Sears 2014 Annual Report Download - page 112

SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
112
NOTE 15—RELATED PARTY DISCLOSURE
Investment of Surplus Cash
Our Board has delegated authority to direct investment of our surplus cash to Mr. Lampert, subject to various
limitations that have been or may be from time to time adopted by the Board of Directors and/or the Finance
Committee of the Board of Directors. Mr. Lampert is Chairman of our Board of Directors and its Finance
Committee and is the Chairman and Chief Executive Officer of ESL. Additionally, on February 1, 2013, Mr.
Lampert became our Chief Executive Officer, in addition to his role as Chairman of the Board. Neither Mr. Lampert
nor ESL will receive compensation for any such investment activities undertaken on our behalf, other than Mr.
Lampert's compensation as our Chief Executive Officer. ESL owned approximately 49% of our outstanding
common stock at January 31, 2015.
Further, to clarify the expectations that the Board of Directors has with respect to the investment of our surplus
cash, the Board has renounced, in accordance with Delaware law, any interest or expectancy of the Company
associated with any investment opportunities in securities that may come to the attention of Mr. Lampert or any
employee, officer, director or advisor to ESL and its affiliated investment entities (each, a "Covered Party") who also
serves as an officer or director of the Company other than (a) investment opportunities that come to such Covered
Party’s attention directly and exclusively in such Covered Party’s capacity as a director, officer or employee of the
Company, (b) control investments in companies in the mass merchandising, retailing, commercial appliance
distribution, product protection agreements, residential and commercial product installation and repair services and
automotive repair and maintenance industries and (c) investment opportunities in companies or assets with a
significant role in our retailing business, including investment in real estate currently leased by the Company or in
suppliers for which the Company is a substantial customer representing over 10% of such companies’ revenues, but
excluding investments of ESL that were existing as of May 23, 2005.
Unsecured Commercial Paper
During 2014 and 2013, ESL and its affiliates held unsecured commercial paper issued by SRAC, an indirect
wholly owned subsidiary of Holdings. For the commercial paper outstanding to ESL, the weighted average of each
of maturity, annual interest rate, and principal amount outstanding for this commercial paper was 18.8 days, 3.68%
and $27.7 million and 28.9 days, 2.76% and $184 million, respectively, in 2014 and 2013. The largest aggregate
amount of principal outstanding to ESL at any time since the beginning of 2014 was $150 million and the aggregate
amount of interest paid by SRAC to ESL during 2014 was $1 million. ESL held none of our commercial paper at
January 31, 2015 or February 1, 2014, including any held by Mr. Lampert. The commercial paper purchases were
made in the ordinary course of business on substantially the same terms, including interest rates, as terms prevailing
for comparable transactions with other persons, and did not present features unfavorable to the Company.
Secured Short-Term Loan
In September 2014, the Company, through Sears, Sears Development Co., and Kmart Corporation
("Borrowers"), entities wholly-owned and controlled, directly or indirectly by the Company, entered into a $400
million secured short-term loan (the "Loan") with JPP II, LLC and JPP, LLC (together, the "Lender"), entities
affiliated with ESL. The Loan was originally scheduled to mature on December 31, 2014. As permitted by the Loan
agreement, the Company paid an extension fee equal to 0.5% of the principal amount to extend the maturity date of
the loan to February 28, 2015. The Loan has an annual base interest rate of 5%. The Loan is guaranteed by the
Company and is secured by a first priority lien on certain real properties owned by the Borrowers. The Lender sold
certain participating interests in the Loan during the third quarter, which may restrict the Lender’s ability to take
certain actions with respect to the Loan without consent of the purchasers of such participating interests, including
the waiver of certain defaults under the Loan.
At January 31, 2015, the outstanding balance of the Loan was $400 million. During 2014, the Borrowers paid
an upfront fee of $7 million, an extension fee of $2 million and interest of $5.6 million to the Lender. On February
25, 2015, we entered into an agreement effective February 28, 2015, to amend and extend the $400 million secured
short-term loan. Under the terms of the amendment, we repaid $200 million of the $400 million on March 2, 2015
and, in connection with this repayment, the Lender agreed to release at the Company's option, one half of the value