Sears 2015 Annual Report Download - page 9

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under our domestic revolving credit facility might be fully utilized, in particular during our peak borrowing period,
and we would need to secure additional sources of funds.
Our business results and ability to fund our transformation depend on our ability to achieve cost savings
initiatives.
We have announced plans to take actions that will reduce our costs by between $550 million and $650 million,
depending on the overall volume of sales, in 2016. Since 2012, we have reduced annual expenses by approximately
$1.4 billion in the aggregate. If we are unable to deliver the expected cost reductions, while continuing to invest in
business growth, our financial results could be adversely impacted. Our ability to successfully manage and execute
these initiatives and realize expected savings and benefits in the amounts and at the times anticipated is important to
our business success, and any failure to do so, which could result from our inability to successfully execute plans,
changes in global or regional economic conditions, competition, changes in the industries in which we compete,
unanticipated costs or charges and other factors described herein, could adversely affect our businesses, financial
condition and results of operations.
Our business results may be negatively impacted as a result of the recapture rights included in the Master
Leases in connection with the Seritage transaction and JV transactions.
In connection with the Seritage transaction and JV transactions, Holdings has entered into agreements with
Seritage and the JVs pursuant to which Holdings leases 255 of the properties (the "Master Leases"). The Master
Leases include recapture provisions that allow Seritage or the JVs, as applicable, to reclaim€approximately 50% of
the space within the stores at the REIT properties and JV properties (subject to certain exceptions), in addition to all
of the automotive care centers which are free-standing or attached as "appendages", and all outparcels or outlots, as
well as certain portions of parking areas and common areas. While we believe these provisions are generally
beneficial for Holdings as they facilitate the transformation of our physical stores, potentially enable us to rationalize
our footprint by reducing the space we occupy in a given location, and provide us with substantial flexibility in how
we manage our store network moving forward, if we are unable to successfully manage and execute our plans to
operate our stores in the smaller footprint, our business, financial condition and results of operations could be
adversely impacted. Additionally, the recapture rights are within the control of Seritage and the JVs and we cannot
predict the timing on which the recapture rights may be exercised, if at all, or whether the timing of any such
exercise of these rights will align well with the timing of our transformation, which could create disruptions in our
operations.
Potential liabilities in connection with the separation of Lands' End may arise under fraudulent conveyance
and transfer laws and legal capital requirements.
With respect to the separation of our Lands' End, Inc. subsidiary through a pro rata distribution to our
stockholders (the "LE Spin-off"), if either Holdings or Lands' End subsequently fails to pay its creditors or enters
insolvency proceedings, the transaction may be challenged under U.S. federal, U.S. state and foreign fraudulent
conveyance and transfer laws, as well as legal capital requirements governing distributions and similar transactions.
If a court were to determine under these laws that, (a)€at the time of the LE Spin-off, the entity in question: (1)€was
insolvent; (2)€was rendered insolvent by reason of the LE Spin-off; (3)€had remaining assets constituting
unreasonably small capital; (4)€intended to incur, or believed it would incur, debts beyond its ability to pay these
debts as they matured; or (b)€the transaction in question failed to satisfy applicable legal capital requirements, the
court could determine that the LE Spin-off was voidable, in whole or in part. Subject to various defenses, the court
could then require Holdings or Lands' End, or other recipients of value in connection with the LE Spin-off
(potentially including Lands' End stockholders as recipients of shares of Lands' End common stock in connection
with the spin-off), as the case may be, to turn over value to other entities involved in the LE Spin-off and
contemplated transactions for the benefit of unpaid creditors. The measure of insolvency and applicable legal capital
requirements will vary depending upon the jurisdiction whose law is being applied.
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