number of shares of Stock described in such Stock Unit grant. If a dividend is paid on a share of Restricted Stock or on a share of Stock described in a Stock Unit grant other than in cash or Stock, the disposition of such dividend with respect to such Restricted Stock grant and the treatment of such dividend with respect to such Stock Unit grant shall be effected in accordance with the terms of the related Stock Agreement or such rules as the Committee shall adopt with respect to each such dividend.
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(c) Voting Rights . An Eligible Individual shall have the right to vote shares of Restricted Stock unless otherwise provided in the related Stock Agreement. An Eligible Individual receiving a Stock Unit grant shall not possess any voting rights with respect to such Stock Units.
(d) Effect of Termination . In the discretion of the Committee, a Stock Agreement may provide for vesting, payment, or other applicable terms after the Eligible Individual ceases to be employed or provide services to the Company or Subsidiary for any reason whatsoever, including death or disability.
(e) Nontransferability . No Restricted Stock grant and no shares issued pursuant to a Restricted Stock grant shall be transferable by an Eligible Individual other than by will or by the laws of descent and distribution before an Eligible Individuals interest in such shares have become completely nonforfeitable, and no interests in a Stock Unit grant shall be transferable other than by will or the laws of descent and distribution, except as otherwise provided in the related Stock Agreement.
(f) Creditor Status . An Eligible Individual to whom a Stock Unit is granted shall be no more than a general and unsecured creditor of the Company with respect to any payment due under such grant.
7.4. Satisfaction of Forfeiture Conditions . A share of Stock shall cease to be Restricted Stock at such time as an Eligible Individuals interest in such Stock becomes nonforfeitable under this Plan and the terms of the related Stock Agreement. Upon vesting of a Stock Unit, the Eligible Individual shall receive payment in cash or Stock in accordance with the terms of the related Stock Agreement.
SECTION 8 . OPTIONS AND SARs
8.1. Options . The Committee acting in its absolute discretion shall have the right to grant Options to purchase shares of Stock to Eligible Individuals from time to time, and Options may be granted for any reason the Committee deems appropriate under the circumstances. Each grant of an Option shall be evidenced by an Option Agreement, and each Option Agreement shall set forth whether the Option is an ISO or a NQO and shall set forth such other terms and conditions, including any performance-based vesting conditions, of such grant, as the Committee acting in its absolute discretion deems consistent with the terms of this Plan.
8.2. ISO Rules . Notwithstanding anything in this Plan to the contrary, no term of this Plan relating to ISOs shall be interpreted, amended or altered, nor shall any discretion or authority granted under the Plan be so exercised, so as to disqualify the Plan or any ISO under Code Section 422. The aggregate Fair Market Value of ISOs granted to an Eligible Individual under this Plan and incentive stock options granted to such Eligible Individual under any other stock option plan adopted by the
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Company or a Subsidiary which first become exercisable in any calendar year shall not exceed $100,000. Such Fair Market Value figure shall be determined by the Committee on the date the ISO or other incentive stock option is granted, and the Committee shall interpret and administer the limitation set forth in this Section 8.2 in accordance with Code Section 422(d).
8.3. Option Price, Exercise Period and No Dividend Equivalents .
(a) Option Price . The Option Price for each share of Stock subject to an Option shall be no less than the Fair Market Value of a share of Stock on the date the Option is granted. The Option Price shall be payable in full upon the exercise of any Option. Except in accordance with the provisions of Section 12, the Committee shall not, absent the approval of the Companys shareholders, take any action, whether through amendment, cancellation, replacement grants, exchanges or any other means, to directly or indirectly reduce the Option Price of any outstanding Option.
(b) Exercise Period . Each Option granted under this Plan shall be exercisable in whole or in part at such time or times as set forth in the related Option Agreement, but no Option Agreement shall make an Option exercisable before the date such Option is granted or on or after the date which is the tenth anniversary of the date such Option is granted. In the discretion of the Committee, an Option Agreement may provide for the exercise of an Option after the Eligible Individual ceases to be employed or provide services to the Company or a Subsidiary for any reason whatsoever, including death or disability.
(c) No Dividend Equivalents . In no event shall any Option or Option Agreement granted under the Plan include any right to receive dividend equivalents with respect to such award.
8.4. Method of Exercise .
(a) Committee Rules . An Option may be exercised as provided in this Section 8.4 pursuant to procedures (including, without limitation, procedures restricting the frequency or method of exercise) as shall be established by the Committee or its delegate from time to time for the exercise of Options.
(b) Notice and Payment . An Option shall be exercised by delivering to the Committee or its delegate during the period in which such Option is exercisable, (1) written notice of exercise in a form acceptable to the Committee indicating the specific number of shares of Stock subject to the Option which are being exercised and (2) payment in full of the Option Price for such specific number of shares. An Option Agreement, at the discretion of the Committee, may provide for the payment of the Option Price by any of the following means:
(1) in cash, electronic funds transfer or a check acceptable to the Committee;
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(2) in Stock which has been held by the Eligible Individual for a period acceptable to the Committee and which Stock is otherwise acceptable to the Committee, provided that the Committee may impose whatever restrictions it deems necessary or desirable with respect to such method of payment;
(3) through a broker-facilitated cashless exercise procedure acceptable to the Committee; or
(4) in any combination of the methods described in this Section 8.4(b) which is acceptable to the Committee.
Any payment made in Stock shall be treated as equal to the Fair Market Value of such Stock on the date the properly endorsed stock certificate for such Stock is delivered to the Committee (or to its delegate) or, if payment is effected through a certification of ownership of Stock in lieu of a stock certificate, on the date the Option is exercised.
(c) Restrictions . The Committee may from time to time establish procedures for restricting the exercise of Options on any given date as the result of excessive volume of exercise requests or any other problem in the established system for processing Option exercise requests or for any other reason the Committee or its delegate deems appropriate or necessary.
8.5. SARs .
(a) SARs and SAR Share Value .
(1) The Committee acting in its absolute discretion may grant an Eligible Individual a SAR which will give the Eligible Individual the right to the appreciation in one, or more than one, share of Stock, and any such appreciation shall be measured from the related SAR Share Value; provided, however, in no event shall the SAR Share Value be less than the Fair Market Value of a share of Stock on the date such SAR is granted. The Committee shall have the right to make any such grant subject to such additional terms, including performance-based vesting provisions, as the Committee deems appropriate and such terms shall be set forth in the related SAR Agreement.
(2) Each SAR granted under this Plan shall be exercisable in whole or in part at such time or times as set forth in the related SAR Agreement, but no SAR Agreement shall make a SAR exercisable before the date such SAR is granted or on or after the date which is the tenth anniversary of the date such SAR is granted. In the discretion of the Committee, a SAR Agreement may provide for the exercise of a SAR after the Eligible Individual ceases to be employed or provide services to the Company or Subsidiary for any reason whatsoever, including death or disability.
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(3) Except in accordance with the provisions of Section 12, the Committee shall not, absent the approval of the Companys shareholders, take any action, whether through amendment, cancellation, replacement grants, exchanges or any other means, to directly or indirectly reduce the SAR Share Value of any outstanding SAR.
(b) Procedure . The exercise of a SAR shall be effected by the delivery of the related SAR Agreement to the Committee together with a statement signed by the Eligible Individual which specifies the number of shares of Stock as to which the Eligible Individual exercises his or her SAR.
(c) Payment . An Eligible Individual who exercises his or her SAR will receive a payment in cash or in Stock, or in a combination of cash and Stock, equal in amount to (i) the number of shares of Stock with respect to which, the SAR is exercised times (ii) the excess of the Fair Market Value of a share of Stock on the exercise date over the applicable SAR Share Value. The Committee acting in its absolute discretion shall determine the form of such payment. Any cash payment shall be made from the Companys general assets, and an Eligible Individual shall be no more than a general and unsecured creditor of the Company with respect to such payment.
(d) No Dividend Equivalents . In no event shall any SAR or SAR Agreement granted under the Plan include any right to receive dividend equivalents with respect to such award.
8.6. Nontransferability . Except to the extent the Committee deems permissible and consistent with the best interests of the Company, no Option or SAR shall be transferable by an Eligible Individual other than by will or by the laws of descent and distribution, and any grant by the Committee of a request by an Eligible Individual for any transfer (other than a transfer by will or by the laws of descent and distribution) of an Option or SAR shall be conditioned on the transfer not being made for value or consideration. Any such Option or SAR granted under this Plan shall be exercisable during an Eligible Individuals lifetime, as the case may be, only by (subject to the first sentence in this Section 8.6) the Eligible Individual, provided that in the event an Eligible Individual is incapacitated and unable to exercise such Eligible Individuals Option or SAR, such Eligible Individuals legal guardian or legal representative whom the Committee deems appropriate based on all applicable facts and circumstances presented to the Committee may exercise such Eligible Individuals Option or SAR, in accordance with the provisions of this Plan and the applicable Option or SAR Agreement. The person or persons to whom an Option or SAR is transferred by will or by the laws of descent and distribution (or pursuant to the first sentence of this Section 8.6) thereafter shall be treated as the Eligible Individual under this Plan.
8.7. Share Limitation . An Eligible Individual may not be granted in any calendar year Options, or SARs, or one or more Options and SARs in any combination which in the aggregate relate to more than 300,000 shares of Stock.
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SECTION 9 . PERFORMANCE-BASED AWARDS
9.1 Establishment of Performance Goals . If, at the time of grant, the Committee intends an award to qualify as performance based compensation within the meaning of Code Section 162(m)(4), the Committee must establish in writing, objective performance goals for the applicable Performance Period no later than ninety (90) days after the Performance Period begins (but in no event after twenty-five percent (25%) of the Performance Period has elapsed), and while the outcome as to the performance goals is substantially uncertain. Such performance goals established by the Committee may be with respect to corporate performance, operating group or sub-group performance, individual company performance, other group or individual performance, or division performance, and shall be based on one or more of the criteria described in Section 9.2.
9.2 Performance Measures . A performance goal may be based on any one or more or any combination (in any relative proportion) of the following: share price, market share, cash flow, revenue, revenue growth, earnings per share, operating earnings per share, operating earnings, earnings before interest, taxes, depreciation and amortization, return on equity, return on assets, return on investment, net income, net income per share, economic value added, market value added, store sales growth, customer satisfaction performance goals measured by independent customer satisfaction surveys and employee opinion survey results measured by an independent firm, and strategic business objectives, consisting of one or more objectives based on meeting specific cost or profit targets or margins, business expansion goals and goals relating to acquisitions or divestitures. Each goal, with respect to a performance period, may be expressed on an absolute and/or relative basis, may be based on the Company as a whole or on any one or more business units of the Company, or its Subsidiaries, and may be based on or otherwise employ comparisons based on internal targets, the past performance of the Company or of any one or more business units of the Company or its Subsidiaries, and/or the past or current performance of other companies, or an index.
9.3 Certification of Performance . A Participant otherwise entitled to receive an award intended to meet the requirements of performance-based compensation under Code Section 162(m) and the regulations thereunder for any Performance Period shall not receive a settlement of the award until the Committee has determined that the applicable performance goal(s) have been attained. To the extent that the Committee exercises discretion in making the determination required by this subsection, such exercise of discretion may not result in an increase in the amount of the payment with respect to such award.
9.4 Extraordinary Items . In establishing any performance goals, the Committee may, no later than the date such performance goals are established in accordance with Section 9.1, provide for the exclusion of the effects of the following items, to the extent identified in the audited financial statements of the Company, including footnotes, or in the Management Discussion and Analysis of Financial Condition and Results of Operations accompanying such financial statements: (a) asset write-downs; (b) litigation or claim judgments or settlements; (c) extraordinary, unusual, and/or nonrecurring items of gain or loss; (d) gains or losses on acquisitions or divestitures or store closings; (e) noncapital, purchase accounting items; (f) changes in tax or accounting principles, regulations or laws; (g) mergers or acquisitions; (h) integration costs disclosed as merger related; (i) accruals for reorganization or restructuring programs; (j) investment income or loss; (k) foreign
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exchange gains and losses; and (l) tax valuation allowances and/or tax claim judgment or settlements. To the extent the exclusion of any item affects awards intended to constitute performance-based compensation under Code Section 162(m), such exclusion shall be specified in a manner that satisfies the requirements of Code Section 162(m) and the regulations thereunder, including without limitation the requirement that performance goals be objectively determinable.
SECTION 10 . SECURITIES REGISTRATION
For Stock issued pursuant to this Plan, the Company at its expense shall take such action as it deems necessary or appropriate to register the original issuance of such Stock to an Eligible Individual under the Securities Act of 1933, as amended, or under any other applicable securities laws or to qualify such Stock for an exemption under any such laws prior to the issuance of such Stock to an Eligible Individual; however, the Company shall have no obligation whatsoever to take any such action in connection with the transfer, resale or other disposition of such Stock by an Eligible Individual.
SECTION 11 . LIFE OF PLAN
No award shall be granted under this Plan on or after the earlier of:
(1) the tenth (10 th ) anniversary of the date the Company adopts this Plan, in which event this Plan otherwise thereafter shall continue in effect until all Options and SARs have been exercised in full or no longer are exercisable and all Restricted Stock and Stock Unit grants under this Plan have been forfeited or the forfeiture conditions on the related Stock or cash payments have been satisfied in full, or
(2) the date on which all of the Stock reserved under Section 3 has been issued or is no longer available for use under this Plan and all cash payments due under any Stock Unit grants have been paid or forfeited, in which event this Plan also shall terminate on such date.
SECTION 12 . ADJUSTMENT
12.1. Corporate Transactions . The number, kind or class (or any combination thereof) of shares of Stock reserved under Section 3, the grant limitations described in Section 7.1(b) and Section 8.7, the number, kind or class (or any combination thereof) of shares of Stock subject to Options and SARs granted under this Plan and the applicable Option Price and SAR Share Value as well as the number, kind or class of shares of Stock subject to Restricted Stock and Stock Unit grants under this Plan shall be adjusted by the Committee in an equitable manner to reflect any corporate transaction resulting in a change in the capitalization of the Company. For purposes of this paragraph a corporate transaction includes without limitation any dividend (other than a cash dividend that is not an extraordinary cash dividend) or other distribution (whether in the form of cash, Stock, securities of a subsidiary of the Company, other securities or other property), recapitalization, stock split, reverse stock split, combination of shares, reorganization, merger, consolidation, acquisition, split-up, spin-off, combination, repurchase or exchange of Stock or other securities of the Company, issuance of warrants or other rights to purchase Stock or other securities
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of the Company, or other similar corporate transaction. Notwithstanding anything in this paragraph to the contrary, an adjustment to an Option or SAR under this paragraph shall be made in a manner that will not result in the grant of a new Option or SAR under Code Section 409A or cause the Option or SAR to fail to be exempt from Code Section 409A.
12.2. General . If any adjustment under this Section 12 would create a fractional share of Stock or a right to acquire a fractional share of Stock, such fractional share shall be disregarded and the number of shares of Stock reserved under this Plan and the number subject to any grant shall be the next lower number of shares of Stock, rounding all fractions downward. Any adjustment made under this Section 12 by the Board shall be conclusive and binding on all affected persons.
SECTION 13 . AMENDMENT OR TERMINATION
The Board or the Committee may at any time in its sole discretion, for any reason whatsoever, terminate or suspend the Plan, and from time to time may amend or modify the Plan; provided that without the approval of shareholders of the Company, no amendment or modification to the Plan may materially modify the Plan in any way that would require shareholder approval under any regulatory requirement that the Committee determines to be applicable, including without limitation, the rules of any exchange. No amendment, modification, suspension or termination of the Plan shall have a materially adverse effect on any vested and outstanding award on the date of such amendment, modification, suspension or termination, without the consent of the affected grantee. Notwithstanding the foregoing, no Eligible Individual consent shall be needed for an amendment, modification, or termination of the Plan if the Committee determines such amendment, modification, or termination is necessary or advisable for the Company to comply with applicable law (including Code Section 409A), regulation, rule, or accounting standard. Suspension or termination of the Plan shall not affect the Committees ability to exercise the powers granted to it with respect to awards under this Plan prior to the date of such suspension or termination.
SECTION 14 . MISCELLANEOUS
14.1. Shareholder Rights . No Eligible Individual shall have any rights as a shareholder of the Company as a result of the grant of an Option or SAR under this Plan or his or her exercise of such Option or SAR pending the actual delivery of any Stock subject to such Option or SAR to such Eligible Individual. Except as otherwise provided in this Plan, an Eligible Individuals rights as a shareholder in the shares of Stock related to a Restricted Stock grant shall be set forth in the related Stock Agreement.
14.2. No Contract of Employment or Contract for Services . The grant of an award to an Eligible Individual under this Plan shall not constitute a contract of employment or contract for the performance of services or an agreement to continue his or her status as an Eligible Individual and shall not confer on an Eligible Individual any rights in addition to those rights, if any, expressly set forth in any Stock, Option or SAR Agreement.
14.3. Coordination with Corporate Policies . Shares of Stock and cash acquired by an Eligible Individual under this Plan shall be subject to share retention, forfeiture, and clawback policies established by the Company in accordance with the terms of such policies.
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14.4. Withholding . The exercise of any Option or SAR granted under this Plan and the acceptance of a Restricted Stock or Stock Unit grant shall constitute an Eligible Individuals full and complete consent to whatever action the Committee deems necessary to satisfy the minimum tax withholding requirements, if any, which the Committee acting in its discretion deems applicable. The Committee shall have the right to satisfy tax withholding requirements, if any, through a reduction in the number of shares of Stock actually transferred pursuant to an award.
14.5 Compliance with Code Section 409A . To the extent that amounts payable under this Plan are subject to Code Section 409A, the Plan is intended to comply with Code Section 409A and official guidance issued thereunder. Notwithstanding anything herein to the contrary, the Plan shall be interpreted, operated and administered in a manner consistent with this intention.
14.6 Requirements of Law . The granting of awards and the issuance of Stock under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
14.7 Indemnification . Each person who is or shall have been a member of the Committee and each delegate of such Committee shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be made a party or in which he or she may be involved in by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Companys approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided that the Company is given an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it personally. Such foregoing right of indemnification shall not apply in circumstances involving such persons bad faith or willful misconduct. The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such persons may be entitled under the Companys Articles of Incorporation or By-laws, by contract, as a matter of law, or otherwise.
14.8 Headings and Captions . The headings and captions here are provided for reference and convenience only, shall not be considered part of this Plan, and shall not be employed in the construction of this Plan.
14.9 Governing Law . This Plan shall be construed under the laws of the State of Illinois (excluding its choice-of-law rules) to the extent not superseded by federal law.
14.10 Invalid Provisions . In the event any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
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14.11 Conflicts . In the event of a conflict between the terms of this Plan and any Stock, Option or SAR Agreement, the terms of the Plan shall prevail.
14.12 Successors . All obligations of the Company under the Plan with respect to awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
14.13 Deferral of Awards . The Committee may, in a Stock Agreement or otherwise, establish procedures for the deferral of Stock or cash deliverable upon settlement, vesting or other events with respect to Restricted Stock or Stock Units. Notwithstanding anything herein to the contrary, in no event will any deferral of Stock or any other payment with respect to any award granted under the Plan be allowed if the Committee determines, in its sole discretion, that the deferral would result in the imposition of the additional tax under Code Section 409A.
14.14 Employees in Foreign Jurisdictions . Notwithstanding any provision of this Plan to the contrary, in order to achieve the purposes of this Plan or to comply with provisions of the laws in countries outside the United Sates in which the Company operates or has employees, the Committee, in its sole discretion, shall have the power and authority to (i) determine which Eligible Individuals (if any) employed by the Company outside the United States should participate in the Plan, (ii) modify the terms and conditions of any awards made to such Eligible Individuals, and (iii) establish sub-plans and other award terms, conditions and procedures to the extent such actions may be necessary or advisable to comply with provisions of the laws in such countries outside the United States in order to assure the lawfulness, validity and effectiveness of awards granted under this Plan.
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Exhibit 10.17
EXECUTIVE SEVERANCE AGREEMENT
By this Executive Severance Agreement dated and effective as of August 6, 2012 (Agreement), Sears Holdings Corporation and its affiliates and subsidiaries (Sears), and Steven D. Barnhart (Executive), intending to be legally bound, and for good and valuable consideration, agree as follows:
1. Effect of Severance .
(a) Severance Benefits . If Executive is involuntarily terminated without Cause or Executive voluntarily terminates Executives employment for Good Reason (as such terms are defined in Section 2 below), Executive shall be entitled to the benefits described in subsection (i), (ii) and (iii) below (collectively referred to herein as Severance Benefits). Executive shall not be entitled to the Severance Benefits if Executives employment terminates for any other reason, including due to death or Disability (as defined in Section 2 below). Executive shall also not be entitled to Severance Benefits if Executive does not meet all of the other requirements under this Agreement, including under subsection 4(g).
i. Continuation of Salary .
1. Sears, the appropriate Sears Affiliate (as defined in Section 2 below) or Sears Hometown and Outlet Stores, Inc. (SHO) if such termination occurs post-Spin-off, shall pay Executive cash severance (Salary Continuation) equal to:
A. In the event Executives termination of employment (Date of Termination) is due to the Good Reason provided for under subsection 2(c)(iii) below, Executives annual base salary rate as of the Date of Termination plus an amount equivalent to Executives target bonus for the year in which the Date of Termination occurs;
B. In the event Executives Date of Termination occurs before the completion of the first anniversary of the effective date of the Spin-off (as such term is defined in subsection 2(c)(iii) below), Executives annual based salary plus an amount equivalent to Executives target bonus for the year in which the Date of Termination occurs; or
B. In the event Executives Date of Termination occurs for any other reason or at any other time and entitles Executive to Severance Benefits under this Agreement, Executives annual base salary rate as of the Date of Termination.
Subject to subsection (a)(i)(2) below, payment of such Salary Continuation shall commence on Executives Separation from Service (as defined in Section 2 below) and shall be paid in substantially equal installments on each regular salary payroll date for a period of twelve (12) months following Date of Termination (Salary Continuation Period), except as otherwise provided in this Agreement.
Notwithstanding the foregoing, the Sears or Sears Affiliate obligations under this subsection (a)(i)(1) shall be reduced on a dollar-for-dollar basis (but not below zero), by the amount, if any, of fees, salary or wages that Executive earns from a subsequent employer (including those arising from self-employment) during the Salary Continuation Period, other than any approved external director fees that Executive is otherwise receiving and/or earning as of such Date of Termination. For avoidance of doubt, Executive shall not be obligated to seek affirmatively or accept an employment, contractor, consulting or other arrangement in order to mitigate Salary Continuation. Further, to the extent Executive does not execute and timely submit the General Release and Waiver (in accordance with subsection 4(g) below) by the deadline specified therein, Salary Continuation payments shall terminate and forever lapse, and Executive shall be required to reimburse Sears for any portion of the Salary Continuation paid during the Salary Continuation Period.
2. Notwithstanding anything in this subsection (a)(i) to the contrary, if the Salary Continuation payable to Executive in accordance with subsection (a)(i)(1) above during the first six (6) months after Executives Separation from Service would exceed the Section 409A Threshold and if as of the date of the Separation from Service Executive is a Specified Employee (as such terms are defined in Section 2 below), then, payment shall be made to Executive on each regular salary payroll date during the first six (6) months of the Salary Continuation Period until the aggregate amount received equals the Section 409A Threshold. Any portion of the Salary Continuation in excess of the Section 409A Threshold that would otherwise be paid during such first six (6) months or any portion of the Salary Continuation that is otherwise subject to Section 409A, shall instead be paid to Executive in a lump sum payment on the date that is six (6) months and one (1) day after the date of Executives Separation from Service.
3. All Salary Continuation payments (described under this subsection (a)(i)) will terminate and forever lapse if Executive is employed by a Sears Competitor or Sears Vendor (as such terms are defined in subsection 4(c)(ii) and 4(d)(ii) herein, respectively) during the Salary Continuation Period or in the event of Executives breach (in accordance with Section 10 below), and Executive shall be required to reimburse Sears for any portion of the Salary Continuation paid during the Salary Continuation Period.
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ii. Continuation of Benefits .
1. During the Salary Continuation Period, Executive will be entitled to participate in all benefit plans and programs (except as specified in this subsection (a)(ii)), as an active associate, in which Executive was eligible to participate on the Date of Termination (subject to the terms and conditions and continued availability of such plans and programs); provided, however, that Executive will not be eligible to participate in the long-term disability plan (as of the 15 th day following the Date of Termination), health care flexible spending account (except on an after-tax basis and only through the earlier of the end of Salary Continuation Period or the calendar year in which the Separation from Service occurs), Sears paid life insurance and the Sears Holdings 401(k) Savings Plan (or any other defined contribution plan sponsored by Sears or a Sears Affiliate) during the Salary Continuation Period. Executive and Executives eligible dependents shall be entitled to continue to participate, as active participants, in Sears medical and dental plans (subject to the terms and conditions and continued availability of such plans) during the Salary Continuation Period.
2. If Executive does not timely execute and submit the General Release and Waiver (in accordance with subsection 4(g) herein) by the deadline specified therein, Executive shall be required to reimburse Sears for the portion of the cost for the benefits referred to under subsection (a)(ii)(1) immediately above paid by Sears during the Salary Continuation Period, and Executive shall instead be eligible for COBRA continuation coverage under the Sears medical and dental plans as of Executives Date of Termination.
3. Subject to subsection (a)(ii)(4) immediately below, in the event Executive provides services to another employer and is covered by such employers health benefits plan or program, the medical and dental benefits provided by Sears hereunder shall be secondary to such employers health benefits plan or program in accordance with the terms of the Sears health benefit plans.
4. All of the benefits described in this subsection (a)(ii) will terminate and forever lapse if Executive is employed by a Sears Competitor or Sears Vendor during the Salary Continuation Period or in the event of Executives breach (in accordance with Section 10 below), and Executive shall be required to reimburse Sears for any portion of the cost for the benefits referred to under subsection (a)(ii)(1) immediately above paid by Sears during the Salary Continuation Period, and Executive shall instead be eligible for COBRA continuation coverage under the Sears medical and dental plans as of Executives Severance from Service date.
iii. Outplacement . As of Executives Separation from Service, Executive will be immediately eligible for reasonable outplacement services at the expense of Sears or the appropriate Sears Affiliate. Sears and Executive will mutually agree on which outplacement firm, among current vendors used by Sears, will provide these services. Such services will be provided for up to twelve (12) months from the Separation from Service or until employment is obtained, whichever occurs first. Outplacement benefits described in this subsection (a)(iii) will terminate and forever lapse if Executive is employed by a Sears Competitor or Sears Vendor or in the event of Executives breach (in accordance with Section 10 below).
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iv. Other .
1 In addition to the foregoing Severance Benefits, a lump sum payment will be made to Executive within ten (10) business days following the Date of Termination in an amount equal to the sum of any base salary and any vacation benefits that have accrued through the Date of Termination to the extent not already paid. No vacation will accrue during the Salary Continuation Period.
2. Notwithstanding the foregoing and anything herein to the contrary, in the event of Executives death during the Salary Continuation Period, any unpaid portion of the Salary Continuation payable in accordance with subsection (a)(i) above shall be paid in a lump sum, within sixty (60) days of death (and no later than amounts would have been paid absent death), to Executives estate, and any eligible dependents who are covered dependents as of the date of death shall incur a qualifying event under COBRA as a result of such death.
(b) Impact of Termination on Certain Other Plans/Programs .
i. Annual Incentive Plan . Upon Executives Date of Termination, Executives entitlement to any award under the applicable annual incentive plan (AIP) sponsored by Sears, shall be determined in accordance with the terms and conditions of the AIP document regarding termination of employment.
ii. Long-Term Incentive Program(s) . Upon Executives Date of Termination, Executives entitlement to any award granted to Executive under a long-term incentive program (LTIP) sponsored by Sears, shall be determined in accordance with the terms and conditions of the award letter and the LTIP document regarding termination of employment.
iii. Stock Plan . Upon Executives Date of Termination, Executives entitlement to any unvested options, restricted stock or other equity award granted to Executive under a stock plan sponsored by Sears shall be determined in accordance with the terms and conditions of the applicable award agreement and the stock plan document regarding termination of employment.
(c) Post-Termination Forfeiture of Severance Benefits . If Sears determines after Executives Date of Termination that Executive engaged in activity during employment with Sears that Sears determines constituted Cause, Executive shall immediately cease to be eligible for Severance Benefits and shall be required to reimburse Sears for any portion of the Salary Continuation paid to Executive and for the cost of other Severance Benefits received by Executive during the Salary Continuation Period.
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2. Definitions . For purposes of this Agreement, each capitalized term in this Agreement is either defined in the section, exhibit or appendix in which it first appears or in this Section 2. The following capitalized terms shall have the definitions as set forth below:
(a) Cause shall mean (i) a material breach by Executive (other than a breach resulting from Executives incapacity due to a Disability) of Executives duties and responsibilities which breach is demonstrably willful and deliberate on Executives part, is committed in bad faith or without reasonable belief that such breach is in the best interests of Sears or the Sears Affiliates and is not remedied in a reasonable period of time after receipt of written notice from Sears specifying such breach; (ii) the commission by Executive of a felony; or (iii) dishonesty or willful misconduct in connection with Executives employment.
(b) Disability shall mean disability as defined under the Sears long-term disability plan (regardless of whether the Executive is a participant under such plan).
(c) Good Reason shall mean, without Executives written consent, (i) a reduction of more than ten percent (10%) in the sum of Executives annual base salary and target AIP bonus from those in effect as of the date of this Agreement; (ii) Executives mandatory relocation to an office more than fifty (50) miles from the primary location at which Executive is required to perform Executives duties immediately prior to the date of this Agreement; (iii) the spin-off by Sears Holdings Corporation of SHO (Spin-off) is not completed within twelve (12) months of your date of hire (in which case, if you termination your employment for this Good Reason you will be entitled to the special Severance Benefits provided for under subsection 1(a)(i)(1)), or (iv) any other action or inaction that constitutes a material breach of the terms of this Agreement, including failure of a successor company to assume or fulfill the obligations under this Agreement. In each case, Executive must provide Sears with written notice of the facts giving rise to a claim that Good Reason exists for purposes of this Agreement, within thirty (30) days of the initial existence of such Good Reason event, and Sears shall have a right to remedy such event within sixty (60) days after receipt of Executives written notice (the sixty (60) day period). If Sears remedies the Good Reason event within the sixty (60) day period, the Good Reason event (and Executives right to receive any benefit under this Agreement on account of termination of employment for Good Reason) shall cease to exist. If Sears does not remedy the Good Reason event within the sixty (60) day period, and Executive does not incur a termination of employment within thirty (30) days following the earlier of: (y) the date Sears notifies Executive that it does not intend to remedy the Good Reason or does not agree that there has been a Good Reason event, or (z) the expiration of the sixty (60) day period, the Good Reason event (or any claim of Good Reason) shall cease to exist. Notwithstanding the foregoing, if Executive fails to provide written notice to Sears of the facts giving rise to a claim of Good Reason within thirty (30) days of the initial existence of such Good Reason event, the Good Reason event (and Executives right to receive any benefit under this Agreement on account of termination of employment for Good Reason) shall cease to exist as of the thirty-first (31 st ) day following the later of its occurrence or Executives knowledge thereof.
(d) Sears Affiliate shall mean any person with whom Sears is considered to be a single employer under Code Section 414 (b) and all persons with whom Sears would be considered a single employer under Code Section 414 (c), substituting 50% for the 80% standard that would otherwise apply.
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(e) Section 409A Threshold shall mean an amount equal to two times the lesser of (i) Executives base salary for services provided to Sears and any Sears Affiliate as an employee for the calendar year preceding the calendar year in which Executive has a Separation from Service; or (ii) the maximum amount that may be taken into account under a qualified plan in accordance with Code Section 401(a)(17) for the calendar year in which the Executive has a Separation from Service. In all events, this amount shall be limited to the amount specified under Treasury Regulation Section 1.409A-1(b)(9)(iii)(A) or any successor thereto.
(f) Separation from Service shall mean a separation from service with Sears (including any Sears Affiliate) within the meaning of Code Section 409A (and regulations issued thereunder). Notwithstanding anything herein to the contrary, the fact that Executive is treated as having incurred a Separation from Service under Code Section 409A and the terms of this Agreement shall not be determinative, or in any way affect the analysis, of whether Executive has retired, terminated employment, separated from service, incurred a severance from employment or become entitled to a distribution, under the terms of any retirement plan (including pension plans and 401(k) savings plans) maintained by Sears (including by a Sears Affiliate).
(g) Specified Employee shall mean a specified employee under Code Section 409A (and regulations issued thereunder), which shall be determined in accordance with the provisions of Supplement A to the Supplemental Retirement Income Plan (as amended and restated effective January 1, 2008).
3. Intellectual Property Rights . Executive acknowledges that Executives development, work or research on any and all inventions or expressions of ideas, that may or may not be eligible for patent, copyright, trademark or trade secret protection, hereafter made or conceived solely or jointly within the scope of employment at Sears or any Sears Affiliate, provided such invention or expression of an idea relates to the business of Sears or any Sears Affiliate, or relates to actual or demonstrably anticipated research or development of Sears or any Sears Affiliate, or results from any work performed by Executive for or on behalf of Sears or any Sears Affiliate, are hereby assigned to Sears, including Executives entire rights, title and interest. Executive will promptly disclose such invention or expression of an idea to Executives management and will, upon request, promptly execute a specific written assignment of title to Sears. If Executive currently holds any inventions or expressions of an idea, regardless of whether they were published or filed with the U.S. Patent and Trademark Office or the U.S. Copyright Office, or is under contract to not so assign, Executive will list them on the last page of this Agreement.
4. Protective Covenants . Executive acknowledges that this Agreement provides for additional consideration beyond what Sears or any Sears Affiliate is otherwise obligated to pay. In consideration of the opportunity for the Severance Benefits, and other good and valuable consideration, Executive agrees to the following:
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(a) Non-Disclosure of Sears Confidential Information . Executive acknowledges and agrees to be bound by the following, whether or not Executive receives any Severance Benefits under this Agreement:
i. Non-Disclosure .
1. Executive will not, during the term of Executives employment with Sears or any Sears Affiliate or thereafter, and other than in the performance of his duties and obligations during his employment with Sears or as required by law or legal process, and except as Sears may otherwise consent or direct in writing, reveal or disclose, sell, use, lecture upon or publish any Sears Confidential Information (as defined in subsection 4(a)(ii) below) until such time as the information becomes publicly known other than as a result of its disclosure, directly or indirectly, by Executive; and
2. Executive understands that if Executive possesses any proprietary information of another person or company as a result of prior employment or otherwise, Sears expects and requires that Executive will honor any and all legal obligations that Executive has to that person or company with respect to proprietary information, and Executive will refrain from any unauthorized use or disclosure of such information.
ii. Sears Confidential Information . For purposes of this Agreement, Sears Confidential Information means trade secrets and non-public information which Sears or any Sears Affiliate designates as being confidential or which, under the circumstances, should be treated as confidential, including, without limitation, any information received in confidence or developed by Sears or any Sears Affiliate, its long and short term goals, vendor and supply agreements, databases, methods, programs, techniques, business information, financial information, marketing and business plans, proprietary software, personnel information and files, client information, pricing, and other information relating to the business of Sears or any Sears Affiliate that is not known generally to the public or in the industry.
iii. Return of Sears Property . All documents and other property that relate to the business of Sears or any Sears Affiliate are the exclusive property of Sears, even if Executive authored or created them. Executive agrees to return all such documents and tangible property to Sears upon termination of employment or at such earlier time as Sears may request Executive to do so.
iv. Conflict of Interest . During Executives employment with Sears or any Sears Affiliate and during any Salary Continuation Period, except as may be approved in writing by Sears, neither Executive nor members of Executives immediate family (which shall refer to Executive, any spouse or any child) will have financial investments or other interests or relationships with Sears or any Sears Affiliates customers, suppliers or competitors which might impair Executives independence of judgment on behalf of the Company. Also during Executives employment with Sears or any Sears Affiliate and during any Salary
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Continuation Period, Executive agrees further not to engage in any activity in competition with Sears or any Sears Affiliate and will avoid any outside activity that could adversely affect the independence and objectivity of Executives judgment, interfere with the timely and effective performance of Executives duties and responsibilities to Sears or any Sears Affiliate, discredit Sears or any Sears Affiliate or otherwise conflict with the best interests of Sears or any Sears Affiliate.
(b) Non-Solicitation of Employees . During Executives employment with Sears or any Sears Affiliate and for twelve (12) months following Executives Date of Termination, whether or not Executive receives any Severance Benefits under this Agreement, Executive will not, directly or indirectly, solicit or encourage any person to leave her/his employment with Sears or any Sears Affiliate or assist in any way with the hiring of any Sears or any Sears Affiliate employee by any future employer or other entity.
(c) Non-Competition . Executive acknowledges that as a result of Executives position at Sears or any Sears Affiliate, Executive has learned or developed, or will learn or develop, Sears Confidential Information and that use or disclosure of Sears Confidential Information is likely to occur if Executive were to render advice or services to any Sears Competitor.
i. Therefore, for twelve (12) months following Executives Date of Termination, whether or not Executive receives any Severance Benefits under this Agreement, Executive will not, directly or indirectly, aid, assist, participate in, consult with, render services for, accept a position with, become employed by, or otherwise enter into any relationship with (other than having a passive ownership interest in or being a customer of) any Sears Competitor.
ii. For purposes of this Agreement, Sears Competitor means:
1. Those companies listed on Appendix A , each of which Executive acknowledges is a Sears Competitor, whether or not it falls within the categories in subsection (ii)(2) immediately below, and further acknowledges that this is not an exclusive list of Sears Competitors and is not intended to limit the generality of subsection (ii)(2) immediately below; and
2. Any party (A) engaged in any retail business (whether in a department store, specialty store, discount store, direct marketing, or electronic commerce or other business format), that consists of selling furniture, appliances, electronics, hardware, lawn/garden, auto parts, food/consumables, toys, seasonal, fitness/sporting goods, apparel and/or pharmacy products, or providing home improvement, product repair and/or home services, with combined annual revenue in excess of $1 billion, or (B) a party engaged in any other line of business, in which Sears (including any Sears Affiliate) has commenced business prior to the end of Executives employment, having annual gross sales in that line of business in excess of $100 million.
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iii. Executive acknowledges that Sears shall have the right to propose modifications to Appendix A periodically to include (1) emergent Competitors in Sears existing lines of business and (2) Competitors in lines of business that are new for Sears, in each case, with the prior written consent of Executive, which consent shall not be unreasonably withheld.
iv. Executive further acknowledges that Sears (or Sears Affiliates) does business throughout the United States, Puerto Rico, U.S. Virgin Islands, Guam and Canada and that this non-compete provision applies in any state or province (as applicable) of the United States, Puerto Rico, U.S. Virgin Islands, Guam and Canada, in which Sears does business.
(d) Restriction on Post-Employment Affiliation with Sears Vendors. Executive acknowledges that as a result of Executives position at Sears or any Sears Affiliate, Executive has learned or developed, or will learn or develop, Sears Confidential Information and that use or disclosure of Sears Confidential Information is likely to occur if Executive were to render advice or services to any Sears Vendor (as defined herein).
i. Therefore, for twelve (12) months from Executives Date of Termination, whether or not Executive receives any Severance Benefits under this Agreement, Executive will not, directly or indirectly, aid, assist, participate in, consult with, render services for, accept a position with, become employed by, or otherwise enter into any relationship with (other than having a passive ownership interest in or being a customer of) any Sears Vendor.
ii. For purposes of this Agreement, Sears Vendor means, the vendors, if any, listed in Appendix A as well as any vendor with combined annual gross sales of services or merchandise to Sears in excess of $200 million.
(e) Compliance with Protective Covenants . Executive will provide Sears with such information as Sears may from time to time reasonably request to determine Executives compliance with this Section 4. Executive authorizes Sears to contact Executives future employers and other entities with which Executive has any business relationship to determine Executives compliance with this Agreement or to communicate the contents of this Agreement to such employers and entities. Executive releases Sears, Sears Affiliates, their agents and employees, from all liability for any damage arising from any such contacts or communications.
(f) Necessity and Reasonableness . Executive agrees that the restrictions set forth herein are necessary to prevent the use and disclosure of Sears Confidential Information and to otherwise protect the legitimate business interests of Sears and Sears Affiliates. Executive further agrees and acknowledges that the provisions of this Agreement are reasonable.
(g) General Release and Waiver . Upon Executives Date of Termination (whether initiated by Sears or Executive in accordance with subsection 1(a) above) potentially entitling Executive to Severance Benefits, Executive will execute a binding general release and waiver of claims in a form to be provided by Sears (General Release and Waiver), which is incorporated by reference under this Agreement. This General
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Release and Waiver will be in a form substantially similar to the attached sample. If the General Release and Waiver is not signed within the time required by the waiver or is signed but subsequently revoked, Executive will not continue to receive any Severance Benefits otherwise payable under subsection 1(a) above. Further, Executive shall be obligated to reimburse Sears for any portion of (i) the Salary Continuation paid during the Salary Continuation Period under subsection (1)(a)(i) herein, and (ii) the cost for the benefits provided during the Salary Continuation Period under subsection (1)(a)(ii) herein. A sample of this General Release and Waiver is provided as Exhibit A to this Agreement.
(h) Exception Request . Notwithstanding the foregoing, Executive may request a waiver or a specific exception to the non-competition provisions of this Agreement by written request to the Vice President, Talent & Human Capital Services or Senior Vice President, General Counsel and Corporate Secretary (or the equivalent) of Sears. Such a request will be given reasonable consideration and may be granted, in whole or in part, or denied at Sears absolute discretion.
5. Irreparable Harm . Executive acknowledges that irreparable harm would result from any breach by Executive of the provisions of this Agreement, including without limitation subsections 4(a), 4(b), 4(c) and 4(d), and that monetary damages alone would not provide adequate relief for any such breach. Accordingly, if Executive breaches or threatens to breach this Agreement, Executive consents to injunctive relief in favor of Sears without the necessity of Sears posting a bond. Moreover, any award of injunctive relief shall not preclude Sears from seeking or recovering any lawful compensatory damages which may have resulted from a breach of this Agreement, including a forfeiture of any future payments and a return of any payments and benefits already received by Executive.
6. Non-Disparagement . Executive will not take any actions that would reasonably be expected to be detrimental to the interests of Sears or any Sears Affiliate, nor make derogatory statements, either written or oral to any third party, or otherwise publicly disparage Sears or any Sears Affiliate, its products, services, or present or former employees, officers or directors, and will not authorize others to make derogatory or disparaging statements on Executives behalf. Sears shall not authorize and shall take reasonable measures to prevent its present or former officers and directors from making derogatory or disparaging statements regarding Executive to any third party. This provision does not and is not intended to preclude Executive from entering into any relationship with a Sears Competitor or Sears Vendor after such relationship is permissible under subsection 4(c) or 4(d), respectively, nor does it preclude Executive from providing truthful testimony in response to legal process or governmental inquiry.
7. Cooperation . Executive agrees, without receiving additional compensation, to fully and completely cooperate with Sears, both during and after the period of employment with Sears or any Sears Affiliate (including any Salary Continuation Period), with respect to matters that relate to Executives period of employment, in all investigations, potential litigation or litigation in which Sears is involved or may become involved other than any such investigations, potential litigation or litigation between Sears and Executive. Sears will reimburse Executive for reasonable travel and out-of-pocket expenses incurred in connection with any such investigations, potential litigation or litigation.
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8. Future Enforcement or Remedy . Any waiver, or failure to seek enforcement or remedy for any breach or suspected breach, of any provision of this Agreement by Sears or Executive in any instance shall not be deemed a waiver of such provision in the future.
9. Acting as Witness . Executive agrees that both during and after the period of employment with Sears or any Sears Affiliate (including any Salary Continuation Period), Executive will not voluntarily act as a witness, consultant or expert for any person or party in any action against or involving Sears or any Sears Affiliate or corporate relative of Sears, unless subject to judicial enforcement to appear as a fact witness only.
10. Breach by Executive . In the event of a breach by Executive of any of the provisions of this Agreement, including without limitation the non-competition provisions (Section 4) and the non-disparagement provision (Section 6) of this Agreement, the obligation of Sears or any Sears Affiliate to pay Salary Continuation or to provide other Severance Benefits under this Agreement will immediately cease and any Salary Continuation payments already received and the value of any other Severance Benefits already received will be returned by Executive to Sears. Further, Executive agrees that Sears shall be entitled to recovery of its attorneys fees incurred as a result of any attempt to redress a breach by Executive or to enforce its rights and protect its interests under the Agreement, provided that Sears prevails in any such action.
11. Severability . If any provision(s) of this Agreement shall be found invalid, illegal, or unenforceable, in whole or in part, then such provision(s) shall be modified or restricted so as to effectuate as nearly as possible in a valid and enforceable way the provisions hereof, or shall be deemed excised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law, as if such provision(s) had been originally incorporated herein as so modified or restricted or as if such provision(s) had not been originally incorporated herein, as the case may be.
12. Governing Law . This Agreement will be governed under the internal laws of the state of Illinois without regard to principles of conflicts of laws. Executive agrees that the state and federal courts located in the state of Illinois shall have exclusive jurisdiction in any action, lawsuit or proceeding based on or arising out of this Agreement, and Executive hereby: (a) submits to the personal jurisdiction of such courts; (b) consents to the service of process in connection with any action, suit, or proceeding against Executive; and (c) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction, venue or service of process.
13. Right to Jury . Executive agrees to waive any right to a jury trial on any claim contending that this Agreement or the General Release and Waiver is illegal or unenforceable in whole or in part, and Executive agrees to try any claims brought in a court or tribunal without use of a jury or advisory jury. Further, should any claim arising out of Executives employment, termination of employment or Salary Continuation Period (if any) be found by a court or tribunal of competent jurisdiction to not be released by the General Release and Waiver, Executive agrees to try such claim to the court or tribunal without use of a jury or advisory jury.
14. Employment-at-Will . This Agreement does not constitute a contract of employment, and Executive acknowledges that Executives employment with Sears or any Sears Affiliate is terminable at-will by either party with or without cause and with or without notice.
August 2012
11
15. Other Plans, Programs, Policies and Practices . If any provision of this Agreement conflicts with any other plan, programs, policy, practice or other Sears document, then the provisions of this Agreement will control, except as otherwise precluded by law. Executive shall not be eligible for any benefits under the Sears Holdings Corporation Master Transition Pay Plan or any successor severance plan or program.
16. Entire Agreement . This Agreement, including any exhibits or appendices hereto, contains and comprises the entire understanding and agreement between Executive and Sears (including any Sears Affiliate) and fully supersedes any and all prior agreements or understandings between Executive and Sears with respect to the subject matter contained herein, and may be amended only by a writing signed by the Chief Executive Officer, Vice President, Talent & Human Capital Services or Senior Vice President, General Counsel and Corporate Secretary (or equivalent) of Sears.
17. Confidentiality . Executive agrees that the existence and terms of the Agreement, including any compensation paid to Executive, and discussions with Sears (including any Sears Affiliate) regarding this Agreement, shall be considered confidential and shall not be disclosed or communicated in any manner except: (a) as required by law or legal process; (b) to Executives spouse or domestic partner, or (c) to Executives financial/legal advisors, all of whom shall agree to keep such information confidential.
18. Tax Withholding . Any compensation paid or provided to Executive under this Agreement shall be subject to any applicable federal, state or local income and employment tax withholding requirements.
19. Notices . All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive : | At the most recent address on file at Sears. | |
If to Sears : | Sears Holdings Corporation | |
3333 Beverly Road | ||
Hoffman Estates, Illinois 60179 | ||
Attention to both: Vice President, Talent & Human Capital Services |
||
Senior Vice President, General Counsel and Corporate Secretary |
||
If post-Spin-off : | Sears Hometown and Outlet Stores, Inc. | |
3333 Beverly Road | ||
Hoffman Estates, Illinois 60179 | ||
Attention to both: Chief Executive Officer |
20. Assignment . Sears may assign its rights under this Agreement to any successor in interest, whether by merger, consolidation, sale of assets, or otherwise. This Agreement shall be binding whether it is between Sears and Executive or between any successor or assignee of Sears or affiliate thereof and Executive. In the event of the Spin-off (as defined in subsection 2(c)(iii) above) and in accordance with the agreements governing the Spin-off, Sears Holdings Corporation will assign and SHO will assume this Agreement.
August 2012
12
21. Section 409A Compliance . To the extent that a payment or benefit under this Agreement is subject to Code Section 409A, it is intended that this Agreement as applied to that payment or benefit comply with the requirements of Code Section 409A, and the Agreement shall be administered and interpreted consistent with this intent.
22. Counterparts . This Agreement may be executed in one or more counterparts, which together shall constitute a valid and binding agreement.
IN WITNESS WHEREOF, Executive and Sears, by its duly authorized representative, have executed this Agreement on the dates stated below, effective as of the date first set forth above.
EXECUTIVE | SEARS HOLDINGS CORPORATION | |||||
/s/ Steven D. Barnhart | BY: | /s/ Dean Carter | ||||
Steven D. Barnhart | ||||||
August 6, 2012 | August 8, 2012 | |||||
Date | Date |
August 2012
13
EXHIBIT A
NOTICE: YOU MAY CONSIDER THIS GENERAL RELEASE AND WAIVER FOR UP TO TWENTY-ONE (21) DAYS. YOU MAY NOT SIGN IT UNTIL ON OR AFTER YOUR LAST DAY OF WORK. IF YOU DECIDE TO SIGN IT, YOU MAY REVOKE THE GENERAL RELEASE AND WAIVER WITHIN SEVEN (7) DAYS AFTER SIGNING. ANY REVOCATION WITHIN THIS PERIOD MUST BE IMMEDIATELY SUBMITTED IN WRITING TO GENERAL COUNSEL, SEARS HOLDINGS CORPORATION, 3333 BEVERLY ROAD, HOFFMAN ESTATES, IL 60179. YOU MAY WISH TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS DOCUMENT.
GENERAL RELEASE AND WAIVER
In consideration for the benefits that I will receive under the attached Executive Severance Agreement, I, and any person acting by, through, or under me hereby release Sears Holdings Corporation, its current and former agents, subsidiaries, affiliates, employees, officers, stockholders, successors, and assigns (Sears), including for avoidance of doubt Sears Hometown and Outlet Stores, Inc., from any and all claims arising out of my employment or the termination thereof. This General Release and Waiver is to be broadly construed to encompass all claims of any kind or character whatsoever, whether known or unknown, based upon any matter occurring prior to my execution of this General Release and Waiver and including, but without limiting the generality of the foregoing, any and all claims under the Age Discrimination in Employment Act (ADEA), Title VII of the Civil Rights Act of 1964, Section 1981 of the Civil Rights Act of 1866, the Americans with Disabilities Act (ADA), the Employee Retirement Income Security Act (ERISA), the Worker Adjustment and Retraining Notification Act (WARN), the Family and Medical Leave Act (FMLA) and any other federal, state or local constitution, statute, regulation, or ordinance, and any and all common law claims including, but not limited to, claims for wrongful or retaliatory discharge, intentional infliction of emotional distress, negligence, defamation, invasion of privacy, and breach of contract. This General Release and Waiver does not apply to any claims or rights that may arise after the date that I signed this General Release and Waiver. I understand that Sears is not admitting to any violation of my rights or any duty or obligation owed to me.
Excluded from this General Release and Waiver are any claims which cannot be waived by law, including but not limited to (1) the right to file a charge with or participate in an investigation conducted by certain government agencies, and (2) any rights or claims to benefits accrued under benefit plans maintained by Sears pursuant to ERISA. I do, however, waive my right to any monetary recovery should any agency or other third party pursue any claims on my behalf. I represent and warrant that I have not filed any complaint, charge, or lawsuit against Sears with any governmental agency and/or any court.
I have read this General Release and Waiver and I understand its legal and binding effect. I am acting voluntarily and of my own free will in executing this General Release and Waiver.
I have had the opportunity to seek, and I was advised in writing to seek, legal counsel prior to signing this General Release and Waiver.
Page 1 of 2
Return both pages of the signed General Release and Waiver
GENERAL RELEASE AND WAIVER (continued)
I was given at least twenty-one (21) days to consider signing this General Release and Waiver. Any immaterial modification of this General Release and Waiver does not restart the twenty-one (21) day consideration period.
I understand that, if I sign the General Release and Waiver, I can change my mind and revoke it within seven (7) days after signing it by notifying the General Counsel of Sears in writing at Sears Holdings Corporation, 3333 Beverly Road, Hoffman Estates, Illinois 60179. I understand that this General Release and Waiver will not be effective until after this seven (7) day revocation period has expired.
Date: SAMPLE ONLY - DO NOT DATE | Signed by: | SAMPLE ONLY - DO NOT SIGN | ||||
Witness by: | SAMPLE ONLY - DO NOT SIGN |
Page 2 of 2
Return both pages of the signed General Release and Waiver
Exhibit 10.18
Sears Holdings Management Corporation 3333 Beverly Road Hoffman Estates, IL 60179 |
Sears Hometown and Outlet Stores, Inc. 3333 Beverly Road Hoffman Estates, IL 60179 |
August 28, 2012
Mr. William Bruce Johnson
1310 N Astor Street
Chicago, IL 60610
Dear Bruce,
On behalf of Sears Hometown and Outlet Stores, Inc. (SHO), we are pleased to extend to you our offer to be Chief Executive Officer and President of SHO. This letter restates and amends the terms of the August 20, 2012 offer letter, to which amendments you, SHO and Sears Holdings Corporation (SHC) have mutually hereby agreed. This restated offer letter is contingent upon the completion of SHCs spin-off of SHO (Spin-off) and subject to the additional contingency listed below.
The key elements of your employment and compensation package are as follows:
|
Upon the Spin-off, you will be transferred to and become an employee of SHO. |
|
Annual Base Salary $1,000,000. |
|
Annual Incentive Plans |
|
With respect to your participation under the Sears Holdings Corporation Annual Incentive Plan (SHC AIP) for the 2012 fiscal year, upon the Spin-off your participation in the 2012 SHC AIP will transition to a new annual incentive plan sponsored by SHO as follows: |
|
For the 1 st and 2 nd fiscal quarters of 2012, the portion of your target incentive award that is based on the quarterly SHC EBITDA measure (25%) will be determined based on year-to-date results. The performance at the end of these two quarters will be compared to the plan goals and if any payout has been earned, it will be paid to you by SHO under the new Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (SHO AIP) in April 2013, provided that you are actively employed by SHO as of the payment date. The SHC EBITDA gate will continue to need to be attained before any payout is earned. The quarterly SHC EBITDA measure will not be a component of your 2012 annual incentive for the 3 rd and 4 th fiscal quarters of 2012. Instead, the 25% weighted incentive based on the quarterly SHC EBITDA measure for the 3 rd and 4 th fiscal quarters of 2012 will be converted to a new measure of SHO EBITDA under the 2012 SHO AIP. |
|
For the performance period prior to the date of the Spin-off and with respect to the annual portion of your target incentive that is currently based on the Auto, Hometown, and Outlet BOPs (75%), the 40% weight based on the Hometown and Outlet BOPs will be converted to a new measure of SHO EBITDA under the 2012 SHO AIP. The 35% weight based on Auto BOP, will be based on year-to-date results at the time of Spin-off and will apply to the full 2012 fiscal year. |
William A. Powell
August 28, 2012
Page 2
|
The liability for any of the above incentive payments will be assigned and assumed by SHO upon the Spin-off. Accruals relating to the annual measures will be transferred upon the Spin-off and accruals relating to the quarterly SHC EBITDA measure will not be transferred until a determination has been made that the SHC EBITDA has been attained. |
|
You will be eligible to participate in the Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (SHO AIP) with an annual incentive opportunity of 100% of your base salary following fiscal 2012. For the period between the effective date of the Spin-off and the end of fiscal 2012, your target annual incentive will be 65% of your base salary applicable to the period and will be based on a SHO EBITDA after the Spin-off. |
|
SHO AIP EBITDA targets and thresholds will be based on the valuation and profit conversion of combined SHC HTS and Outlet BOPs. Final 2012 targets and thresholds for the SHO AIP will be approved by SHO Board of Directors. |
|
Any incentive payable under the SHO AIP with respect to a fiscal year will be paid by April 15th of the following fiscal year, provided that you are actively employed by SHO as of the payment date. Payouts will be pro-rated pending actual date of Spin-off. Further details regarding your 2012 SHO AIP target award will be provided to you following the approval of the 2012 SHO AIP. |
|
Long-Term Incentive Plans |
|
Participation in the Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program (SHO LTIP). You will first become eligible to participate in a SHO LTIP starting with the 2012 SHO LTIP with a target incentive percentage of 200% of base salary (at the time of the LTIP award) when finalized and approved. 2012 targets and thresholds under the SHO LTIP will be based on SHO 3-year valuation and profit projections and approved by the SHO Board of Directors. Further details regarding your 2012 target award under the SHO LTIP will be provided to you following the approval of the 2012 SHO LTIP. SHO, like SHC, intends to provide annual LTIP awards to its executives. |
|
With respect to your participation in the outstanding Sears Holdings Corporation Long-Term Incentive Programs (SHC LTIPs), you currently participate in the 2010 and 2011 SHC LTIPs with a target incentive percentage of 200% of base salary (at the time of the LTIP award) under each. Upon the Spin-off, your participant in these programs will transition as follows: |
|
Your participation under 2010 and 2011 SHC LTIPs will be closed out as of the effective date of the Spin-off and any incentive that may become payable (as explained below) will be payable under the SHO LTIP. The accruals and liability for these payments will be assigned to and assumed by SHO upon the Spin-off. |
|
For the 2010 SHC LTIP, performance to date from fiscal year 2010 through the 2 nd fiscal quarter end of 2012 will be determined and based on year-to-date results. If any incentive has been earned, it will be payable to you under the SHO LTIP in April 2013, in accordance with the terms of the SHO LTIP (which will have terms substantially similar to the SHC LTIP), as long as you are actively employed by SHC or SHO, as applicable, as of the payment date. |
|
For the 2011 SHC LTIP, performance to date from fiscal year 2011 through the 2 nd fiscal quarter end of 2012 will be determined and based on year-to-date results. If any incentive has been earned, it will be payable to you under the SHO LTIPT in April 2014, in accordance with the terms of the SHO LTIP (which will have terms substantially similar to the SHC LTIP), as long as you are actively employed by SHC or SHO, as applicable, as of the payment date. |
William A. Powell
August 28, 2012
Page 3
|
Any payout of these amounts will be pro-rated based on the number of eligible days worked at SHC and SHO, as applicable, during the performance period for each LTIP. |
|
Unvested Restricted Stock and Cash Awards |
|
Prior to effective date of the Spin-off, you received the following restricted stock (RS) and cash awards from SHC that are currently unvested. |
RS Award | RS Current | |||||||||||||||||||||||
RS Grant | Shares | Value (at | Value | |||||||||||||||||||||
Grant Date |
Vest Date | Value/Share | Granted | grant) | ($55/share) | Cash Rights | ||||||||||||||||||
04/06/2010 |
04/06/2013 | $ | 108 | 10,000 | $ | 1,079,100 | $ | 550,000 | $ | 9,289 | ||||||||||||||
04/06/2010 |
04/06/2014 | $ | 108 | 10,000 | $ | 1,079,100 | $ | 550,000 | $ | 9,289 |
|
Because under their terms these awards would forfeit upon the Spin-off, these awards will be transitioned as follows: |
|
In place of your forfeited RS awards, upon the effective date of the Spin-off, you will receive an equivalent cash retention award from SHO, which will continue under the same (remaining) vesting schedule as the award it is replacing. Equivalent value will be determined based upon the market closing price of SHC shares on the day before the effective date of the Spin-off. That closing price will be multiplied by the number of shares for each award to arrive at the dollar value of the cash retention award. |
|
In place of your Cash Rights identified in the chart above (issued in connection with the Spin-off of Orchard Supply Hardware Stores Corporation), and any cash awards issued with respect to your unvested RS awards in connection with this Spin-off, you will receive cash retention awards from SHO, equal to the same amount as these awards and subject to the same (remaining) vesting schedule as the awards they are replacing. |
|
Each of these cash retention awards will be payable by SHO, provided you remain employed by SHO through the vesting date for the applicable award. Notwithstanding the foregoing, with respect to the remaining shares of restricted stock you were granted on April 6, 2010 (which grant vests on a graduated basis; 1 / 4 on each of the first four anniversaries of the grant date), if your employment is involuntarily terminated (other than for Cause, death or Disability, as such capitalized terms are defined in the Executive Severance Agreement, referred to below), as of such termination date you will be deemed to have vested in any portion of the replacement cash retention awards that replace this restricted stock grant and that you were scheduled to vest during the fifteen (15) months immediately following such termination date . |
|
Executive Severance Agreement |
|
Your current Executive Severance Agreement (Agreement) with SHC will be assigned to and assumed by SHO effective as of the Spin-off in accordance with Section 20 of the Agreement. Therefore, if post-Spin-off your employment with SHO is terminated by SHO (other than for Cause, death or Disability) or by you for Good Reason (as such capitalized terms are defined in the Agreement), you will receive twelve (12) months of salary continuation, based on your base salary at the time of termination plus a target bonus (equivalent to your target bonus for the year of termination or if such target bonus has not been set, equivalent to the target bonus for |
William Bruce Johnson
August 28, 2012
Page 4
the year immediately preceding the year of termination), subject to mitigation. Under the Agreement, you agree, among other things, not to disclose confidential information and for twelve (12) months following termination of employment not to solicit employees. You also agree not to aid, assist or render services for any Sears Competitor or Sears Vendor (as such terms are defined in the Agreement) for twelve (12) months following termination of employment. The non-disclosure, non-solicitation, non-compete and non-affiliation provisions apply regardless of whether you are eligible for severance benefits under this Agreement. A copy of your fully executed Agreement is enclosed for your information. |
|
Other |
|
Upon the Spin-off, SHO will assume and continue to provide you with the use of company-furnished ground transportation for travel between your residence in the Chicago metropolitan area and SHOs corporate headquarters in Hoffman Estates, Illinois consistent with the ground transportation benefit you were awarded by the Compensation Committee of the Board of Directors of SHC as outlined in a letter dated April 5, 2010. The aggregate incremental cost will continue to be imputed income to you and you will be responsible for any related taxes. Upon the transfer of your employment from SRC to SHO, SHO will assume and continue to provide this benefit. |
|
On a fiscal year basis, you will continue to be eligible to receive four (4) weeks paid vacation. Added to this, you will qualify for six (6) paid National Holidays each year. You also will be eligible for up to four (4) personal days per year. |
|
Upon the Spin-off, you will continue to be eligible to participate in all retirement, health and welfare programs made available or sponsored by SHO on a basis no less favorable than other SHO executives at your level, in accordance with the applicable terms, conditions and availability of those programs. These benefits will be provided under SHC benefit programs during a benefits transition period, and thereafter SHO intends to sponsor or make available substantially similarly benefit programs. |
Bruce, we are excited about the important contributions you will make to this new independent, public company upon the Spin-off and look forward to your acceptance of our restated offer. If you need additional information or clarification, please call.
This restated offer will expire if not accepted within one week from the date of this letter.
Sincerely,
Sears Holdings Management Corporation | Sears Hometown and Outlet Stores, Inc. | |||
/s/ Dean Carter |
/s/ Robert A Riecker |
|||
Dean Carter |
Robert A Riecker | |||
Chief Human Resources Officer, SHMC |
Interim Financial Officer | |||
Enclosure |
||||
Accepted: |
||||
/s/ W. Bruce Johnson | 8/28/12 | |||
William Bruce Johnson |
Date |
Exhibit 10.19
Sears Holdings Management Corporation 3333 Beverly Road Hoffman Estates, IL 60179 |
Sears Hometown and Outlet Stores, Inc. 3333 Beverly Road Hoffman Estates, IL 60179 |
August 28, 2012
William A. Powell
1905 Stormy Court #203
Schaumburg, IL 60193
Dear Will,
On behalf of Sears Hometown and Outlet Stores, Inc. (SHO), we are pleased to extend to you our offer to be Senior Vice President and Chief Operating Officer of SHO, effective as of the effective date of the spin-off of SHO (Spin-off). In this position you will report to Bruce Johnson, Chief Executive Officer and President of SHO. This letter restates and amends the terms of the August 20, 2012 offer letter, to which amendments you, SHO and Sears Holdings Corporation (SHC) have mutually hereby agreed. This restated offer letter is contingent upon the completion of the Spin-off and subject to the additional contingency listed below.
The key elements of your employment and compensation package are as follows:
|
Upon the Spin-off, you will be transferred to and become an employee of SHO. |
|
Annual Base Salary $550,000. |
|
Annual Incentive Plans |
|
With respect to your participation under the Sears Holdings Corporation Annual Incentive Plan (SHC AIP) for the 2012 fiscal year, upon the Spin-off, your participation in the 2012 SHC AIP will transition to a new annual incentive plan sponsored by SHO as follows: |
|
For the 1 st and 2 nd fiscal quarters of 2012, the portion of your target incentive award that is based on the quarterly SHC EBITDA measure (25%) will be determined based on year-to-date results. The performance at the end of these two quarters will be compared to the plan goals and if any payout has been earned, it will be paid to you by SHO under the new Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (SHO AIP) in April 2013, provided that you are actively employed by SHO as of the payment date . The SHC EBITDA gate will continue to need to be attained before any payout is earned. The quarterly SHC EBITDA measure will not be a component of your 2012 annual incentive for the 3 rd and 4 th fiscal quarters of 2012. Instead, the 25% weighted based on the quarterly SHC EBITDA measure for that time will be converted to a new measure of SHO EBITDA under the 2012 SHO AIP. |
|
The 75% of your target incentive that is currently based on the Hometown BOP with respect to the fiscal 2012 period prior to Spin-off will be converted to a new measure of SHO EBITDA under the 2012 SHO AIP. |
|
The liability for any of the above incentive payments will be assigned and assumed by SHO upon the Spin-off. Accruals relating to the annual measures will be transferred upon the Spin-off and accruals relating to the quarterly SHC EBITDA measure will not be transferred until a determination has been made that the SHC EBITDA has been attained. |
William A. Powell
August 28, 2012
Page 2
|
You will be eligible to participant in the Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (SHO AIP) with an annual incentive opportunity of 75% of your base salary. In addition to the quarterly SHC EBITDA measure explained above, the annual portion of your 2012 target incentive will be converted from a 75% Hometown BOP to 100% SHO EBITDA upon the Spin-off. |
|
SHO AIP EBITDA targets and thresholds will be based on the valuation and profit conversion of combined SHC HTS and Outlet BOPs. Final 2012 targets and thresholds for the SHO AIP will be approved by SHO Board of Directors. |
|
Any incentive payable under the SHO AIP with respect to a fiscal year will be paid by April 15th of the following fiscal year, provided that you are actively employed by SHO as of the payment date. Payouts will be pro-rated pending actual date of Spin-off. Further details regarding your 2012 SHO AIP target award will be provided to you following the approval of the 2012 SHO AIP. |
|
Long-Term Incentive Plans |
|
Participation in the Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program (SHO LTIP). You will first become eligible to participate in a SHO LTIP starting with the 2012 SHO LTIP when finalized and approved. 2012 targets and thresholds under the SHO LTIP will be based on SHO 3-year valuation and profit projections and approved by the SHO Board of Directors. Further details regarding your 2012 target award under the SHO LTIP will be provided to you following the approval of the 2012 SHO LTIP. SHO, like SHC, intends to provide annual LTIP awards to its executives. |
|
With respect to your participation in the outstanding Sears Holdings Corporation Long-Term Incentive Programs (SHC LTIPs), you currently participate in the 2010 and 2011 SHC LTIPs with a target incentive percentage of 100% of base salary (at the time of the LTIP award) under each. Upon the Spin-off, your participant in these programs will transition as follows: |
|
Your participation under 2010 and 2011 SHC LTIPs will be closed out as of the effective date of the Spin-off and any incentive that may become payable (as explained below) will be payable under the SHO LTIP. The accruals and liability for these payments will be assigned to and assumed by SHO upon the Spin-off. |
|
For the 2010 SHC LTIP, performance to date from fiscal year 2010 through the 2 nd fiscal quarter end of 2012 will be determined and based on year-to-date results. If any incentive has been earned, it will be payable to you under the SHO LTIP in April 2013, in accordance with the terms of the SHO LTIP (which will have terms substantially similar to the SHC LTIP), as long as you are actively employed by SHO as of the payment date. |
|
For the 2011 SHC LTIP, performance to date from fiscal year 2011 through the 2 nd fiscal quarter end of 2012 will be determined and based on year-to-date results. If any incentive has been earned, it will be payable to you under the SHO LTIP in April 2014, in accordance with the terms of the SHO LTIP (which will have terms substantially similar to the SHC LTIP), as long as you are actively employed by SHO as of the payment date. |
William A. Powell
August 28, 2012
Page 3
|
Any payout of these amounts will be pro-rated based on the number of eligible days worked at SHC and SHO, as applicable, during the performance period for each LTIP. |
|
Unvested Restricted Stock and Cash Awards |
|
Prior to the effective date of the Spin-Off, you received the following restricted stock (RS) and cash awards from SHC that are currently unvested. |
Grant Date |
Vest Date |
RS
Grant
Value/Share |
Shares
Granted |
Award
Value (at grant) |
Cash
Rights |
Cash
Retention |
Estimated
Value ($55/share) |
|||||||||||||||||||
10/04/2010 |
10/04/2012 | $ | 69 | 1,632 | $ | 112,500 | $ | 1,516 | $ | 112,500 | $ | 89,760 | ||||||||||||||
10/04/2010 |
10/04/2013 | $ | 69 | 1,632 | $ | 112,500 | $ | 1,516 | $ | 112,500 | $ | 89,760 | ||||||||||||||
09/01/2011 |
09/01/2014 | $ | 59 | 1,921 | $ | 112,500 | $ | 1,784 | $ | 112,500 | $ | 105,655 |
|
Because under their terms these awards would forfeit upon the Spin-off, these awards will be transitioned as follows: |
|
In place of your forfeited RS awards, upon the effective date of the Spin-off, you will receive an equivalent cash retention award from SHO, which will continue under the same (remaining) vesting schedule as the award it is replacing. Equivalent value will be determined based upon the market closing price of SHC shares on the day before the effective date of the Spin-off. That closing price will be multiplied by the number of shares for each award to arrive at the dollar value of the cash retention award. |
|
In place of your Cash Rights (issued in connection with the Spin-off of Orchard Supply Hardware Stores Corporation) and the Cash Retention awards referred to in the chart above, and any cash awards issued with respect to your unvested RS awards in connection with this Spin-off, you will receive cash retention awards from SHO, equal to the same amount as these awards and subject to the same (remaining) vesting schedule as the awards they are replacing. |
|
Each of these cash retention awards will be payable by SHO, provided you remain employed by SHO through the vesting date for the applicable award. |
|
Executive Severance Agreement |
|
Your current Executive Severance Agreement (Agreement) with SHC will be assigned to and assumed by SHO effective as of the Spin-off in accordance with Section 20 of the Agreement. Therefore, if post-Spin-off your employment with SHO is terminated by SHO (other than for Cause, death or Disability) or by you for Good Reason (as such capitalized terms are defined in the Agreement), you will receive twelve (12) months of salary continuation, based on your base salary at the time of termination, subject to mitigation. Under the Agreement, you agree, among other things, not to disclose confidential information and for twelve (12) months following termination of employment not to solicit employees. You also agree not to aid, assist or render services for any Sears Competitor or Sears Vendor (as such terms are defined in the Agreement) for twelve (12) months following termination of employment. The non-disclosure, non-solicitation, non-compete and non-affiliation provisions apply regardless of whether you are eligible for severance benefits under this Agreement. A copy of your fully executed Agreement is enclosed for your information. |
William A. Powell
August 28, 2012
Page 4
|
Other |
|
On a fiscal year basis, you will continue to be eligible to receive four (4) weeks paid vacation. Added to this, you will qualify for six (6) paid National Holidays each year. You also will be eligible for up to four (4) personal days per year. |
|
Upon the Spin-off, you will continue to be eligible to participate in all retirement, health and welfare programs made available or sponsored by SHO on a basis no less favorable than other SHO executives at your level, in accordance with the applicable terms, conditions and availability of those programs. These benefits will be provided under SHC benefit programs during a benefits transition period, and thereafter SHO intends to sponsor or make available substantially similarly benefit programs. |
Will, we are excited about the important contributions you will make to this new independent, public company upon the Spin-off and look forward to your acceptance of our restated offer. If you need additional information or clarification, please call.
This restated offer will expire if not accepted within one week from the date of this letter.
Sincerely,
Sears Holdings Management Corporation | Sears Hometown and Outlet Stores, Inc. | |||
/s/ Dean Carter |
/s/ W. Bruce Johnson |
|||
Dean Carter Chief Human Resources Officer |
William Bruce Johnson Chief Executive Officer and President, SHO |
|||
Enclosure | ||||
Accepted: | ||||
/s/ William A. Powell | 8/29/12 | |||
William A. Powell | Date |
Exhibit 10.20
Sears Holdings Management Corporation |
Sears Hometown and Outlet Stores, Inc. | |||
3333 Beverly Road |
3333 Beverly Road | |||
Hoffman Estates, IL 60179 |
Hoffman Estates, IL 60179 |
August 28, 2012
John E. Ethridge, II
1106 Schiedler Dr
Batavia, IL 60510
Dear JJ,
On behalf of Sears Hometown and Outlet Stores, Inc. (SHO), we are pleased to extend to you our offer to be Vice President, Supply Chain and Technology of SHO, effective as of the effective date of the spin-off of SHO (Spin-off). In this position you will report to Bruce Johnson, Chief Executive Officer and President of SHO. This letter restates and amends the terms of the August 20, 2012 offer letter, to which amendments you, SHO and Sears Holdings Corporation (SHC) have mutually hereby agreed. This restated offer letter is contingent upon the completion of the Spin-off.
The key elements of your employment and compensation package are as follows:
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Upon the Spin-off, you will be transferred to and become an employee of SHO. |
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Annual Base Salary $260,000. |
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Annual Incentive Plans |
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With respect to your participation under the Sears Holdings Corporation Annual Incentive Plan (SHC AIP) for the 2012 fiscal year, upon the Spin-off, your participation in the 2012 SHC AIP will transition to a new annual incentive plan sponsored by SHO as follows: |
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For the 1 st and 2 nd fiscal quarters of 2012, the portion of your target incentive award that is based on the quarterly SHC EBITDA measure (25%) will be determined based on year-to-date results. The performance at the end of these two quarters will be compared to the plan goals and if any payout has been earned, it will be paid to you by SHO under the new Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (SHO AIP) in April 2013, provided that you are actively employed by SHO as of the payment date . The SHC EBITDA gate will continue to need to be attained before any payout is earned. The quarterly SHC EBITDA measure will not be a component of your 2012 annual incentive for the 3 rd and 4 th fiscal quarters of 2012. Instead, the 25% weighted incentive based on the quarterly SHC EBITDA measure for the 3 rd and 4 th fiscal quarters of 2012 will be converted to a new measure of SHO EBITDA under the 2012 SHO AIP. |
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The 75% of your target incentive that is currently based on the Outlet BOP with respect to the fiscal 2012 period prior to Spin-off will be converted to a new measure of SHO EBITDA under the 2012 SHO AIP. |
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The liability for any of the above incentive payments will be assigned and assumed by SHO upon the Spin-off. Accruals relating to the annual measures will be transferred upon the Spin-off and accruals relating to the quarterly SHC EBITDA measure will not be transferred until a determination has been made that the SHC EBITDA has been attained. |
John E. Ethridge, II
August 28, 2012
Page 2
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You will be eligible to participate in the Sears Hometown and Outlet Stores, Inc. the Annual Incentive Plan (SHO AIP) with an annual incentive opportunity of 50% of your base salary. In addition to the quarterly SHC EBITDA measure explained above, the annual portion of your 2012 target incentive will be converted from a 75% weight based on Outlet BOP to 100% SHO EBITDA upon the Spin-off. |
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SHO AIP EBITDA targets and thresholds will be based on the valuation and profit conversion of combined SHC HTS and Outlet BOPs. Final 2012 targets and thresholds for the SHO AIP will be approved by SHO Board of Directors. |
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Any incentive payable under the SHO AIP with respect to a fiscal year will be paid by April 15th of the following fiscal year, provided that you are actively employed by SHO as of the payment date. Payouts will be pro-rated pending actual date of Spin-off. Further details regarding your 2012 SHO AIP target award will be provided to you following the approval of the 2012 SHO AIP. |
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Long-Term Incentive Plans |
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Participation in the Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program (SHO LTIP). You will first become eligible to participate in a SHO LTIP starting with the 2012 SHO LTIP when finalized and approved. 2012 targets and thresholds under the SHO LTIP will be based on SHO 3-year valuation and profit projections and approved by the SHO Board of Directors. Further details regarding your 2012 target award under the SHO LTIP will be provided to you following the approval of the 2012 SHO LTIP. SHO, like SHC, intends to provide annual LTIP awards to its executives. |
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With respect to your participation in the outstanding Sears Holdings Corporation Long-Term Incentive Program (SHC LTIP), you currently participate in the 2011 SHC LTIP with a target incentive percentage of 50% of base salary (at the time of the LTIP award). Upon the Spin-off, your participant in this program will transition as follows: |
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Your participation under the 2011 SHC LTIP will be closed out as of the effective date of the Spin-off and any incentive that may become payable (as explained below) will be payable under the SHO LTIP. The accruals and liability for these payments will be assigned to and assumed by SHO upon the Spin-off. |
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For the 2011 SHC LTIP, performance to date from fiscal year 2011 through the 2 nd fiscal quarter end of 2012 will be determined and based on year-to-date results. If any incentive has been earned, it will be payable to you under the SHO LTIP in April 2014, in accordance with the terms of the SHO LTIP (which will have terms substantially similar to the SHC LTIP). |
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Any payout of these amounts will be pro-rated based on the number of eligible days worked at SHC and SHO, as applicable, during the performance period for each LTIP. |
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Executive Severance Agreement |
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Your current Executive Severance Agreement (Agreement) with SHC will be assigned to and assumed by SHO effective as of theSpin-off in accordance with Section 20 of the Agreement. Therefore, if post-Spin-off your employment with SHO is terminated by SHO (other than for Cause, death or Disability) or by you for Good Reason (as such capitalized terms are defined in the Agreement), you will receive six (6) months of salary continuation, based on to your base salary at the time of termination, subject to mitigation. Under the Agreement, you agree, among other things, not to disclose confidential information and for six (12) months following |
John E. Ethridge, II
August 28, 2012
Page 3
termination of employment not to solicit employees. You also agree not to aid, assist or render services for any Sears Competitor or Sears Vendor (as such terms are defined in the Agreement) for six (6) months following termination of employment. The non-disclosure, non-solicitation, non-compete and non-affiliation provisions apply regardless of whether you are eligible for severance benefits under this Agreement. A copy of your fully executed Agreement is enclosed for your information. |
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Other |
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On a fiscal year basis, you will continue to be eligible to receive four (4) weeks paid vacation. Added to this, you will qualify for six (6) paid National Holidays each year. You also will be eligible for up to four (4) personal days per year. |
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Upon the Spin-off, you will continue to be eligible to participate in all retirement, health and welfare programs made available or sponsored by SHO on a basis no less favorable than other SHO executives at your level supporting SHO, in accordance with the applicable terms, conditions and availability of those programs. These benefits will be provided under SHC benefit programs during a benefits transition period, and thereafter SHO intends to sponsor or make available substantially similarly benefit programs upon your transfer of employment to SHO. |
JJ, we are excited about the important contributions you will make to this new independent, public company and look forward to your acceptance of our restated offer. If you need additional information or clarification, please call.
This restated offer will expire if not accepted within one week from the date of this letter.
Sincerely,
Sears Holdings Management Corporation | Sears Hometown and Outlet Stores, Inc. | |||
/s/ Dean Carter |
/s/ W. Bruce Johnson |
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Dean Carter | William Bruce Johnson | |||
Chief Human Resources Officer |
Chief Executive Officer and President, SHO | |||
Enclosure | ||||
Accepted: | ||||
/s/ John E. Ethridge, II |
8/29/12 | |||
John E. Ethridge, II | Date |
Exhibit 10.21
Sears Holdings Management Corporation | Sears Hometown and Outlet Stores, Inc. | |
3333 Beverly Road | 3333 Beverly Road | |
Hoffman Estates, IL 60179 | Hoffman Estates, IL 60179 |
August 28, 2012
Charles J. Hansen
2020 Knollwood Road
Lake Forest, IL 60045
Dear Charles,
On behalf of Sears Hometown and Outlet Stores, Inc. (SHO), we are pleased to extend to you our offer to be Vice President and General Counsel of SHO, effective as of the effective date of the spin-off of SHO (Spin-off). In this position you will report to Bruce Johnson, Chief Executive Officer and President of SHO. This letter restates and amends the terms of the August 20, 2012 offer letter, to which amendments you, SHO and Sears Holdings Corporation (SHC) have mutually hereby agreed. This restated offer letter serves is contingent upon the completion of the Spin-off.
The key elements of your compensation package are as follows:
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Upon the Spin-off, you will be transferred to and become an employee of SHO. |
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Annual Base Salary - $410,000. |
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Annual Incentive Plans |
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With respect to your participation under the Sears Holdings Corporation Annual Incentive Plan (SHC AIP) for the 2012 fiscal year, upon the Spin-off, your participation in the 2012 SHC AIP will transition to a new annual incentive plan sponsored by SHO as follows: |
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For the 1 st and 2 nd fiscal quarters of 2012, the portion of your target incentive award that is based on the quarterly SHC EBITDA measure (25%) will be determined based on year-to-date results. The performance at the end of these two quarters will be compared to the plan goals and if any payout has been earned, it will be paid to you by SHO under the new Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (SHO AIP) in April 2013, provided that you are actively employed by SHO as of the payment date. The SHC EBITDA gate will continue to need to be attained before any payout is earned. The quarterly SHC EBITDA measure will not be a component of your 2012 annual incentive for the 3 rd and 4 th fiscal quarters of 2012. Instead, the 25% weighted incentive based on the quarterly SHC EBITDA measure for the 3 rd and 4 th fiscal quarters of 2012 will be converted to a new measure of SHO EBITDA under the 2012 SHO AIP. |
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For the 1 st and 2 nd fiscal quarters of 2012, the annual portion of your target incentive that is currently based on the SHC Support Plan (25% SHC EBITDA and 50% Operating BU AIP performance), will be converted to a new measure of SHO EBITDA under the 2012 SHO AIP. |
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The liability for any of the above incentive payments will be assigned and assumed by SHO upon the Spin-off. Accruals relating to the annual measures will be transferred upon the Spin-off and accruals relating to the quarterly SHC EBITDA measure will not be transferred until a determination has been made that the SHC EBITDA has been attained. |
Charles J. Hansen
August 28, 2012
Page 2
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You will be eligible to participate in the Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (SHO AIP) with an annual incentive opportunity of 50% of your base salary. In addition to the quarterly SHC EBITDA measure explained above, the annual portion of your 2012 target incentive based on 25% SHC EBITDA and 50% SHC Operating BU AIP performance will be converted to 100% SHO EBITDA upon the Spin-off. |
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SHO AIP EBITDA targets and thresholds will be based on the valuation and profit conversion of combined SHC HTS and Outlet BOPs. Final 2012 targets and thresholds for the SHO AIP will be approved by SHO Board of Directors. |
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Any incentive payable under the SHO AIP with respect to a fiscal year will be paid by April 15th of the following fiscal year, provided that you are actively employed by SHO as of the payment date. Payouts will be pro-rated pending actual date of Spin-off. Further details regarding your 2012 SHO AIP target award will be provided to you following the approval of the 2012 SHO AIP. |
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Long-Term Incentive Plans |
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Participation in the Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program (SHO LTIP). You will first become eligible to participate in a SHO LTIP starting with the 2012 SHO LTIP when finalized and approved. 2012 targets and thresholds under the SHO LTIP will be based on SHO 3-year valuation and profit projections and approved by the SHO Board of Directors. Further details regarding your 2012 target award under the SHO LTIP will be provided to you following the approval of the 2012 SHO LTIP. SHO, like SHC, intends to provide annual LTIP awards to its executives. |
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With respect to your participation in the outstanding Sears Holdings Corporation Long-Term Incentive Program (SHC LTIP), you currently participate in the 2010 and 2011 SHC LTIP with a target incentive percentage of 50% of base salary (at the time of the LTIP award). Upon the Spin-off, your participant in this program will transition as follows: |
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Your participation under the 2010 and 2011 SHC LTIP will be closed out as of the effective date of the Spin-off and any incentive that may become payable (as explained below) will be payable under the SHO LTIP. The accruals and liability for these payments will be assigned to and assumed by SHO upon the Spin-off. |
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For the 2010 SHC LTIP, performance to date from fiscal year 2010 through the 2 nd fiscal quarter end of 2012 will be determined and based on year-to-date results. If any incentive has been earned, it will be payable to you under the SHO LTIP in April 2013, in accordance with the terms of the SHO LTIP (which will have terms substantially similar to the SHC LTIP). |
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For the 2011 SHC LTIP, performance to date from fiscal year 2011 through the 2 nd fiscal quarter end of 2012 will be determined and based on year-to-date results. If any incentive has been earned, it will be payable to you under the SHO LTIP by SHO in April 2014, in accordance with the terms of the SHO LTIP (which will have terms substantially similar to the SHC LTIP). |
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Any payout of these amounts will be pro-rated based on the number of eligible days worked at SHC and SHO, as applicable, during the performance period for each LTIP. |
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Executive Severance Agreement |
Charles J. Hansen
August 28, 2012
Page 3
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As required, you have signed an Executive Severance Agreement (Agreement). If your employment with SHC or SHO is terminated by SHC or SHO (other than for Cause, death or Disability) or by you for Good Reason (as such capitalized terms are defined in the Agreement), you will receive six (6) months of salary continuation, based on your base salary at the time of termination, subject to mitigation. Under the Agreement, you agree, among other things, not to disclose confidential information and for twelve (12) months following termination of employment not to solicit employees. You also agree not to aid, assist or render services for any Sears Competitor or Sears Vendor (as such terms are defined in the Agreement) for six (6) months following termination of employment. The non-disclosure, non-solicitation, non-compete and non-affiliation provisions apply regardless of whether you are eligible for severance benefits under this Agreement. This Agreement with SHC will be assigned to and assumed by SHO effective as of the Spin-off in accordance with Section 20 of the Agreement. A copy of your fully executed Agreement is enclosed for your information. |
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Other |
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On a fiscal year basis, you will continue to be eligible to receive four (4) weeks paid vacation. Added to this, you will qualify for six (6) paid National Holidays each year. You also will be eligible for up to four (4) personal days per year. |
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Upon the Spin-off, you will continue to be eligible to participate in all retirement, health and welfare programs made available or sponsored by SHO on a basis no less favorable than other SHO executives at your level, in accordance with the applicable terms, conditions and availability of those programs. These benefits will be provided under SHC benefit programs during a benefits transition period, and thereafter SHO intends to sponsor or make available substantially similarly benefit programs. |
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
Charles J. Hansen
August 28, 2012
Page 4
Charles, we are excited about the important contributions you will make to this new independent, public company upon the Spin-off and look forward to your acceptance of our restated offer. If you need additional information or clarification, please call.
This restated offer will expire if not accepted within one week from the date of this letter.
Sincerely,
Sears Holdings Management Corporation | Sears Hometown and Outlet Stores, Inc. | |||
/s/ Dean Carter |
/s/ W. Bruce Johnson |
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Dean Carter | William Bruce Johnson | |||
Chief Human Resources Officer | Chief Executive Officer and President, SHO | |||
Enclosure | ||||
Accepted: | ||||
/s/ Charles J. Hansen |
8/29/12 | |||
Charles J. Hansen | Date |
Exhibit 10.22
Sears Holdings Management Corporation 3333 Beverly Road Hoffman Estates, IL 60179 |
Sears Hometown and Outlet Stores, Inc. 3333 Beverly Road Hoffman Estates, IL 60179 |
August 28, 2012
Steven D. Barnhart
1143 N. Sheridan Road
Lake Forest, IL 60045
Dear Steve,
We are pleased to extend to you our offer to join Sears Holdings Corporation (SHC) as Senior Vice President, Chief Financial Officer of Sears Hometown and Outlet Stores, Inc. (SHO), reporting to Bruce Johnson, Chief Executive Officer and President of SHO. Your start date is August 22, 2012. This letter restates and amends the terms of the August 20, 2012 offer letter, to which amendments you, SHO and SHC have mutually hereby agreed.
The key elements of your employment and compensation package are as follows:
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Upon SHCs spin-off of SHO (Spin-off), you will become an employee of SHO. |
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Annual base salary at a rate of $500,000. |
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Participation in the Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (SHO AIP) with an annual incentive opportunity of 75% of your base salary. For the 2012 plan year, your target incentive amount is $375,000 and you will receive the greater of: a) 50% of your 2012 target (Special Incentive Award) or b) the actual amount payable to you based on 2012 financial goal attainment (assuming no proration based on your start date). The Special Incentive Award will be reduced by any amount payable to you under the 2012 SHO AIP. With respect to any incentive payable for the 2012 fiscal year, it will be paid by April 15, 2013, provided that you are actively employed through February 2, 2013 (the last day of the 2012 fiscal year). For any fiscal year after 2012, any incentive payable with respect to a fiscal year will be paid by April 15th of the following fiscal year, provided that you are actively employed by SHO as of the payment date. Further details regarding your 2012 target award under the SHO AIP will be provided to you following the approval of the 2012 SHO AIP by SHO Board of Directors. |
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Participation in the Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program (SHO LTIP). You will first become eligible to participate in an LTIP starting with the 2012 SHO LTIP when finalized and approved by SHO Board of Directors, with an incentive opportunity of 100% of your base salary. Your 2012 SHO LTIP target will not be pro-rated and will be equivalent to a full year target award. Further details regarding your 2012 target award under the SHO LTIP will be provided to you following the approval of the 2012 SHO LTIP. SHO, like SHC, intends to provide annual LTIP awards to its executives. |
Steven D. Barnhart
August 28, 2012
Page 2
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You will receive a one-time sign-on bonus of $300,000 (gross). This sign-on bonus will be payable within thirty (30) days following your start date. In the event you voluntarily terminate your employment with SHC (other than for Good Reason as defined under the Executive Severance Agreement referred to below) prior to the Spin-off, or with SHO following the Spin-off, or are terminated by SHC or SHO for misconduct or integrity issues, you will be required to repay (a) if such termination occurs within twelve (12) months of your start date, the full amount of the payment paid to you or (b) if such termination occurs during the thirteenth through twenty-fourth month of employment, the full amount reduced by 1/12 th for each full month that you remain employed after the first twelve (12) months of employment. In either case, your repayment obligation includes any taxes withheld for such amounts, unless prohibited by law, to SHC or SHO, as applicable, and is due within thirty (30) days of your last day worked. |
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You will be eligible to receive a special cash retention bonus of $400,000 (gross). This special bonus will be scheduled to vest on a graded basis, with one-third of the bonus vesting and becoming payable as soon as administratively possible following each of the first, second and third anniversaries of your start date, provided you are actively employed by SHO on the applicable payment date. In the event you are terminated by SHC or SHO other than for Cause or by you for Good Reason (as such capitalized terms are defined in the Executive Severance Agreement referred to below), you will be deemed to be vested in any portion of this special cash retention bonus scheduled to vest in during the twelve (12) months immediately following such termination date. As of the Spin-off,, SHO will assume and pay any portion of this bonus that has not yet been paid and become payable. |
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You represent and warrant to SHC that (a) as of your start date with SHC, you are not subject to any obligation, written or oral, containing any non-competition provision or any other restriction (including, without limitation, any confidentiality provision) that would result in any restriction on your ability to accept and perform this or any other position with SHC or any of its affiliates, including SHO, and (b) you are not, except as disclosed to and approved by SHC in advance of your start date, (i) a member of any board of directors, board of trustees or similar governing body of any for-profit, non-profit or not-for-profit entity, other than USA Technologies and Lake Forest Open Lands Association which memberships have been approved by SHC, or (ii) a party to any agreement, written or oral, with any entity under which you would receive remuneration for your services,. You agree that you will not (A) become a member of any board or body described in clause (b)(i) of the preceding sentence or (B) become a party to any agreement described in clause (b)(ii) of the preceding sentence, in each case without the prior written consent of SHC prior to the Spin-off or SHO following the Spin-off, such consent not to be unreasonably withheld. Further, you agree you will not disclose or use, in violation of an obligation of confidentiality, any information that you acquired as a result of any previous employment or otherwise. |
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As required, you have signed an Executive Severance Agreement (Agreement). If your employment with SHC or SHO is terminated by SHC or SHO (other than for Cause, death or Disability) or by you for Good Reason (as such capitalized terms are defined in the Agreement): |
Steven D. Barnhart
August 28, 2012
Page 3
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Before the completion of the first anniversary of the effective date of the Spin-off, you will receive twelve (12) months of salary continuation, equal to your base salary plus an amount equivalent to your target annual incentive at the time of termination, subject to mitigation; or |
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After the first anniversary of the effective date of the Spin-off, you will receive twelve (12) months of salary continuation, equal to the total of your base salary at the time of termination, subject to mitigation. |
In addition, your definition of Good Reason includes the Spin-off not being completed during the twelve (12) months following your start date, in which case if you terminate your employment for this reason within twelve (12) months of your start date, you will receive twelve (12) months of salary continuation, based on your base salary at the time of termination plus an amount equivalent to your target annual incentive, subject to mitigation. For purposes of this Agreement, mitigation will not include any approved external director fees that you are otherwise receiving and/or earning at the time of such termination. Under the Agreement, you agree, among other things, not to disclose confidential information and for twelve (12) months following termination of employment not to solicit employees. You also agree not to aid, assist or render services for any Sears Competitor or Sears Vendor (as such terms are defined in the Agreement) for twelve (12) months following termination of employment. The non-disclosure, non-solicitation, non-compete and non-affiliation provisions apply regardless of whether you are eligible for severance benefits under this Agreement. This Agreement with SHC will be assigned to and assumed by SHO effective as of the Spin-off in accordance with Section 20 of the Agreement. A copy of your fully executed Agreement is enclosed for your information.
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You will be eligible to receive four (4) weeks paid vacation, which will be pro-rated during your first year of service based on your start date. Added to this, you will qualify for six (6) paid National Holidays each year. You also will be eligible for up to four (4) personal days per year, after completing six (6) months of service. |
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You will be eligible to participate in all retirement, health and welfare programs made available or sponsored SHO on a basis no less favorable than other SHO executives at your level, in accordance with the applicable terms, conditions and availability of those programs. These benefits will be provided under SHC benefit programs during a benefits transition period, and thereafter SHO intends to sponsor or make available substantially similarly benefit programs. |
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This offer also was contingent upon satisfactory completion of a background reference check, employment authorization verification and pre-employment drug test, all of which you have satisfied as of the date of this restated offer letter. |
(Remainder of page intentionally left blank)
Steven D. Barnhart
August 28, 2012
Page 4
Steve, we are excited about the important contributions you will make to the company and look forward to your acceptance of our restated offer. If you need additional information or clarification, please call.
This restated offer will expire if not accepted within one week from the date of this letter. To accept, sign below and return this letter to me, Dean Carter, at SHMC address shown above.
Sears Holdings Management Corporation | Sears Hometown and Outlet Stores, Inc. | |||
/s/ Dean Carter |
/s/ W. Bruce Johnson |
|||
Dean Carter | William Bruce Johnson | |||
Chief Human Resources Officer, SHMC |
Chief Executive Officer and President, SHO |
Enclosure | ||
Accepted: | ||
/s/ Steven D. Barnhart | 8/29/12 | |
Steven D. Barnhart | Date |
Exhibit 10.23
Sears Holdings Management Corporation 3333 Beverly Road Hoffman Estates, IL 60179 |
Sears Hometown and Outlet Stores, Inc. 3333 Beverly Road Hoffman Estates, IL 60179 |
August 28, 2012
Ms. Becky Iliff
1510 W. Cullom Ave.
Chicago, IL 60613
Dear Becky,
We are pleased to extend to you our offer to join Sears Holdings Corporation (SHC) as Vice President, Human Resources of Sears Hometown and Outlet Stores, Inc. (SHO). You will report to Bruce Johnson, Chief Executive Officer and President of SHO. This letter restates and amends the terms of the August 20, 2012 offer letter, to which amendments you, SHO and SHC have mutually hereby agreed.
The key elements of your employment and compensation package are as follows:
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Upon SHCs spin-off of SHO (Spin-off), you will become an employee of SHO. |
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Annual base salary at a rate of $240,000. |
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Participation in the Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan (SHO AIP) with an annual incentive opportunity of 50% of your base salary. Your 2012 target incentive under the SHO AIP will be prorated from your start date through February 2, 2013, the last day of SHOs 2012 fiscal year. Any incentive payable with respect to a fiscal year will be paid by April 15th of the following fiscal year, provided that you are actively employed by SHO as of the payment date. Further details regarding your 2012 target award under the SHO AIP will be provided to you following the approval of the 2012 SHO AIP by SHO Board of Directors. |
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Participation in the Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program (SHO LTIP). You will first become eligible to participate in an LTIP starting with the 2012 SHO LTIP when finalized and approved by SHO Board of Directors. Further details regarding your 2012 target award under the SHO LTIP will be provided to you following the approval of the 2012 SHO LTIP. SHO, like SHC, intends to provide annual LTIP awards to its executives. |
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You will receive a one-time sign-on bonus of $25,000 (gross). This sign-on bonus will be payable within thirty (30) days following your start date. In the event you voluntarily terminate your employment with SHC prior to the Spin-off or with SHO following the Spin-off, or are terminated by SHC or SHO for misconduct or integrity issues, in either case within twenty four (24) months of your start date, you will be required to repay the full amount of the payment paid to you, including any taxes withheld, unless prohibited by law, to SHC or SHO, as applicable, within thirty (30) days of your last day worked. |
Ms. Becky Iliff
August 28, 2012
Page 2
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You will be eligible to receive a special cash retention bonus of $150,000 (gross). This special bonus will be scheduled to vest on a graded basis, with one-third of the bonus vesting and becoming payable as soon as administratively possible following each of the first, second and third anniversaries of your start date, provided you are actively employed by SHO on the applicable payment date. As of the Spin-off, SHO will assume and pay any portion of this bonus that has not yet been paid and become payable. |
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You represent and warrant to SHC that (a) as of your start date with SHC, you are not subject to any obligation, written or oral, containing any non-competition provision or any other restriction (including, without limitation, any confidentiality provision) that would result in any restriction on your ability to accept and perform this or any other position with SHC or any of its affiliates, including SHO, and (b) you are not (i) a member of any board of directors, board of trustees or similar governing body of any for-profit, non-profit or not-for-profit entity, or (ii) a party to any agreement, written or oral, with any entity under which you would receive remuneration for your services, except as disclosed to and approved by SHC in advance of your start date. You agree that you will not (A) become a member of any board or body described in clause (b)(i) of the preceding sentence or (B) become a party to any agreement described in clause (b)(ii) of the preceding sentence, in each case without the prior written consent of SHC prior to the Spin-off or SHO following the Spin-off, such consent not to be unreasonably withheld. Further, you agree you will not disclose or use, in violation of an obligation of confidentiality, any information that you acquired as a result of any previous employment or otherwise. |
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As required, you have signed an Executive Severance Agreement (Agreement). If your employment with SHC or SHO is terminated by SHC or SHO (other than for Cause, death or Disability) or by you for Good Reason (as such capitalized terms are defined in the Agreement), you will receive six (6) months of salary continuation, based on to your base salary at the time of termination, subject to mitigation. Under the Agreement, you agree, among other things, not to disclose confidential information and for twelve (12) months following termination of employment not to solicit employees. You also agree not to aid, assist or render services for any Sears Competitor or Sears Vendor (as such terms are defined in the Agreement) for six (6) months following termination of employment. The non-disclosure, non-solicitation, non-compete and non-affiliation provisions apply regardless of whether you are eligible for severance benefits under this Agreement. This Agreement with SHC will be assigned to and assumed by SHO effective as of the Spin-off in accordance with Section 20 of the Agreement. A copy of your fully executed Agreement is enclosed for your information. |
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You will be eligible to receive four (4) weeks paid vacation, which will be pro-rated during your first year of service based on your start date. Added to this, you will qualify for six (6) paid National Holidays each year. You also will be eligible for up to four (4) personal days per year, after completing six (6) months of service. |
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You will be eligible to participate in all retirement, health and welfare programs made available or sponsored SHO on a basis no less favorable than other SHO executives at your level, in accordance with the applicable terms, conditions and availability of those programs. These benefits will be provided under SHC benefit programs during a benefits transition period, and thereafter SHO intends to sponsor or make available substantially similarly benefit programs. |
Ms. Becky Iliff
August 28, 2012
Page 3
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This offer also was contingent upon satisfactory completion of a background reference check, employment authorization verification and pre-employment drug test, all of which you have satisfied as of the date of this restated offer letter. |
Becky, we are excited about the important contributions you will make to the company and look forward to your acceptance of our restated offer. If you need additional information or clarification, please call.
This restated offer will expire if not accepted within one week from the date of this letter. To accept, sign below and return this letter to my attention.
Sears Holdings Management Corporation | Sears Hometown and Outlet Stores, Inc. | |||
/s/ Dean Carter |
/s/ W. Bruce Johnson |
|||
Dean Carter | William Bruce Johnson | |||
Chief Human Resources Officer | Chief Executive Officer and President, SHO | |||
Enclosure | ||||
Accepted: | ||||
/s/ Becky Iliff |
8/29/12 | |||
Becky Iliff | Date |
Exhibit 10.24
Sears Hometown and Outlet Stores, Inc.
Director Compensation Policy
This sets forth the Director Compensation Policy (the Policy ) of Sears Hometown and Outlet Stores, Inc. (the Company ), as adopted by the Board of Directors of the Company (the Board ), which shall remain in effect until amended, replaced or rescinded by further action of the Board. The cash compensation described in this Policy shall be paid or be made, as applicable, automatically and without further action of the Board, to each non-employee director. Members of the Board shall not be entitled to receive any compensation for service on the Board other than as described in the Policy.
1. Cash Compensation.
Payment Amount. Each non-employee director elected to serve as a member of the Board at the Companys Annual Stockholders Meeting each year shall be eligible to receive an annual retainer of $60,000, paid in cash, for service on the Board. For purposes of this policy, annual means from Annual Stockholders Meeting to Annual Stockholders Meeting each year. In addition, a non-employee director serving as Chairman of the Audit Committee shall be eligible to receive an additional annual retainer of $10,000, paid in cash, for such service.
Payment Schedule and Vesting. The annual retainers for service on the Board and as chairman of committees of the Board as set forth above shall be paid by the Company in four equal quarterly installments, the first installment being paid on the date of the three month anniversary of the Annual Stockholders Meeting and the remaining installments being paid on each successive three month anniversary date (each such payment date, a Quarterly Payment Date ); provided , however, that if the Companys Annual Stockholders Meeting for the following year occurs prior to the end of the one year period, the final Quarterly Payment Date shall be paid on the day of such Annual Stockholders Meeting. If any non-employee director holds office as a director of the Board for less than a full annual period, such non-employee director shall only be entitled to the portion of the annual retainer payable through the Quarterly Payment Date following the date on which the non-employee director shall have ceased to serve on the Board.
New Directors. In the event a new non-employee director is elected or appointed to the Board, such non-employee director shall be eligible to receive as compensation for service as a member of the Board or as Chairman of the Audit Committee, a pro-rated amount of their applicable annual retainer as measured from the date of appointment or election through the next scheduled Quarterly Payment Date and thereafter shall be paid in conformity with the other non-employee directors; provided , however, that each of the non-employee directors who are directors as of the date of the Companys separation from Sears Holdings Corporation (each such director, an Initial Director ) shall be eligible to receive as compensation for service as a member of the Board or as Chairman of the Audit Committee the full annual retainer, as set forth above and without pro-ration, for such Initial Directors service up until the date of the first Annual Stockholders Meeting; provided further , however, that if an Initial Director ceases to be a director prior to the first Annual Stockholders Meeting, such Initial Director shall not be entitled to receive a payment on any Quarterly Payment Date (other than the initial Quarterly Payment Date) unless he or she served as a director subsequent to the immediately preceding Quarterly Payment Date.
2. Expense Reimbursement.
All directors, including, for the avoidance of doubt, directors who are employees of the Company, will be reimbursed for all reasonable out-of-pocket expenses incurred by such directors in connection with their participation in meetings of the Board (and committees thereof) and the boards of directors (and committees thereof) of the subsidiaries of the Company. The Company shall make reimbursement to directors within a reasonable amount of time following submission by the directors of reasonable written substantiation for the expenses.
Adopted August 30, 2012
2
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated April 30, 2012, relating to the combined financial statements of Sears Hometown and Outlet Stores (combined Sears Hometown and Hardware and Sears Outlet businesses of Sears Holdings Corporation) which is contained in that Prospectus.
We also consent to the reference to us under the caption Experts in the Prospectus.
/s/ BDO USA, LLP
Chicago, Illinois
August 31, 2012