Item 1.01 Entry Into A Material Definitive Agreement
Settlement Agreement
As previously disclosed in Seritage Growth Properties' (the "Company" or
"Seritage") prior filings with the Securities and Exchange Commission, on
April 18, 2019, at the direction of the Restructuring Sub-Committee of the
Restructuring Committee of the Board of Directors of Sears Holdings Corporation
("Sears Holdings"), plaintiffs Sears Holdings, Sears, Roebuck & Co., Sears
Development Co., Kmart Corporation, and Kmart of Washington, LLC ("the
Plaintiffs") filed a lawsuit (the "Litigation") in the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court") against,
among others, Edward S. Lampert, ESL Investments, Inc. and certain of its
affiliates and investors, Fairholme Capital Management, L.L.C., certain members
of the Sears Holdings board of directors, the Company, Seritage Growth
Properties, L.P., a Delaware limited partnership (the "Operating Partnership"),
and certain of our affiliates and subsidiaries (the Company, the Operating
Partnership, and certain of our affiliates and subsidiaries collectively, the
"Seritage Defendants"). The Litigation is dual captioned as In re: Sears
Holdings Corporation, et al., Case No. 18-23538 (RDD) and Sears Holdings
Corporation et al., v. Lampert et al., Case No. 19-08250 (RDD).
On October 15, 2019, the Bankruptcy Court entered an order (the "Confirmation
Order") confirming the Modified Second Amended Joint Chapter 11 Plan of Sears
Holdings and its affiliated debtors (the "Chapter 11 Plan"). Pursuant to the
terms of the Confirmation Order, upon the effective date of the Chapter 11 Plan,
a liquidating trust will be formed, and the Litigation will vest in the
liquidating trust. The Confirmation Order further provides that, prior to the
effective date of the Chapter 11 Plan and the formation of the liquidating
trust, the Litigation shall be controlled by five litigation designees selected
by Sears Holdings and the Official Committee of Unsecured Creditors' (the
"Creditors' Committee"). For further information, please refer to the Chapter 11
Plan, Confirmation Order and liquidating trust agreement, each of which has been
publicly filed with the Bankruptcy Court, which filings are not incorporated by
reference in this Current Report on Form 8-K.
On November 25, 2019, the Creditors' Committee filed a first amended complaint
(the "Amended Complaint") in the Bankruptcy Court. The Amended Complaint
alleges, among other things, that certain transactions undertaken by Sears
Holdings since 2011 (including the July 2015 transactions giving rise to
Seritage, the execution of the Master Lease with Sears Holdings (the "Original
Master Lease"), and the acquisition of real estate from Sears Holdings)
constituted actual and/or constructive fraudulent transfers and/or illegal
dividends by Sears Holdings and that the real estate acquired by Seritage from
Sears Holdings in July 2015 was worth hundreds of millions of dollars more than
the purchase price paid. The Litigation seeks as relief, among other things,
declaratory relief, avoidance of the allegedly actual and/or constructive
fraudulent transfers and either (i) rescission of the transfers of real estate
from Sears Holdings to Seritage in 2015 and return of the proceeds of the
transactions between Sears Holdings and Seritage, or, in the alternative,
(ii) payment by Seritage to Sears Holdings of damages at least equal to the
value of the transferred property. On February 21, 2020, the Seritage Defendants
filed a partial motion to dismiss seeking dismissal of certain of the claims in
the Amended Complaint. Briefing and oral argument on the motions were completed
in August 2020, and the parties are awaiting a decision.
On March 15, 2021, the Court consolidated the Litigation with a case captioned
Sears Holding Corp. et al. v. Andrew H. Tisch, et al. (the "Shareholder
Litigation," and, together with the Litigation, the "Consolidated Litigation").
The Shareholder Litigation was brought by the Official Committee of Unsecured
Creditors of Sears Holdings (the "UCC") UCC, Sears Holdings Corporation, and
Sears, Roebuck and Co., against certain shareholders of Sears Holdings or its
related companies. Seritage was not named as a defendant in the Shareholder
Litigation, which alleges, among other things, that certain transactions
undertaken by Sears Holdings since 2014 (including the July 2015 transactions
giving rise to Seritage, the execution of the Original Master Lease with Sears
Holdings, and the acquisition of real estate from Sears Holdings) constituted
actual and/or constructive fraudulent transfers and/or illegal dividends.
On April 6, 2022, the Court entered an order in the Consolidated Litigation,
upon the agreement of the parties thereto, providing for a mediation of the
litigation. The parties and the Court extended the mediation several times,
through August, and up until the settlement described below was reached.
On August 9, 2022, following the mediation, all of the parties to the Litigation
and certain of the parties to the Shareholder Litigation (to which Seritage is
not a defendant) entered into a settlement agreement pursuant to which, pending
final Court approval, the defendants will pay to the Sears estate $175 million
(of which the Seritage Defendants will contribute approximately $35 million) in
exchange for dismissal of the Consolidated Litigation and for the full and final
satisfaction and release of all claims in the Consolidated Litigation
(including, in the case of the Seritage Defendants, any and all claims between
the Seritage Defendants and the Sears estate in the Sears bankruptcy
proceeding). The settlement is subject to final court approval, following notice
and an opportunity for objections (if any) at a hearing currently scheduled for
August 31, 2022. As previously disclosed, the Company remains in active
litigation with its D&O insurers concerning potential coverage for the
Litigation, and any amounts received from the insurers will offset the Seritage
Defendants' approximately $35 million contribution. For more information on the
settlement, please see the Settlement Agreement filed as Exhibit 10.1 hereto and
incorporated by reference in this Item 1.01 in its entirety.
While the Company believes that the claims against the Seritage Defendants in
the Consolidated Litigation are without merit, the Company has entered into the
settlement, without admitting any fault or wrongdoing, in order to avoid the
continued imposition of legal defense costs, distraction, and the uncertainty
and risk inherent in any litigation. If the settlement does not receive final
Court approval, the Company intends to defend against the claims in the
Consolidated Litigation vigorously.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
Exhibit
No. Description
10.1 Settlement Agreement, dated August 9, 2022, among the parties to the
Litigation
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document).
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