UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): May 24, 2017
SEARS HOMETOWN AND OUTLET STORES, INC.
(Exact Name of Registrant as Specified in Charter)
 
 
 
 
 
Delaware
 
001-35641
 
80-0808358
(State or Other Jurisdiction
of Incorporation)
 
(Commission
File Number)
 
(IRS Employer
Identification No.)
 
 
5500 Trillium Boulevard, Suite 501
Hoffman Estates, Illinois
 
60192
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (847) 286-7000
(Former Name or Former Address, if Changed Since Last Report):

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o





Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangement of Certain Officers .
    
On May 24, 2017 the Board of Directors of Sears Hometown and Outlet Stores, Inc. (the “Company”) elected E. J. Bird as the Company’s Interim Chief Financial Officer, effective June 1, 2017. Mr. Bird has served as a member of the Company’s Board of Directors since the Company’s separation from Sears Holdings Corporation in October 2012, and he provided financial consulting services to the Company during May 2017. From March 2013 until June 2016 he served as Executive Vice President and Chief Financial Officer of Sears Canada Inc., a retailer, and served as a director of Sears Canada Inc. from May 2006 until September 2013. Prior to his Sears Canada Inc. employment he was a private investor.

The Company and Mr. Bird have entered into a Temporary Employment Agreement dated May 24, 2017. The Temporary Employment Agreement has been approved by the Board of Directors and its Audit and Compensation Committees and is filed as Exhibit 10.1 to this Form 8-K. The following summary of the Temporary Employment Agreement is qualified by, and is subject to, the terms and conditions of Exhibit 10.1, which are incorporated into this Item 5.02 by reference. The Temporary Employment Agreement provides that Mr. Bird will be an employee of the Company with the title “Interim Chief Financial Officer” for the six-month period beginning June 1, 2017 and ending November 30, 2017 (the “Term”). Mr. Bird will report to the Company’s Chief Executive Officer and President. At the end of the Term Mr. Bird’s employment by the Company will end. As Interim Chief Financial Officer Mr. Bird will be accountable for the administrative, financial, and risk management operations of the Company. He will, among other things, execute and cause to be filed, as the Company’s “principal financial officer” and “principal accounting officer,” all reports that include financial information about the Company that it files with the Securities and Exchange Commission and will execute and cause to be filed all certifications related to these reports required by law. Mr. Bird will receive a total salary of $365,000 for the Term. If the Company terminates Mr. Bird’s employment without cause the Company will pay to him all unpaid salary installments. If Mr. Bird is elected as the Company’s Chief Financial Officer he will not receive any unpaid salary installment. Mr. Bird will be eligible to participate in all retirement, health, and welfare programs made available or sponsored by the Company on a basis no less favorable than the Company’s other executive officers but will not be eligible to participate in the Company’s annual or long-term incentive plans or in any severance plan. The Company will reimburse Mr. Bird for local housing arrangements and airfare and commuting costs.

The Company has entered into a Cash Incentive Agreement dated May 24, 2017 with Michael A. Gray, the Company’s Senior Vice President, Store Operations. The Cash Incentive Agreement has been approved by the Compensation Committee of the Company’s Board of Directors and is filed as Exhibit 10.2 to this Form 8-K. The following summary of the Cash Incentive Agreement is qualified by, and is subject to, the terms and conditions of Exhibit 10.2, which are incorporated into this Item 5.02 by reference. The Cash Incentive Agreement provides that if the Company determines in its reasonable discretion that specified actions have been completed with respect to the migration of the Company’s current information technology systems and processes provided by Sears Holdings Corporation to the Company’s new business and technology infrastructure and systems (the “Performance Measure”) by October 28, 2017 the Company will pay to Mr. Gray $75,000 in cash less applicable withholdings (the “October Incentive”). If the Company determines in its reasonable discretion that the Performance Measure has not been achieved by October 28, 2017 the Company will have no obligation to pay the October Incentive to Mr. Gray. If the Company determines in its reasonable discretion that the Performance Measure has not been achieved by October 28, 2017 but thereafter the Company determines in its reasonable discretion that the Performance Measure has been achieved by January 27, 2018 the Company will pay Mr. Gray $50,000 in cash less applicable withholdings (the “January Incentive”). If the Company determines in its reasonable discretion that the Performance Measure has not been achieved by January 27, 2018 the Company will have no obligation to pay the January Incentive to Mr. Gray. Whichever of the October Incentive or the January Incentive is payable (and only one, if either, will be payable) in accordance with, and subject to, the Cash Incentive Agreement is the “Incentive.” Whichever of the payment dates for the Incentive is applicable, if either, is referred to as the “Payment Date.”

The Cash Incentive Agreement also provides that if prior to the Payment Date either Mr. Gray voluntarily terminates his employment with the Company other than for Good Reason or the Company terminates his employment for Cause, he will forfeit the Incentive. If the Company pays to Mr. Gray the Incentive and within one year after the Payment Date the Company terminates his employment for Cause, he will repay the Incentive to the Company. “Good Reason” means that, without Mr. Gray’s written consent, his annual base salary in effect on the date of the Cash Incentive Agreement is reduced by ten percent or more or his place of employment is relocated by the Company to a business location that is more than fifty miles from the Company’s offices located at 5500 Trillium Boulevard, Hoffman Estates, Illinois. “Cause” means (i) a material breach by Mr. Gray (other than a breach resulting from his incapacity due to a disability as reasonably determined by the Company) of his duties and responsibilities, which breach is demonstrably willful and deliberate on his part, is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company, and is not remedied by Mr. Gray in a




reasonable period of time after receipt of written notice from the Company specifying the breach, (ii) the commission by Mr. Gray of a felony involving moral turpitude, or (iii) Mr. Gray’s dishonesty or willful misconduct in connection with his employment with the Company.


Item 5.07. Submission of Matters to a Vote of Security Holders.

On May 24, 2017 the Company held its Annual Meeting of Stockholders at 3333 Beverly Road, Hoffman Estates, Illinois 60179. The meeting was held to vote on the matters described below:

1.     Election of Directors. E.J. Bird, James F. Gooch, Josephine Linden, Kevin Longino, William K. Phelan, Will Powell, and David Robbins were elected to the Board of Directors of the Company for one-year terms expiring at the 2018 Annual Meeting of Stockholders or until their successors are elected and qualified. The votes on this matter were as follows:

Name
For
Withheld
Broker-Non-Votes
E.J. Bird
18,058,553
715,747
2,622,250
James F. Gooch
18,077,319
696,981
2,622,250
Josephine Linden
18,077,143
697,157
2,622,250
Kevin Longino
18,079,136
695,164
2,622,250
William K. Phelan
18,079,452
694,848
2,622,250
William Powell
18,079,348
694,952
2,622,250
David Robbins
18,079,317
694,983
2,622,250

2.     Advisory Vote to Approve the Compensation of the Company's Named Executive Officers. The stockholders approved, on an advisory basis, the compensation of the Company’s named executive officers. The votes on this matter were as follows:

    
For
Against
Abstain
Broker-Non-Votes
18,661,226
53,710
59,364
2,622,250

3.     Ratification of the Appointment of BDO USA, LLP as the Company's Independent Registered Public Accounting Firm for the 2017 Fiscal Year.
    
For
Against
Abstain
21,384,837
10,613
1,370


Item 8.01. Other Events.

On May 24, 2017 the Company’s Board of Directors elected William K. Phelan, a member of the Board of Directors, as the Company’s Chairman of the Board in accordance with Section 2.7 of the Company’s Amended and Restated Bylaws, effective June 1, 2017. Mr. Phelan will succeed E. J. Bird who resigned as the Chairman of the Board effective June 1, 2017. Mr. Bird is continuing to serve as a member of the Board of Directors.


Forward-Looking Statements
This Form 8-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based upon the current beliefs and expectations of the Company’s management. The forward-looking statements are subject to risks, uncertainties, and assumptions, many of which are beyond the Company’s control. Additional information concerning other factors is contained in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2017 and subsequent filings with the SEC. The Company intends the forward-looking statements to speak only as of when made and, except as required by law, the Company will not update or revise the forward-looking statements as more information becomes available.





Item 9.01. Financial Statements and Exhibits.
    
(d) Exhibits .

The Exhibits listed in the accompanying “Exhibit Index” have been filed as part of this Form 8-K.





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 

 
 
 
SEARS HOMETOWN AND OUTLET STORES, INC.
 
 
By:
 
/s/ CHARLES J. HANSEN
 
 
Charles J. Hansen
 
 
Vice President, General Counsel, and Secretary
Date: May 26, 2017







Exhibit Index


Exhibit Number          Exhibit Description

10.1*
Temporary Employment Agreement between the registrant and E. J. Bird dated May 24, 2017.

10.2*
Cash Incentive Agreement between the registrant and Michael A. Gray dated May 24, 2017.

* Furnished herewith





Exhibit 10.1

May 24, 2017

Mr. E. J. Bird
15 Blazing Star Trail
Landrum, SC 29356

Temporary Employment Agreement

Dear E. J.:

This is the agreement of Sears Hometown and Outlet Stores, Inc. (“ SHO ”) and you (this “ Agreement ”) that you will serve as an employee of SHO with the title “Interim Chief Financial Officer” for the six-month period beginning June 1, 2017 and ending on November 30, 2017 (this six-month period, the “ Term ”). In this position, you will report to Will Powell, SHO’s Chief Executive Officer and President. At the end of the Term your employment by SHO will end.

SHO and you agree to the following:

1.
Responsibilities as Interim Chief Financial Officer . During your employment as Interim Chief Financial Officer you will be accountable for the administrative, financial (including accounting and treasury), and risk management operations of SHO, to include the ongoing implementation of SHO’s financial strategies and financial systems migration from Sears Holdings Corporation, and the ongoing development and monitoring of control systems designed to preserve SHO’s assets and report accurate financial results. As part of these responsibilities you will (a) deliver to SHO’s auditors all certifications and representations that the auditors may reasonably request and (b) execute and cause to be filed, as SHO’s “principal financial officer” and “principal accounting officer,” all reports that include, or incorporate by reference, financial information about SHO that it files with the Securities and Exchange Commission (the “ SEC ”) and to execute and cause to be filed with the SEC all certifications related to these reports required by law.

2.
Total Compensation . SHO will pay to you a total salary of $365,000 for the Term that SHO will pay to you during the Term in twelve installments of $30,416.67 each (the “ Installments” ) in accordance with SHO’s regular payroll practices including withholdings required by law. Subject to paragraph 3, if SHO terminates your employment without Cause, each of the Installments that is unpaid as of the termination date will become immediately payable to you in cash as soon as administratively possible following the termination date. “ Cause ” means (i) a material breach by you (other than a breach resulting from your incapacity due to a disability as reasonably determined by SHO) of your duties and responsibilities, which breach is demonstrably willful and deliberate on your part, is committed in bad faith or without reasonable belief that such breach is in the best interests of SHO, and is not remedied by you in a reasonable period of time after receipt of written notice from SHO specifying the breach, (ii) the commission by you of a felony involving moral turpitude, or (iii) your dishonesty or willful misconduct in connection with your employment with SHO.

3.
Election of Chief Financial Officer . If SHO’s Board of Directors, in accordance with Section 4.4 of SHO’s Amended and Restated Bylaws, elects you as SHO’s Chief Financial Officer, you will be not be entitled to receive any of the unpaid Installments. If SHO’s Board of Directors, in accordance with Section 4.4 of SHO’s Amended and Restated Bylaws, elects someone other than you as SHO’s Chief Financial Officer (the “ Replacement ”), you will continue as an employee of SHO until the earliest of (a) the sixtieth day following the election of the Replacement, (b) the end of the Term, or (c) a date determined by Mr. Powell, in which event during the continuation your title will change to “Advisor to the Chief Executive Officer” and you will assist SHO with the transition to, and the initiation of, the Replacement and such other matters as determined by Mr. Powell.

4.
Benefits . Subject to the next two sentences, during the Term you will be eligible to participate in all retirement, health, and welfare programs made available or sponsored by SHO on a basis no less favorable than SHO’s other executive officers, in accordance with the applicable terms, conditions, and availability of those programs. You will not be eligible to participate in the Sears Hometown and Outlet Stores, Inc. Annual Incentive Plan, the Sears Hometown and Outlet Stores, Inc. Long-Term Incentive Program, or in any other SHO bonus plan, program, or arrangement. Except as provided in paragraph 2, you also will not be eligible to participate in any SHO severance plan, program, or arrangement or otherwise be entitled to receive severance or any other compensation at the end of the Term or at any other time.





5.
Office; Local Accommodations and Weekly Travel to and from Your Home. You will perform your responsibilities as Interim Chief Financial Officer in accordance with this Agreement at SHO’s Hoffman Estates offices during normal business hours Monday through Thursday and during normal business hours on Friday from your home or other location chosen by you. If in accordance with paragraph 3 you serve as Advisor to the Chief Executive Officer, you will continue to perform your responsibilities during normal business hours at SHO’s Hoffman Estates offices at least four business days during each two-week period and during the remaining normal business hours from your home or other location chosen by you. SHO will reimburse you for your reasonable housing arrangements in the Hoffman Estates area with a vendor that we will select. SHO will also reimburse you for reasonable airfare and commuting costs (such as airport parking and mileage to/from the airport) to and from your home or to Texas on a weekly basis in accordance with our corporate travel program.

6.
No Restrictions . :You represent and warrant to SHO that (a) 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 perform as SHO’s Interim Chief Financial Officer in accordance with this Agreement or any other position with SHO or any of its affiliates, 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 already disclosed to and approved by SHO. 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 SHO, such consent not to be unreasonably withheld. You agree to continue to refrain from disclosing or using in violation of an obligation of confidentiality any information that you acquired as a result of any previous employment or otherwise.

7.
Employment is At Will . You acknowledge that your employment with SHO during the Term is At Will, which SHO acknowledges does not limit its obligations to you in paragraph 2.

Please note that this Agreement is subject to (1) successful completion of a criminal background check submitted by SHO and (2) the approval of SHO’s Board of Directors and its Compensation Committee. SHO may be required by the rules of the SEC to make public disclosures regarding your employment by SHO and the terms and conditions of this Agreement if it is executed by SHO and by you, and to thereafter file this Agreement as an exhibit to appropriate SEC reports that will be publicly available.

The laws of the State of Illinois (without regard to its conflicts-of-law principles) govern this Agreement.


Sears Hometown and Outlet Stores, Inc.


By: /S/ WILL POWELL
Will Powell
Chief Executive Officer and President


Accepted and agreed as of the date of this Agreement:

/S/ E. J. BIRD
E. J. Bird





Exhibit 10.2

May 24, 2017

Mr. Michael A. Gray
Senior Vice President, Store Operations
Sears Hometown and Outlet Stores, Inc.
5500 Trillium Boulevard, Suite 501
Hoffman Estates, Illinois 60192

Cash Incentive Agreement

Dear Mike:

Sears Hometown and Outlet Stores, Inc. (the “ Company ,” “ we ,” “ our ,” or “ us ”) is pleased to offer you a cash incentive, on the terms and conditions of this letter agreement, to which we and you agree.

1. The cash incentive will be payable to you as follows, subject to the terms and conditions of this letter agreement. If we determine in our reasonable discretion that you have achieved the Performance Measure (defined in paragraph 2 below) by October 28, 2017 we will pay to you $75,000 in cash (less applicable withholdings) on, or as soon as practicable after, that date (the “ October Incentive ”). If we determine in our reasonable discretion that you have not achieved the Performance Measure by October 28, 2017 then we will have no obligation to pay the October Incentive to you. If we have no obligation to pay to you the October Incentive but thereafter we determine in our reasonable discretion that you have achieved the Performance Measure by January 27, 2018 we will pay to you $50,000 in cash (less applicable withholdings) on, or as soon as practicable after, January 27, 2018 (the “ January Incentive ”). If we determine in our reasonable discretion that you have not achieved the Performance Measure by January 27, 2018 then we will have no obligation to pay the January Incentive to you. Whichever of the October Incentive or the January Incentive is payable (if either is payable) in accordance with, and subject to, this letter agreement is the “ Incentive .” Whichever of the payment dates for the Incentive is applicable in accordance with this paragraph 1 (if either is applicable) is referred to as the “ Payment Date .”

2. For the purposes of this letter agreement, “ Performance Measure ” means that, in accordance with the Master Services Agreement dated as of April 4, 2015 between the Company and Capgemini America, Inc., as amended (the “ MSA ”), Capgemini has successfully built the Enterprise Solution with respect to the Primary Releases only after Capgemini (i) has developed all necessary enhancements, integrations, configurations, and other code (the “ Development ”) that are required by the Solution Design Documents and that the Company has reviewed and accepted and (ii) the Development has been tested, accepted by the Company, and delivered by Capgemini to the Company for use in its production environment. “ Enterprise Solution ” and “ Solution Design Documents ” are defined in the MSA. “ Primary Releases ” means the seven releases associated with the Enterprise Solution that are specified in section 1.0 of the Amended and Restated Attachment 13-A to the MSA, excluding all deferred development objects to which exclusions the Company has agreed in writing as of the date of this letter agreement or agrees in writing prior to May 30, 2017.

3. If prior to the Payment Date either you voluntarily terminate your employment with the Company for Good Reason or the Company terminates your employment without Cause, we will pay the Incentive to you. If prior to the Payment Date either you voluntarily terminate your employment with the Company other than for Good Reason or the Company terminates your employment for Cause, you will forfeit the Incentive and we will have no obligation to pay the Incentive to you. If we pay to you the Incentive and within one year after the Payment Date the Company terminates your employment for Cause, you will repay the Incentive to the Company. “ Good Reason ” means that, without your written consent, your annual base salary in effect on the date of this letter agreement is reduced by ten percent or more or your place of employment is relocated by the Company to a business location that is more than




fifty miles from the Company’s offices located at 5500 Trillium Boulevard, Hoffman Estates, Illinois. “ Cause ” means (i) a material breach by you (other than a breach resulting from your incapacity due to a disability as reasonably determined by the Company) of your duties and responsibilities, which breach is demonstrably willful and deliberate on your part, is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company, and is not remedied by you in a reasonable period of time after receipt of written notice from the Company specifying the breach, (ii) the commission by you of a felony involving moral turpitude, or (iii) your dishonesty or willful misconduct in connection with your employment with the Company.

4. Your employment with the Company and its wholly owned subsidiaries remains at-will, meaning that you and the Company may terminate the employment at any time, with or without Cause, and with or without notice to you. Neither this letter agreement nor the Incentive has any effect on the at-will nature of your employment.

5. This letter agreement contains all of the agreements, understandings, and representations between the Company and you relating to the subject matter of this letter agreement. This letter agreement supersedes all prior and contemporaneous written and oral understandings, discussions, agreements, representations, and warranties with respect to the subject matter.

6. This letter agreement may not be amended or modified except in writing signed by the Company and you. This letter agreement, for all purposes, will be construed in accordance with the laws of Illinois without regard to conflicts-of-law principles.

7. This letter agreement is intended to comply with, or be exempt from, Section 409A of the Internal Revenue Code of 1986, as amended, and will be construed and administered in accordance with Section 409A.

You are a valuable member of our team and we look forward to your continued employment with us.




Agreed to and accepted:

/S/ MICHAEL A. GRAY
Michael A. Gray
Dated: May 24, 2017
Very truly yours,

SEARS HOMETOWN AND OUTLET STORES, INC.

By: /S/ WILL POWELL
Will Powell
Chief Executive Officer and President