EXHIBIT 10.1
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EXECUTION COPY
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PURCHASE, SALE AND SERVICING TRANSFER AGREEMENT
BY AND AMONG
SEARS, XXXXXXX AND CO.,
SEARS FINANCIAL HOLDING CORPORATION,
SEARS NATIONAL BANK,
SEARS XXXXXXX DE PUERTO RICO, INC.,
SEARS LIFE HOLDING CORP.,
SRFG, INC.,
SEARS INTELLECTUAL PROPERTY MANAGEMENT COMPANY,
Certain Other Subsidiaries of
Sears that are Signatories Hereto
AND
CITICORP
DATED AS OF JULY 15, 2003
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TABLE OF CONTENTS
PAGE
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ARTICLE I
DEFINITIONS
Section 1.1. Certain Defined Terms........................................2
Section 1.2. Construction; Absence of Presumption........................17
Section 1.3. Headings; Definitions.......................................17
ARTICLE II
SALE, CONVEYANCE AND ASSUMPTION
Section 2.1. Purchase and Sale of the Acquired Subsidiary Stock..........17
Section 2.2. Purchase and Sale of Purchased Interests....................18
Section 2.3. Retained Assets.............................................20
Section 2.4. Assumed Liabilities.........................................21
Section 2.5. Retained Liabilities........................................22
Section 2.6. Allocation of Purchase Price................................23
ARTICLE III
THE CLOSING AND POST-CLOSING ADJUSTMENTS
Section 3.1. Closing.....................................................23
Section 3.2. Preliminary Information.....................................24
Section 3.3. Closing Purchase Price......................................24
Section 3.4. Sellers' Deliveries at Closing..............................24
Section 3.5. Purchaser's Deliveries at Closing...........................25
Section 3.6. Proceedings at Closing......................................26
Section 3.7. Delayed Closing.............................................26
Section 3.8. Closing Date Balance Sheet; Payments
on the Settlement Date......................................27
Section 3.9. Delivery of Books and Records...............................30
Section 3.10. Transfer of Absolute Title; Filing of Financing Statements..30
Section 3.11. Power of Attorney...........................................31
Section 3.12. Post-Closing Payments on Account Receivables................31
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
Section 4.1. Organization and Good Standing..............................31
Section 4.2. Acquired Subsidiary.........................................32
Section 4.3. Authorization; Binding Obligations..........................32
Section 4.4. No Conflicts................................................32
Section 4.5. Approvals...................................................33
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Section 4.6. Litigation..................................................33
Section 4.7. Compliance with Requirements of Law.........................33
Section 4.8. Transactions with Affiliates................................34
Section 4.9. Financial Statements........................................34
Section 4.10. Accounts....................................................36
Section 4.11. Trust; Securitization.......................................37
Section 4.12. Effective Transfer..........................................39
Section 4.13. Sufficiency of Assets.......................................39
Section 4.14. Employee Benefit Plans; Employee Matters....................39
Section 4.15. No Brokers or Finders.......................................41
Section 4.16. Undisclosed Liability.......................................41
Section 4.17. Real Property...............................................41
Section 4.18. Insurance...................................................43
Section 4.19. Licenses and Permits........................................43
Section 4.20. Absence of Certain Changes..................................43
Section 4.21. Marketing Agreements........................................44
Section 4.22. Certain Contracts...........................................44
Section 4.23. Ratings.....................................................45
Section 4.24. Intellectual Property.......................................45
Section 4.25. Taxes.......................................................46
Section 4.26. No Use of Borrower Lists....................................47
Section 4.27. Environmental Matters.......................................47
Section 4.28. No Other Representations or Warranties......................48
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 5.1. Organization and Good Standing..............................48
Section 5.2. Authorization; Binding Obligations..........................48
Section 5.3. No Conflicts................................................48
Section 5.4. Approvals...................................................49
Section 5.5. Litigation..................................................49
Section 5.6. Compliance with Requirements of Law.........................49
Section 5.7. Licenses and Permits........................................50
Section 5.8. Servicing Qualifications....................................50
Section 5.9. Absence of Certain Changes..................................50
Section 5.10. Financing...................................................50
Section 5.11. Acquisition of Shares for Investment........................50
Section 5.12. No Brokers or Finders.......................................50
Section 5.13. No Inducement or Reliance; Independent Assessment...........50
ARTICLE VI
COVENANTS
Section 6.1. Conduct of Business.........................................51
Section 6.2. Access and Confidentiality..................................54
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Section 6.3. Delivery of Securitization Transfer Agreements..............57
Section 6.4. Advice of Changes...........................................57
Section 6.5. Efforts; Filings............................................57
Section 6.6. No Solicitation.............................................58
Section 6.7. Further Assurances..........................................59
Section 6.8. Assignment of Contracts; Approvals and Consents.............60
Section 6.9. Notice of Proceedings.......................................61
Section 6.10. Guaranties; Letters of Credit; Intercompany Agreements......61
Section 6.11. Bulk Sales Law..............................................62
Section 6.12. IBM Master Agreement; Other Sears Service
Provider Agreements.........................................62
Section 6.13. MasterCard Agreements.......................................62
Section 6.14. Notice to Cardholders.......................................63
Section 6.15. Change Name of the Acquired Subsidiary......................63
Section 6.16. Employee Matters............................................63
Section 6.17. Board of Directors of Acquired Subsidiary...................67
Section 6.18. Unsecured Debt of Sears.....................................67
Section 6.19. Covenant Not to Petition....................................67
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1. Conditions of All Parties to Closing........................67
Section 7.2. Conditions to Obligations of Purchaser to Close.............68
Section 7.3. Conditions to Obligations of Sellers to Close...............69
ARTICLE VIII
TAX MATTERS
Section 8.1. Liability for Taxes; Refunds and Credits....................69
Section 8.2. Section 338(h)(10) Elections................................71
Section 8.3. Filing Responsibility.......................................72
Section 8.4. Cooperation; Exchange of Information; Tax Proceedings.......74
Section 8.5. Tax Sharing Agreements......................................77
Section 8.6. Intentionally Omitted.......................................77
Section 8.7. Transfer Taxes..............................................77
Section 8.8. Survival....................................................77
Section 8.9. Post-Closing Dispositions...................................78
Section 8.10. Tax Treatment of Payments...................................78
Section 8.11. Sales Tax Recoveries........................................78
ARTICLE IX
TERMINATION
Section 9.1. Termination.................................................79
Section 9.2. Effect of Termination.......................................80
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ARTICLE X
INDEMNIFICATION
Section 10.1. Survival of Representations and Warranties and Covenants....80
Section 10.2. Indemnification of Purchaser................................80
Section 10.3. Indemnification of Sellers..................................81
Section 10.4. Claims......................................................82
Section 10.5. Limitations.................................................83
Section 10.6. Insurance...................................................84
Section 10.7. Remedies Exclusive..........................................84
Section 10.8 Mitigation..................................................84
Section 10.9. Tax Indemnification.........................................84
Section 10.10. Termination of Indemnification..............................85
ARTICLE XI
MISCELLANEOUS
Section 11.1. Notices.....................................................85
Section 11.2. Governing Law...............................................87
Section 11.3. Jurisdiction; Venue; Consent to Service of Process..........87
Section 11.4. Counterparts................................................88
Section 11.5. Entire Agreement............................................88
Section 11.6. Amendment, Modification and Waiver..........................88
Section 11.7. Severability................................................89
Section 11.8. Successors and Assigns; No Third-Party Beneficiaries........89
Section 11.9. Publicity...................................................89
Section 11.10. WAIVER OF JURY TRIAL........................................89
Section 11.11. Expenses....................................................89
Section 11.12. Specific Performance and Other Equitable Relief.............90
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SCHEDULES:
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Schedule 1.1(a) Individuals Deemed not to be Business Employees
Schedule 1.1(b) Knowledge of Sellers
Schedule 1.1(c) Knowledge of Purchaser
Schedule 1.1(d) Reference Balance Sheet
Schedule 1.1(e) Applicable Governmental Authorities
Schedule 2.2(i) Securitization Documents
Schedule 2.2(j) Securitization Interests
Schedule 2.2(l)-1 Owned Real Property
Schedule 2.2(l)-2 Leased Real Property
Schedule 2.2(m) Fixed Assets
Schedule 2.2(n) Assumed Contracts
Schedule 2.2(s) Other Assets
Schedule 2.3(j) Other Retained Assets
Schedule 2.4(l) Other Assumed Liabilities
Schedule 2.5(k) Other Retained Liabilities
Schedule 3.4(e) Securitization Transfer Agreements
Schedule 3.4(f) Required Resignations
Schedule 6.1(b)(iv) Change-in-Terms V and other programs
Schedule 6.1(b)(ix) Contracts Permitting Disposition of Purchased Interests
Schedule 6.1(b)(xi) Permitted Compensation and Benefit Changes
Schedule 6.10(a) Guaranties
Schedule 6.10(b) Obligations Not Requiring Release, Termination or
Discharge
Schedule 6.16(i) Retention Agreements
Schedule 6.16(j) Limitations of Terminations without Cause
Schedule 6.18 Sears Indentures
Schedule 7.2(f) Required Opinions
EXHIBITS:
Exhibit A Form of Program Agreement
Exhibit B Term Sheet for Transition Services Agreement
Exhibit C Form of Licensing Agreement
Exhibit D Form of Merchant Agreement
Exhibit E Form of Pooling Agreement Amendment
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INDEX OF DEFINED TERMS
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PAGE
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338(h)(10) Election...........................................................71
Account........................................................................2
Account Agreement..............................................................2
Accountant....................................................................29
Acquired Cardholder Information................................................2
Acquired Intellectual Property.................................................2
Acquired Subsidiary...........................................................17
Acquired Subsidiary Financial Statements......................................35
Acquired Subsidiary Stock.....................................................17
ADSP...........................................................................2
Affiliate......................................................................3
Agreement......................................................................1
Allocation Statement..........................................................23
Alternate Certificate.........................................................25
Alternative Proposal..........................................................58
Annual Financial Information..................................................35
Annual Statement...............................................................3
Applicable Contracts..........................................................44
Applicable Governmental Authority..............................................3
Assumed Contracts.............................................................19
Assumed Liabilities...........................................................21
Bank...........................................................................1
Benefit Item...................................................................3
Books and Records..............................................................3
Borrower.......................................................................3
Borrower List..................................................................3
Business.......................................................................4
Business Day...................................................................4
Business Employee..............................................................4
Business Material Adverse Effect...............................................4
Card Association...............................................................5
Charged-Off Account............................................................5
Cleanup........................................................................5
Closing.......................................................................23
Closing Date..................................................................24
Closing Date Balance Sheet....................................................27
Closing Purchase Price.........................................................5
COBRA Obligations.............................................................65
Code...........................................................................5
Confidentiality Agreement.....................................................55
Consents......................................................................49
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Contract.......................................................................5
Credit Balance.................................................................5
Credit Card....................................................................5
Credit Card Business...........................................................5
Cut-Off Time...................................................................6
Damages........................................................................6
Determination.................................................................71
Disclosure Schedule............................................................6
Employment Agreements.........................................................39
Environmental Claim............................................................6
Environmental Laws.............................................................6
ERISA..........................................................................6
ERISA Affiliate...............................................................15
Estimated Closing Date Balance Sheet...........................................6
Estimated Total Equity........................................................24
Exchange Act..................................................................35
Excluded Proprietary Information...............................................7
Excluded Taxes.................................................................7
Expiration Date................................................................7
FDIC...........................................................................7
Federal Funds Rate.............................................................7
Final Adjustment Payment......................................................28
Final Average Receivables Statement...........................................27
Final Closing Tape.............................................................7
Final Premium Adjustment Payment..............................................28
Final Six-Month Average Net Customer Receivables..............................27
Final Total Equity............................................................27
Financial Information.........................................................35
Financial Products Business....................................................8
Financial Products Delayed Closing............................................26
Financial Products Delayed Closing Date.......................................26
Financing Materials...........................................................59
Financing Statements..........................................................30
FIRPTA Certificate............................................................25
First Installment.............................................................66
Fixed Assets..................................................................19
Form 8023.....................................................................71
FP Delayed Closing Assets.....................................................26
FP Delayed Closing Liabilities................................................26
FP Delayed Closing Taxes.......................................................8
GAAP...........................................................................8
Governmental Authority.........................................................8
Guaranties....................................................................61
Hazardous Materials............................................................8
HSR Act.......................................................................58
IBM............................................................................8
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IBM Master Agreement...........................................................8
Improvements...................................................................8
Indemnified Parties...........................................................81
Indemnifying Party............................................................82
Indemnity Payments............................................................83
Insurance Contracts............................................................8
Intellectual Property..........................................................9
Interchange Fees...............................................................9
Interim Financial Information.................................................35
Investigation.................................................................56
Knowledge......................................................................9
Leased Real Property...........................................................9
Leases.........................................................................9
Liability......................................................................9
Licensed Intellectual Property.................................................9
Licensed Marks.................................................................9
Licensing Agreement............................................................9
Lien...........................................................................9
Marks.........................................................................10
Master File...................................................................10
MasterCard Agreements.........................................................10
Maximum Indemnification Amount................................................83
Merchant Agreement............................................................10
Merchant Dealer...............................................................10
Operating Regulations.........................................................10
Other Assets..................................................................19
Other Assumed Liabilities.....................................................22
Other Retained Assets.........................................................20
Other Retained Liabilities....................................................23
Owned Intellectual Property...................................................10
Owned Real Property...........................................................10
Parties........................................................................1
Party..........................................................................1
Patents.......................................................................10
Permitted Lien................................................................10
Permitted Seller Benefit Plan Action..........................................53
Person........................................................................11
Pooling Agreement..............................................................1
Pooling Agreement Amendment...................................................11
Post-Closing Tax Period.......................................................11
Pre-Closing Environmental Liabilities and Costs...............................11
Pre-Closing Tax Period........................................................11
Preliminary Average Receivables Statement.....................................24
Preliminary Closing Tape......................................................11
Premium Amount................................................................11
Program Agreement..............................................................1
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Purchased Interests...........................................................18
Purchaser......................................................................1
Purchaser Consents............................................................49
Purchaser Indemnified Parties.................................................81
Purchaser Material Adverse Effect.............................................12
Purchaser Permits.............................................................50
Purchaser Savings Plan........................................................65
Purchaser Service Provider Agreement..........................................62
Purchaser Tax Claim...........................................................75
Qualified Plan................................................................40
Quarterly Statement...........................................................12
Rapid Amortization Event......................................................12
Real Property.................................................................12
Receivable Repurchase Event...................................................12
Receivables...................................................................12
Reference Balance Sheet.......................................................12
Reinsurance Agreement.........................................................13
Related Agreements............................................................13
Release.......................................................................13
Required Amendments...........................................................13
Requirements of Law...........................................................13
Retained Assets...............................................................20
Retained Business Employees...................................................55
Retained Liabilities..........................................................22
Retention Agreements..........................................................66
Return........................................................................16
Sales Tax Recovery............................................................13
SAP...........................................................................13
Sears..........................................................................1
Sears Affiliated Group........................................................13
Sears Canada..................................................................13
Sears Customer Data Warehouse.................................................13
Sears Group...................................................................14
Sears Holding..................................................................1
Sears IP.......................................................................1
Sears Life Holding.............................................................1
Sears Mexico..................................................................14
Sears Puerto Rico..............................................................1
Sears Savings Plan............................................................65
Sears Service Provider Agreement..............................................14
Sears Tax Claim...............................................................75
SEC...........................................................................35
SEC Documents.................................................................38
Second Installment............................................................66
Securities Act................................................................38
Securitization................................................................14
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Securitization Account........................................................14
Securitization Cash Collateral................................................14
Securitization Documents......................................................18
Securitization Interests......................................................18
Securitization Receivables....................................................14
Securitization Retained Interests.............................................14
Securitization Transfer Agreements............................................24
Seller.........................................................................1
Seller Benefit Plan...........................................................15
Seller Business Documents.....................................................34
Seller Consents...............................................................33
Seller Indemnified Parties....................................................81
Seller Permits................................................................43
Seller Tax Indemnitees........................................................70
Sellers........................................................................1
Series Supplement.............................................................15
Service Provider..............................................................14
Servicer......................................................................15
Servicer Rights...............................................................18
Servicer Termination Event....................................................15
Settlement Day................................................................28
Six-Month Average Net Customer Receivables....................................12
Software......................................................................15
SRFG...........................................................................1
Straddle Period...............................................................15
Subsequent Financing..........................................................59
Subsidiary....................................................................15
Tax Benefit...................................................................15
Tax Item......................................................................15
Tax Proceeding................................................................16
Tax Recovery End Date.........................................................16
Tax Return....................................................................16
Taxes.........................................................................16
Termination Date..............................................................79
Third-Party Claim.............................................................82
Threshold.....................................................................83
Total Equity..................................................................16
Transfer Taxes................................................................77
Transition Services Agreement.................................................16
Transition Team...............................................................55
Trust.........................................................................16
Trust Certificates............................................................16
TSYS..........................................................................16
Unreasonable Condition........................................................16
WARN Act......................................................................66
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PURCHASE, SALE AND SERVICING TRANSFER AGREEMENT
This PURCHASE, SALE AND SERVICING TRANSFER AGREEMENT (this
"Agreement") is entered into as of July 15, 2003, by and among SEARS, XXXXXXX
AND CO., a New York corporation ("Sears"), SEARS FINANCIAL HOLDING CORPORATION,
a Delaware corporation and a wholly-owned subsidiary of Sears ("Sears Holding"),
SEARS NATIONAL BANK, a national banking association, a wholly-owned subsidiary
of Sears Holding and a "credit card bank" under the Bank Holding Company Act
(the "Bank"), SEARS XXXXXXX DE PUERTO RICO, INC., a Delaware corporation and a
wholly-owned subsidiary of Sears ("Sears Puerto Rico"), SEARS LIFE HOLDING
CORP., a Delaware corporation and a wholly-owned subsidiary of Sears ("Sears
Life Holding"), SRFG, INC. (formerly Sears Receivables Financing Group, Inc.), a
Delaware corporation and a wholly-owned subsidiary of Sears ("SRFG"), SEARS
INTELLECTUAL PROPERTY MANAGEMENT COMPANY, a Delaware corporation and a
wholly-owned subsidiary of Sears ("Sears IP"), certain other subsidiaries of
Sears that are signatories hereto (together with Sears, Sears Holding, the Bank,
Sears Puerto Rico, Sears Life Holding, SRFG and Sears IP, collectively,
"Sellers", and each, individually, a "Seller"), and CITICORP, a Delaware
corporation ("Purchaser"), (Sellers together with Purchaser, collectively, the
"Parties", and each, individually, a "Party").
RECITALS
WHEREAS, Sears is, among other things, (i) engaged in the
business of selling merchandise and services through retail stores, catalogs and
by other means, and (ii) directly and indirectly through certain of its
subsidiaries, including the Bank, engaged in the Credit Card Business and the
Financial Products Business (each as defined herein);
WHEREAS, the Sears Credit Account Master Trust II was formed
pursuant to that certain Pooling and Servicing Agreement, dated as of July 31,
1994, as amended and/or supplemented through the date of this Agreement and as
it may be further amended and/or supplemented through the Closing Date to the
extent permitted by this Agreement, including all Series Supplements thereto
(the "Pooling Agreement"), by and among Sears, as servicer, SRFG, as seller, and
The Bank of New York (as successor trustee to Bank One, National Association
(formerly the First National Bank of Chicago)), as trustee;
WHEREAS, pursuant to this Agreement, Sellers desire to sell to
Purchaser, and Purchaser desires to purchase from Sellers, the Business pursuant
to the terms contained and in the manner described herein;
WHEREAS, on the date hereof, Sears, Sears IP and Citibank
(USA) N.A., a national banking association and Affiliate of Purchaser, are
entering into a Program Agreement (the "Program Agreement") in the form attached
hereto as Exhibit A, to become effective as of the Closing under this Agreement,
that provides for, among other things, the issuance of Sears proprietary cards
and general purpose credit cards, the issuance of existing and new credit and
financial products to be developed with Purchaser, the processing and servicing
of the related accounts, and the conduct of related marketing activities; and
WHEREAS, simultaneously with the Closing under this Agreement,
Sellers, Purchaser and certain of their respective Affiliates desire to enter
into other agreements in connection with the transactions contemplated hereby.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and
covenants set forth below and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, and intending to be
legally bound, the Parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms. For the purposes of this Agreement,
unless the context requires otherwise, the following terms shall have the
following meanings:
"Account" shall mean any account under which a purchase, cash
advance or credit transaction may be or has been made by a Borrower by
means of a Credit Card, which is recorded on the system of TSYS or the
Sellers' internal systems, is designated as a Sears Card Account, Sears
Blue Card Account, Sears Puerto Rico Card Account, Sears Premier Card
Account, SearsCharge PLUS Account, Sears Home Improvement Account,
Sears Commercial One Business Account, Sears Installed Home Improvement
Account, Sears Modernizing Credit Plan Account, Sears Easy Pay Account,
Sears Gold MasterCard Account, Sears Premier Gold MasterCard or The
Great Indoors Gold MasterCard Account and established pursuant to an
Account Agreement (including such accounts that are Charged-Off
Accounts or otherwise impaired accounts) and owned by Sears or any of
its Affiliates as of the Cut-Off Time.
"Account Agreement" shall mean an account agreement (including
related disclosure) between the Bank, Sears or Sears Puerto Rico, on
the one hand, and the related Borrower, on the other, governing the
terms and conditions of an Account, as such agreement may be amended,
modified or otherwise changed from time to time (including pursuant to
change of terms notices).
"Acquired Cardholder Information" shall mean information
included in the Master File or the Borrowers List.
"Acquired Intellectual Property" shall mean the Intellectual
Property (except as provided pursuant to the Licensing Agreement and
the Transition Services Agreement) primarily used or held for use by
Sellers and their Subsidiaries in the operations of the Business;
provided, however, that in no event shall Acquired Intellectual
Property include any Excluded Proprietary Information.
"ADSP" shall mean the aggregate deemed sale price, as defined
in Treasury Regulation Section 1.338-4.
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"Affiliate" shall mean, with respect to any Person, any other
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by or is under common control with such first
Person; provided that neither Sears Canada nor Sears Mexico shall be
deemed to be an Affiliate of Sears or any of its Affiliates for the
purposes of this Agreement. The term "control" (including its
correlative meanings "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or
cause the direction of management or policies (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise).
"Annual Statement" shall mean the SAP annual financial
statements filed or submitted by the Acquired Subsidiary to the
Illinois Department of Insurance on forms prescribed or permitted by
such regulatory body.
"Applicable Governmental Authority" shall mean a Governmental
Authority set forth in Schedule 1.1(e).
"Benefit Item" shall mean any loss, deduction, credit or other
item which decreases Taxes paid or payable or increases Tax basis.
"Books and Records" shall mean the existing books, records,
original documents, correspondence, customer lists, books of account,
Credit Card applications, customer service and collection records,
billing tapes, month-end tapes, files, papers, statement forms,
plastics, application forms and other supplies and data maintained by
or on behalf of Sellers or any of their Affiliates, whether in hard
copy or electronic format or any other form, to the extent used or held
for use by Sellers or any of their Affiliates primarily in the Credit
Card Business or the Financial Products Business (including any
Securitization), other than those relating principally to any Excluded
Obligation or Retained Interest and other than any Tax Returns or Tax
work papers; and such term shall also mean all of Sears' proprietary
information relating to the Accounts (whether or not included in such
books, records, files and papers), including the Borrower List and all
information relating to the Accounts, the Borrowers and any Persons
(including those Persons who may employ any Borrowers) with which Sears
has a relationship in connection with the Accounts, as such proprietary
information is reported on Sears' data processing system or otherwise
retained directly or indirectly, by or on behalf of Sears or any of its
Affiliates. Notwithstanding the foregoing, "Books and Records" shall
not mean any Excluded Proprietary Information.
"Borrower" shall mean with respect to any Account an applicant
and, if applicable, co-applicant in whose name(s) an Account was
properly established, without regard to whether the applicable borrower
utilizes Credit Cards or checks, or both, to borrow under the
applicable Account Agreement and/or who is obligated to make payments
with respect to such Account, including any guarantor thereof.
"Borrower List" shall mean a list of the names, addresses,
telephone numbers and taxpayer identification numbers and social
security numbers of all Borrowers as of the Cut-Off Time, together with
such other proprietary information as is maintained by or on
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behalf of Sears or any of its Affiliates with respect to such
Borrowers (other than any Excluded Proprietary Information).
"Business" shall mean the Credit Card Business and the
Financial Products Business.
"Business Day" shall mean any day other than a Saturday,
Sunday or day on which banking institutions in Illinois, New York, or
South Dakota are authorized or obligated by law or executive order to
be closed.
"Business Employee" shall mean: (i) all persons actively
employed by Sears or its Subsidiaries primarily in or in support of the
Credit Card Business or the Financial Products Business as of the
Closing Date and (ii) all persons employed by Sears or its Subsidiaries
primarily in or in support of the Credit Card Business or the Financial
Products Business who are absent from work on the Closing Date on
account of vacation, sickness, short-term disability or other leave of
absence, or for whom an obligation to recall, rehire or otherwise
return to employment exists under applicable law, provided that the
term "Business Employee" shall not include: (a) any person employed by
Sears or any of its Subsidiaries primarily in or in support of the
Credit Card Business or the Financial Products Business who is
receiving long-term disability benefits as of the Closing Date; (b) any
former employee of Sears or its Subsidiaries with pending charges,
claims or lawsuits seeking reinstatement; and (c) any employee set
forth on Schedule 1.1(a), which Schedule shall be supplemented by the
Transition Team as contemplated in Section 6.2(b).
"Business Material Adverse Effect" shall mean: (i) any change,
event or effect that is, or would reasonably be expected to be,
individually or in the aggregate, materially adverse to the business,
assets, results of operations or financial condition of the Business,
taken as a whole, excluding any such change, event or effect arising
out of or in connection with or resulting from: (A) general economic or
business conditions or changes therein; (B) adverse developments in
economic, business or financial conditions generally affecting the
credit card industry and/or the insurance industry to the extent such
adverse developments do not have a disproportionate effect on the
Business relative to other entities operating businesses similar to the
Business; (C) financial market conditions, including without
limitation, interest rates, or changes therein; (D) changes in law,
GAAP or regulatory accounting principles after the date of this
Agreement; or (E) any action, omission, change, effect, circumstance or
condition contemplated by this Agreement (including the occurrence of a
Financial Products Delayed Closing), or attributable to the execution,
performance or announcement of this Agreement or the transactions
contemplated hereby (including without limitation the impact thereof on
relationships with Borrowers, customers, suppliers, or employees); or
(ii) an adverse change or effect reasonably expected to materially
impair or materially delay the ability of Sears or any of its
Affiliates to perform timely its obligations under this Agreement, the
Related Agreements or the Securitization Transfer Agreements or to
consummate the transactions contemplated hereby or thereby on a timely
basis.
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"Card Association" shall mean MasterCard International Inc.
and its Affiliates, including Maestro and Cirrus.
"Charged-Off Account" shall mean an Account owned by any
Seller as of the Cut-Off Time with respect to which a Charge-Off has
occurred. For the purposes of this Agreement, a Charge-Off has occurred
with respect to an Account if, as of the Cut-Off Time, such Account has
been or should have been charged off in accordance with Sears' standard
practices, policies and procedures as in effect on the date of this
Agreement.
"Cleanup" means all actions required under applicable
Environmental Laws to: (1) cleanup, remove, treat or remediate
Hazardous Materials in the indoor or outdoor environment; (2) prevent
the Release of Hazardous Materials so that they do not migrate,
endanger or threaten to endanger public health or welfare or the indoor
or outdoor environment; (3) perform pre-remedial studies and
investigations and post-remedial monitoring and care; or (4) respond to
any government requests for information or documents in any way
relating to cleanup, removal, treatment or remediation or potential
cleanup, removal, treatment or remediation of Hazardous Materials in
the indoor or outdoor environment.
"Closing Purchase Price" shall mean the amount payable by
Purchaser at the Closing calculated pursuant to Section 3.3.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Contract" shall mean, with respect to any Person, any
agreement, undertaking, contract, obligation, promise, indenture, deed
of trust or other instrument, document or agreement (whether written or
oral and whether express or implied) by which that Person, or any
amount of its properties or assets, is bound or subject.
"Credit Balance" shall mean, with respect to any Borrower, the
net amount, if any, owing to such Borrower on an Account as of the
Cut-Off Time.
"Credit Card" means (i) any credit card pursuant to which card
the holder or authorized user may purchase goods and services, obtain
cash advances or convenience checks, and transfer balances through
open-ended revolving credit, commonly known as a credit, store or
charge card; (ii) any debit card; (iii) any card commonly known as a
smart card or stored value card; and (iv) any other electronic or
digital cash card or account; provided, that the term "Credit Card"
does not include (x) any card issued to the holder of a securities
brokerage account that allows the holder to obtain credit through a
margin account; or (y) any gift card. No card will be considered a
"Credit Card" solely because such card allows the holder to access a
line of credit tied to a deposit account for overdraft protection.
"Credit Card Business" shall mean the proprietary Credit Card
and co-branded MasterCard Credit Card program relating to the Accounts,
including the extension of credit to Borrowers, the servicing of the
Accounts, xxxxxxxx, collections, processing of Account transactions,
the administration and management of the Accounts and related
Receivables (including the Securitization Receivables), and all aspects
of the proprietary
5
Credit Card and MasterCard Credit Card program relating to the
Accounts, including servicing under the Pooling Agreement.
"Cut-Off Time" shall mean the time of cessation of processing
by TSYS on the day immediately prior to the Closing Date.
"Damages" shall mean all actions, costs, damages,
disbursements, obligations, penalties, Liabilities, losses, expenses,
assessments, judgments, Liens, injunctions, orders, decrees, rulings,
dues, fines, fees, settlements or deficiencies (including any interest,
penalty, investigation, reasonable legal, accounting and other
professional fees, and other cost or expense incurred in the
investigation, collection, prosecution and defense of any action, suit,
proceeding or claim and amounts paid in settlement) that are imposed
upon or otherwise incurred by the indemnified party.
"Disclosure Schedule" shall mean, with respect to Sellers, on
the one hand, and Purchaser, on the other hand, a schedule delivered by
it to the other party on or before the execution and delivery of this
Agreement setting forth, among other things, items the disclosure of
which is required under this Agreement either in response to an express
disclosure requirement contained in a provision of this Agreement or as
an exception to one or more of the representations, warranties or
covenants contained in this Agreement; provided that the mere inclusion
of an item in a Disclosure Schedule as an exception to a representation
or warranty will not be deemed an admission by the disclosing party
that such item (or any non-disclosed item or information of comparable
or greater significance) represents a material exception or fact, event
or circumstance or that such item has had, or is reasonably expected to
have, a Business Material Adverse Effect or a Purchaser Material
Adverse Effect, as applicable.
"Environmental Claim" means any claim, action, cause of
action, investigation or notice (written or oral) by any Person
alleging potential Liability (including, without limitation, potential
Liability for investigatory costs, Cleanup costs, governmental response
costs, natural resources damages, property damages, personal injuries,
or penalties) arising out of, based on or resulting from (i) the
presence, Release or threatened Release of any Hazardous Materials, or
(ii) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law.
"Environmental Laws" means all federal, state and local laws
and regulations relating to pollution or protection of human health or
the environment, including without limitation, laws relating to
Releases or threatened Releases of Hazardous Materials or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, transport or handling of Hazardous Materials.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"Estimated Closing Date Balance Sheet" shall mean the adjusted
balance sheet of the Business which shall be prepared by Sears in
accordance with GAAP using the accounting principles, procedures,
policies and methods used in preparing the Reference
6
Balance Sheet, including to the adjustments set forth in the notes to
the Reference Balance Sheet and which shall represent Sears' good faith
estimate of the Closing Date Balance Sheet and the Final Total Equity.
"Excluded Proprietary Information" shall mean (i) information
relating to any Borrower that has a relationship with any of the
Sellers or any of their Affiliates that does not arise out of an
Account Agreement (only to the extent such information relates to or
arises out of such non-Account relationship) and (ii) the information
contained in the Sears Customer Data Warehouse other than any
information included in the Acquired Cardholder Information.
"Excluded Taxes" shall mean, without duplication, (i) all
Taxes (other than any Transfer Taxes) imposed on any member of the
Sears Group, on any Sears Affiliated Group (including such Taxes
attributable to the income of the Trust), or on the Acquired Subsidiary
with respect to (A) a Pre-Closing Tax Period or (B) the portion of a
Straddle Period deemed to end on and include the Closing Date (in the
manner determined pursuant to Section 8.3(c) hereof), (ii) all Taxes
imposed on any member of the Sears Group, the Acquired Subsidiary or
the Trust under Section 1.1502-6 of the Treasury Regulations
promulgated under the Code (and corresponding provisions of state,
local or foreign law) solely as a result of being a member of any
federal, state, local or foreign affiliated, consolidated, unitary or
combined group prior to the Closing and (iii) one-half of all Transfer
Taxes; provided, however, that Excluded Taxes shall not include (a) any
Taxes reflected on the Closing Date Balance Sheet, (b) any FP Delayed
Closing Taxes, (c) any Taxes resulting from an insurance or reinsurance
premium deemed paid to the Acquired Subsidiary on the Closing Date as a
result of the 338(h)(10) Election, (d) any Taxes resulting from any
action taken after the Closing by the Acquired Subsidiary or the Trust,
on the Closing Date outside the ordinary course of business or (e) any
Taxes resulting from any election under Section 338 of the Code (or
corresponding provision of state, local or foreign law) with respect to
the Trust.
"Expiration Date" shall mean the date on which the statute of
limitations on assessments (giving effect to valid extensions thereof)
applicable to Purchaser's consolidated Federal income Tax Return for
the taxable year that includes the Closing Date expires.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Funds Rate" shall mean the offered rate as reported
in The Wall Street Journal in the "Money Rates" section for reserves
traded among commercial banks for overnight use in amounts of one
million dollars or more on the Business Day immediately prior to the
day on which a payment is due hereunder.
"Final Closing Tape" shall mean the full Master File tape as
of the Cut-Off Time, which tape shall identify the Securitization
Accounts and include the following for each Account (including the
Securitization Accounts): Account number; Borrower's name and address;
origination date; date Account closed (if applicable); current finance
charge rate; current credit limit; current outstanding Receivables
(without regard to any
7
allowance for uncollectible accounts); whether payments are current,
and if not, the period of delinquency; and whether such Account is a
Charged-Off Account or otherwise impaired.
"Financial Products Business" shall mean the business of
selling and delivering credit protection, debt deferment or suspension,
debt cancellation, credit insurance and other similar products, life
and health insurance products, property and casualty insurance products
and fee-based clubs and services, primarily, but not exclusively, to
customers of the Credit Card Business.
"FP Delayed Closing Taxes" shall mean the excess, if any, of
(x) the sum of (A) any and all Taxes for which Sears or any of its
Subsidiaries is liable under applicable Tax law and (B) any other Taxes
described in clauses (i), (ii) or (iii) of the definition of Excluded
Taxes over (y) the sum of (A) any and all Taxes for which Sears or any
of its Subsidiaries would have been liable under applicable Tax law if
the sale of the Financial Products Business occurred on the Closing
Date (as distinguished from the Financial Products Delayed Closing
Date) and (B) any other Taxes that would have been described in clauses
(i), (ii) or (iii) of the definition of Excluded Taxes if the sale of
the Financial Products Business occurred on the Closing Date (as
distinguished from the Financial Products Delayed Closing Date).
"GAAP" shall mean U.S. generally accepted accounting
principles as in effect as of the date hereof.
"Governmental Authority" shall mean any federal, state or
local domestic, foreign or supranational governmental, regulatory or
self-regulatory authority, agency, court, tribunal, commission or other
governmental, regulatory or self-regulatory entity.
"Hazardous Materials" means all substances defined as
Hazardous Substances, Oils, Pollutants or Contaminants in the National
Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. ss.
300.5, toxic mold, or defined as such by, or regulated as such under,
any Environmental Law.
"IBM Master Agreement" shall mean that certain Master
Agreement for Services, dated as of December 15, 2000, by and between
Sears and International Business Machines Corporation ("IBM"),
including each Associated Contract Document (as defined in Section 2.2
of the IBM Master Agreement).
"Improvements" shall mean all material buildings, structures,
fixtures, building systems and equipment included in the Real Property.
"Insurance Contracts" shall mean any Contract, including
marketing, servicing, claims, administration, agency and reinsurance
Contracts, issued by the Acquired Subsidiary or entered into by any of
the insurance agencies or the reinsurance company of Sellers that are
signatories to the Agreement that relate to the Financial Products
Business.
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"Intellectual Property" shall mean all: (i) copyrights,
whether or not registered, and registrations and applications for
registration thereof; (ii) Patents; (iii) Marks; (iv) common law and
statutory trade secrets and inventions, whether or not patentable and
whether or not reduced to practice; (v) technical and business
information, including know-how, research and development information,
technical data, financial, marketing and business data, pricing and
cost information, business and marketing plans and customer and
supplier lists and information, whether or not confidential; (vi)
Software; (vii) all licenses (including Software licenses, other than
licenses for standard, readily available Software programs) relating to
the foregoing; and (viii) all rights to xxx or recover and retain
damages and costs and attorneys' fees for past, present, and future
infringement or breach of any of the foregoing.
"Interchange Fees" shall mean interchange fees or interchange
reimbursement fees, if any, paid or payable by the Card Association or
by Sears or any Merchant Dealer under any applicable merchant agreement
with respect to the Accounts, in connection with cardholder purchases
of merchandise and services and cardholder cash advances.
"Knowledge" shall mean, with respect to Sellers, the
collective actual knowledge of the individuals set forth on Schedule
1.1(b) and, with respect to Purchaser, shall mean the actual knowledge
of the officers of Purchaser set forth on Schedule 1.1(c).
"Leased Real Property" shall mean all leasehold or
subleasehold estates and other rights to use or occupy any land,
buildings, structures, Improvements, fixtures or other interest in real
property held by or for Sellers or any of their Affiliates that is used
or held for use primarily in the Credit Card Business or the Financial
Products Business.
"Leases" shall mean all leases, subleases, licenses or other
agreements, including all amendments, extensions, renewals, guaranties
or other agreements with respect thereto, pursuant to which the Sellers
use or hold any Leased Real Property.
"Liability" shall mean any debt, liability, commitment,
obligation, claim or cause of action of any kind whatsoever, whether
due or to become due, known or unknown, accrued or fixed, absolute or
contingent, or otherwise.
"Licensed Intellectual Property" shall mean Acquired
Intellectual Property licensed by Sellers or any of their Affiliates.
"Licensed Marks" shall mean the Marks of Sears or any of its
Affiliates licensed to Purchaser pursuant to the Licensing Agreement.
"Licensing Agreement" shall mean the Licensing Agreement in
the form attached hereto as Exhibit C, to be entered into at the
Closing.
"Lien" shall mean, with respect to any property, any lien,
security interest, mortgage, pledge, hypothecation, charge, claim,
option, title defect, restriction or encumbrance relating to that
property, of any nature whatsoever, whether consensual, statutory or
otherwise, including the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention
agreement relating to such property.
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"Marks" with respect to any Seller or any third party, shall
mean any name, xxxxx, xxxx, common law or other trademark, service
xxxx, trade dress, trade name, business name, slogan, logo, Internet
domain name, or other indicia of origin, whether or not registered,
including all common law rights, and registrations and applications for
registrations thereof, and all goodwill associated with any of the
foregoing.
"Master File" shall mean the master file maintained by TSYS on
behalf of Sears with respect to the Accounts (including the
Securitization Accounts) including, without limitation, identification
and other customer data and Account information, the names and
addresses of Borrowers with respect to the Accounts and any and all
Account adjustments made by or on behalf of Sears.
"MasterCard Agreements" shall mean those two Agreements, dated
as of June 1, 2000, each between MasterCard International Incorporated
and the Bank providing for the issuance by the Bank of commercial and
consumer MasterCard Credit Cards.
"Merchant Agreement" shall mean the Merchant Agreement in the
form attached hereto as Exhibit D, to be entered into at the Closing.
"Merchant Dealer" shall mean any entity, current or past, with
which Sears or the Bank has entered into a license agreement pursuant
to which such entity engages or is engaged in the sale of goods,
services, warranties and such other products agreed to by the parties
to Borrowers.
"Operating Regulations" shall mean the respective by-laws,
rules and regulations of the Card Association.
"Owned Intellectual Property" shall mean Acquired Intellectual
Property owned by any of the Sellers or their respective Affiliates.
"Owned Real Property" shall mean all land, together with all
interests in buildings, structures, improvements and fixtures located
thereon and all easements and other rights and interests appurtenant
thereto owned by any of the Sellers or their respective Affiliates that
is used or held for use primarily in the Credit Card Business or the
Financial Products Business.
"Patents" shall mean patents, patent applications, provisional
applications, including reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations thereof, and all
improvements thereto.
"Permitted Lien" shall mean (i) any Lien (A) for Taxes,
assessments and other governmental charges which are not yet due and
payable, (B) deemed to be created by this Agreement and (C) arising out
of or with respect to the Securitization Documents and (ii) in the case
of Real Property, all exceptions of record, including recorded
easements, exceptions noted in title policies provided to Purchaser,
and utility easements, building restrictions, zoning restrictions, and
other easements and restrictions affecting title to or possession of
such Real Property existing generally with respect to properties of a
similar character and, in the case of each of the foregoing relating to
the Real Property, which do
10
not, individually or in the aggregate, affect materially and adversely
the current use, occupancy or value of the property subject thereto.
"Person" shall mean any individual, corporation, business
trust, partnership, association, limited liability company,
unincorporated organization or similar organization, or any
Governmental Authority.
"Pooling Agreement Amendment" shall mean Amendment No. 6 to
the Pooling Agreement, in the form attached hereto as Exhibit E.
"Post-Closing Tax Period" shall mean any taxable period
beginning after the Closing Date.
"Pre-Closing Environmental Liabilities and Costs" means all
Damages asserted against, resulting to, imposed on, or incurred by
Purchaser or its Affiliates in connection with: (i) each and every item
listed in Section 4.27(a)-1 of the Seller Disclosure Schedule; (ii) the
Release or threatened Release of any Hazardous Materials (or allegation
of same) prior to the Closing Date on or from or affecting any of the
Owned Real Property or Leased Real Property, whether or not any such
Release or threatened Release was in compliance with Environmental Law;
(iii) the violation of any Environmental Law prior to the Closing Date
(or allegation of same), by any of the Sellers, the Acquired Subsidiary
or any other person in connection with the business of the Sellers or
the Acquired Subsidiary; and (iv) any Environmental Claim against any
Person whose liability for such Environmental Claim any of the Sellers
or the Acquired Subsidiary has or may have retained or assumed either
contractually or by operation of law in connection with the Business.
"Pre-Closing Tax Period" shall mean any taxable period ending
on or before the Closing Date.
"Preliminary Closing Tape" shall mean the full Master File
tape as of a date no more than 5 Business Days prior to the Closing
Date, which tape shall identify the Securitization Accounts and include
the following for each Account (including the Securitization Accounts):
Account number; Borrower's name and address; origination date; date
Account closed (if applicable); current finance charge rate; current
credit limit; current outstanding Receivables (without regard to any
allowance for uncollectible accounts); whether payments are current,
and if not, the period of delinquency; and whether such Account is a
Charged-Off Account or otherwise impaired.
"Premium Amount" shall mean (i) in the event the Closing Date
occurs on or prior to October 31, 2003, 0.1 multiplied by the amount
reflected on the Estimated Closing Date Balance Sheet in respect of
"Net Customer Receivables" calculated in accordance and consistent with
the Reference Balance Sheet or (ii) in the event the Closing Date
occurs after October 31, 2003, 0.1 multiplied by an amount equal to the
average of "Net Customer Receivables" as of the month-end for the
six-months immediately preceding the month in which the Closing Date
occurs, for each such month,
11
calculated in accordance and consistent with the Reference Balance
Sheet (such average, the "Six-Month Average Net Customer Receivables").
"Purchaser Material Adverse Effect" shall mean: (i) any
change, event or effect that is, or would reasonably be expected to be,
individually or in the aggregate, materially adverse to the business,
assets, results of operations or financial condition of the credit card
business of Purchaser, taken as a whole, excluding any such change,
event or effect arising out of or in connection with or resulting from:
(A) general economic or business conditions or changes therein, (B)
adverse developments in economic, business or financial conditions
generally affecting the credit card industry, the consumer finance
industry, the insurance industry and/or the financial services industry
to the extent such adverse developments do not have a disproportionate
effect on the credit card business of Purchaser relative to other
entities operating businesses similar to Purchaser; (C) financial
market conditions, including without limitation, interest rates, or
changes therein; (D) changes in law, GAAP or regulatory accounting
principles after the date of this Agreement; or (E) any action,
omission, change, effect, circumstance or condition contemplated by
this Agreement, or attributable to the execution, performance or
announcement of this Agreement or the transactions contemplated hereby;
or (ii) an adverse change or effect reasonably expected to materially
impair or materially delay the ability of Purchaser or any of its
Affiliates to perform timely its obligations under this Agreement, the
Related Agreements or the Securitization Transfer Agreements or to
consummate the transactions contemplated hereby or thereby on a timely
basis.
"Quarterly Statement" shall mean the SAP quarterly financial
statements filed or submitted by the Acquired Subsidiary to the
Illinois Department of Insurance on forms prescribed or permitted by
such regulatory body.
"Rapid Amortization Event" shall have the meaning ascribed
thereto in the Pooling Agreement.
"Real Property" shall mean the Owned Real Property and the
Leased Real Property.
"Receivable Repurchase Event" shall have the meaning ascribed
thereto in the Pooling Agreement.
"Receivables" shall mean net amounts owing (after giving
effect to Credit Balances) from Borrowers in respect of the Accounts
(including loans, cash advances, balance consolidation receivables and
other extensions of credit, billed finance charges and any other
finance and non-finance fees, charges and interest assessed on the
Accounts).
"Reference Balance Sheet" shall mean the adjusted balance
sheet of the Business as of May 24, 2003, as attached hereto as
Schedule 1.1(d), which shall be prepared in accordance with GAAP using
the accounting principles, procedures, policies and methods set forth
on Schedule 1.1(d), including the adjustments set forth in the notes to
the Reference Balance Sheet.
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"Reinsurance Agreement" shall mean the reinsurance
arrangements contemplated by the Letter Agreement, dated as of the date
hereof, by and between Sears Reinsurance Company, Ltd., a Bermuda
corporation, and Purchaser.
"Related Agreements" shall mean each of (i) the Program
Agreement, (ii) the Transition Services Agreement, (iii) the Licensing
Agreement, (iv) the Merchant Agreement and (v) the Reinsurance
Agreement.
"Release" means any release, spill, emission, discharge,
leaking, pumping, injection, deposit, disposal, dispersal, leaching or
migration into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater and surface or
subsurface strata) or into or out of any property, including the
movement of Hazardous Materials through or in the air, soil, surface
water or groundwater.
"Required Amendments" shall mean each of (i) the Pooling
Agreement Amendment, and (ii) each amendment to any Securitization
Document, in each case in a form reasonably satisfactory to Sears and
Purchaser, as may be required in order for Sears and Purchaser to
consummate the transactions contemplated hereby and by the
Securitization Transfer Agreements without violation of the terms of
any Securitization Document.
"Requirements of Law" shall mean, with respect to any Person,
any law (including common law), ordinance, judgment, order, decree,
injunction, permit, statute, treaty, rule or regulation or
determination of (or an agreement with) an arbitrator or a Governmental
Authority or Card Association (including, without limitation, the
Operating Regulations), in each case binding on that Person or any
amount of its property or assets.
"Sales Tax Recovery" shall mean a refund or other recovery of
or against a sales, use or similar gross receipts-based Tax (or a
reduction in a sales, use or similar gross receipts-based Tax liability
arising from a credit or deduction) under applicable sales, use or
similar gross receipts-based Tax law.
"SAP" shall mean statutory accounting rules, principles and
procedures prescribed or permitted by the Illinois Department of
Insurance.
"Sears Affiliated Group" shall mean any consolidated,
combined, affiliated or unitary group, for Tax purposes, in which any
member of the Sears Group is included or of which any member of the
Sears Group is the common parent.
"Sears Canada" shall mean Sears Canada, Inc.
"Sears Customer Data Warehouse" shall mean: (i) any and all
customer information (including any such information purchased or
otherwise acquired from third-party sources) in any database maintained
by or on behalf of Sears, any of its Affiliates, licensees, franchisees
or dealers or Sears Canada or Sears Mexico, including data relating to
(A) customer demographics and contacts, (B) customer purchases from
Sears, any of its Affiliates, licensees, franchisees or dealers or
Sears Canada or Sears Mexico and (C)
13
customer transactions billed to any Account; and (ii) any analysis,
compilation, study, report or other document prepared on the basis of
any of the foregoing information.
"Sears Group" shall mean Sears, Sears Canada, Sears Mexico and
any Subsidiary of Sears (other than the Acquired Subsidiary or the
Trust).
"Sears Mexico" shall mean Sears Xxxxxxx de Mexico, S.A. de
C.V.
"Sears Service Provider Agreement" shall mean any agreement
between Sears or any of its Affiliates, on the one hand, and any
third-party vendor (each a "Service Provider"), on the other, pursuant
to which the Service Provider provides services to Sears and its
Affiliates, including, but not primarily, to and in support of the
Business. For avoidance of doubt and for example, the IBM Master
Agreement is a Sears Service Provider Agreement.
"Securitization" shall mean the arrangement involving the
transfer by SRFG, in its capacity as "seller" under the Pooling
Agreement, to the Trust of Securitization Receivables pursuant to the
Pooling Agreement and all series issuances thereunder.
"Securitization Account" shall mean each Account designated as
an "Account" or "Additional Account" pursuant to the Pooling Agreement
prior to the execution and delivery of this Agreement and with respect
to which receivables are transferred to the Trust pursuant to the
Pooling Agreement, provided, however, that any such Account that (x)
prior to the date of this Agreement, was designated as a "Removed
Account" under the Pooling Agreement or (y) any of the Receivables in
respect of which were required to be reassigned to SRFG (as "seller"
under the Pooling Agreement) at any time prior to or after the date of
this Agreement pursuant to Section 2.5 or Section 2.6 of the Pooling
Agreement shall not be deemed a "Securitization Account" hereunder,
unless such Account shall have been redesignated as an "Additional
Account" pursuant to the Pooling Agreement after such reassignment and
prior to the execution and delivery of this Agreement.
"Securitization Cash Collateral" shall mean cash and cash
equivalents maintained by or for the benefit of the Trust as of the
Cut-Off Time (whether or not held in Investor Accounts, as defined in
the Pooling Agreement), and any securities, instruments or other
investments in which cash and cash equivalents maintained by or for the
benefit of the Trust are invested as of the Cut-Off Time, that secure
the certificates of beneficial interest issued by the Trust or any
letter of credit, guaranty, or other means of credit enhancement issued
to or for the benefit of the Trust or the holders of beneficial
interests therein.
"Securitization Receivables" shall mean, as of any date of
determination, all outstanding Receivables that have been transferred
to the Trust and have not been and are not at that time required to be
reassigned to SRFG (as "seller" under the Pooling Agreement).
"Securitization Retained Interests" shall mean (i) all right,
title and interest of SRFG, as "seller," in the Trust as of the Closing
Date, represented by the Seller Certificate (as defined in the Pooling
Agreement), (ii) the Class C Certificates (as defined
14
in the Pooling Agreement) issued by the Trust pursuant to each Series
Supplement to the Pooling Agreement and held by SRFG and (iii) the
Class B Certificates (as defined in the Pooling Agreement) issued by
the Trust pursuant to certain Series Supplements to the Pooling
Agreement, held by SRFG and listed on Schedule 2.2 (j) hereto.
"Seller Benefit Plan" shall mean each deferred compensation
and each bonus or other incentive compensation, equity compensation
plan, "welfare" plan, fund or program (within the meaning of Section
3(1) of ERISA); "pension" plan, fund or program (within the meaning of
Section 3(2) of ERISA); and each other employee benefit plan, fund,
program, agreement or arrangement, in each case, that is sponsored,
maintained or contributed to or required to be contributed to by Sears
or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with Sears would be deemed a "single
employer" within the meaning of Section 4001(b) of ERISA, or to which
Sears or an ERISA Affiliate is party, whether written or oral, for the
benefit of any Business Employee.
"Series Supplement" shall mean, for any series of Trust
Certificates, the Series Supplement to the Pooling Agreement that
establishes the specific terms and provisions of such series of Trust
Certificates.
"Servicer" shall mean Sears, acting in its capacity as
servicer, or any successor servicer, under and pursuant to the Pooling
Agreement.
"Servicer Termination Event" shall have the meaning ascribed
thereto in the Pooling Agreement.
"Software" means computer software, including all programs and
applications (whether in object code, source code or other form) and
documentation related thereto.
"Straddle Period" shall mean any taxable period that begins on
or before and ends after the Closing Date.
"Subsidiary" shall mean, with respect to any Person, any other
Person of which such first Person (either alone or through or together
with any other Subsidiary) owns, directly or indirectly, a majority of
the outstanding equity securities or securities carrying a majority of
the voting power in the election of the board of directors or other
governing body of such Person; provided that none of the Trust, Sears
Canada or Sears Mexico shall be deemed to be a Subsidiary of Sears for
the purposes of this Agreement.
"Tax Benefit" shall mean the Tax effect of any Benefit Item,
including any interest with respect thereto or interest that would have
been payable but for such item.
"Tax Item" shall mean any item of income, gain, loss,
deduction, credit, recapture of credit or any other item which
increases or decreases Taxes paid or payable, including an adjustment
under Section 481 of the Code resulting from a change in accounting
method.
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"Tax Proceeding" shall mean any Tax audit, contest,
litigation, defense or other proceeding with or against any
Governmental Authority.
"Tax Recovery End Date" shall mean, with respect to any
receivables under an Account, the earliest of (i) the expiration or
termination of the Program Agreement under Section 8.9, Section 13.1,
Section 13.2 or Section 13.3 of the Program Agreement, (ii) the
Repurchase Closing Date (as defined in the Program Agreement) and (iii)
if applicable, the repurchase of such receivables pursuant to Section
8.6 or Section 13.5 of the Program Agreement.
"Tax Return" or "Return" shall mean any return, declaration,
report, claim for refund, information return or similar statement filed
or required to be filed with respect to any Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Taxes" shall mean any and all taxes, assessments, customs,
duties, levies, tariffs and imposts of any kind whatsoever, including
any income, alternative or add-on minimum, gross receipts, sales, use,
transfer, gains, value added, goods and services, ad valorem,
franchise, profits, license, withholding, payroll, direct placement,
employment, excise, severance, stamp, procurement, occupation, premium,
property, escheat, environmental or windfall profit tax, custom, duty
or other tax, together with any interest, additions or penalties with
respect thereto.
"Total Equity" shall mean, as of any date, an amount equal to
the excess of (x) the total assets of the Business over (y) the total
liabilities of the Business, as of such date, in each case as shown on
a balance sheet of the Business prepared in accordance with GAAP using
the same accounting principles, procedures, policies and methods that
were employed in preparing the Reference Balance Sheet as set forth on
Schedule 1.1(d), including the adjustments set forth in the notes
thereto.
"Transition Services Agreement" shall mean the Transition
Services Agreement to be entered into at the Closing, which shall
incorporate the terms set forth in the term sheet attached hereto as
Exhibit B.
"Trust" shall mean the Sears Credit Account Master Trust II.
"Trust Certificates" shall mean the certificates of beneficial
interest in the Trust.
"TSYS" shall mean Total Systems Services, Inc.
"Unreasonable Condition" shall mean any modification,
divestiture, restriction or condition imposed in connection with
obtaining any approval, registration, permit, consent or other
authorization required to be received from an Applicable Governmental
Authority in order to satisfy the conditions set forth in Article VII
that (i) would be reasonably expected to have a Purchaser Material
Adverse Effect (except that for purposes of this definition only,
Purchaser Material Adverse Effect shall be measured based upon the
effect on the credit card business of Purchaser and its Affiliates,
after giving effect to the transactions contemplated in this Agreement
and the Related
16
Agreements), or (ii) would result in Purchaser and its
Affiliates being deprived after Closing of substantially all of the
economic value expected to be obtained by Purchaser and its Affiliates
from the assets to be acquired and the transactions contemplated by
this Agreement and the Related Agreements.
Section 1.2. Construction; Absence of Presumption. (a) For the
purposes of this Agreement: (i) words (including capitalized terms defined
herein) in the singular shall be held to include the plural and vice versa and
words (including capitalized terms defined herein) of one gender shall be held
to include the other gender as the context requires; (ii) the terms "hereof,"
"herein," and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole (including all of the
Exhibits and Schedules) and not to any particular provision of this Agreement,
and Article, Section, paragraph, Exhibit and Schedule references are to the
Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement unless
otherwise specified; (iii) 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; (iv) the word "or"
shall not be exclusive; (v) "reasonable best efforts" shall not require waiver
by any Party of any material rights under this Agreement or any action or
omission that would be a breach of this Agreement; and (vi) all references to
any period of days shall be deemed to be to the relevant number of calendar days
unless otherwise specified.
(b) The Parties acknowledge that each Party and its counsel have
reviewed and revised this Agreement and that no rule of construction to the
effect that any ambiguities are to be resolved against the drafting Party shall
be employed in the interpretation of this Agreement (including all of the
Exhibits and Schedules) or any amendments hereto)
(c) The Parties acknowledge and agree that to the extent that there is a
conflict between (i) any general provision of this Agreement and (ii) any
provision specifically relating to Tax matters, the terms of the specific Tax
provision shall control.
Section 1.3. Headings; Definitions. The Article and Section headings
contained in this Agreement are inserted for convenience of reference only and
shall not affect the meaning or interpretation of this Agreement. All references
to Sections or Articles contained herein mean Sections or Articles of this
Agreement unless otherwise stated.
ARTICLE II
SALE, CONVEYANCE AND ASSUMPTION
Section 2.1. Purchase and Sale of the Acquired Subsidiary Stock. Upon
the terms and subject to the provisions and conditions of this Agreement, at the
Closing, Sears shall cause Sears Life Holding to, and Sears Life Holding shall,
sell, assign, transfer and convey to Purchaser or its permitted assigns, and
Purchaser or its permitted assigns shall purchase, acquire and accept from Sears
Life Holding, all of the issued and outstanding shares of capital stock (the
"Acquired Subsidiary Stock") of Sears Life Insurance Company, an Illinois
domestic insurance company (the "Acquired Subsidiary"), free and clear of all
Liens, which Acquired Subsidiary Stock constitutes, and will constitute as of
the Closing, all of the issued and outstanding shares of capital stock or other
equity interests of the Acquired Subsidiary.
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Section 2.2. Purchase and Sale of Purchased Interests. Upon the terms
and subject to the provisions and conditions of this Agreement, at the Closing,
Sellers shall, and shall cause their respective Subsidiaries (other than the
Acquired Subsidiary) to, sell, assign, transfer and convey to Purchaser or its
permitted assigns, and Purchaser or its permitted assigns shall purchase,
acquire and accept from Sellers, the Purchased Interests (as defined in the next
sentence), subject to the Assumed Liabilities. The "Purchased Interests" shall
mean all rights, title and interest of each Seller in the assets of every kind
and description used or held for use by Sellers and their Subsidiaries (other
than the Acquired Subsidiary and the Trust) primarily in the Credit Card
Business or the Financial Products Business as of the date hereof and all such
assets that come to be so used or held by Sellers and their Subsidiaries (other
than the Acquired Subsidiary and the Trust) in accordance with Section 6.1 prior
to the Closing, other than (w) the Retained Assets, (x) the Acquired Subsidiary
Stock transferred pursuant to Section 2.1, (y) any assets held by the Acquired
Subsidiary or the Trust and (z) any assets disposed of in accordance with
Section 6.1 from the date hereof until the Closing Date, including all, if any,
rights, title and interest of each Seller (and each Subsidiary thereof, other
than the Acquired Subsidiary) in and to:
(a) each Account;
(b) each Account Agreement;
(c) each Credit Card and blank convenience check with respect to any
Account;
(d) the Books and Records;
(e) the Receivables (other than the Securitization Receivables) and,
from and after the Closing Date, the right to receive all payments from
Borrowers relating to the Accounts (subject to the rights, claims and interests
arising under the Pooling Agreement and the other Securitization Documents) and
accruing from and after the Cut-Off Time;
(f) from and after the Closing Date, the right to receive all
Interchange Fees relating to the Accounts (subject to the rights, claims and
interests arising under the Pooling Agreement and the other Securitization
Documents) and accruing on and after the Closing Date;
(g) [Intentionally Omitted];
(h) all of the Securitization Retained Interests, any Securitization
Cash Collateral and all interests of the Sellers and their Subsidiaries in and
to the Securitization Receivables;
(i) all rights to act as the successor to Servicer and to collect the
corresponding fees and charges (the "Servicer Rights") under the Pooling
Agreement and each of the Securitization documents identified in Schedule 2.2(i)
(the "Securitization Documents");
(j) all other rights and interests under each of the Securitization
Documents, including each of the investor certificates, trust ownership
interests, accounts, residual interests and other rights and interests
(including rights to excess spread and any other interests of Sears in the
Receivables) identified in Schedule 2.2(j) hereto (all of the foregoing,
together with the Servicer Rights and the Securitization Retained Interests, the
"Securitization Interests");
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(k) all rights and interests (including any right to receive premiums,
ceding commissions and agency fees) arising under any Insurance Contracts;
(l) (i) subject to Section 6.2(e), the Owned Real Property set forth in
Schedule 2.2(l)-1 and (ii) the Leases with respect to the Leased Real Property
set forth in Schedule 2.2(l)-2;
(m) Sellers' equipment, furniture, fixtures, office supplies and other
tangible personal property located at the Owned Real Property or Leased Real
Property or otherwise included in the Reference Balance Sheet, including the
assets as set forth in Schedule 2.2(m) (the "Fixed Assets");
(n) subject to Section 6.8, all rights and interests of Sellers in the
Contracts entered into primarily in connection with the Business other than the
Employment Agreements (the "Assumed Contracts") including the Contracts set
forth in Schedule 2.2(n) and any debt cancellation or debt suspension Contract
with a customer;
(o) the Master File;
(p) all interests of Sellers and their Subsidiaries (other than the
Acquired Subsidiary) in and to the Acquired Intellectual Property;
(q) all interests of Sellers and their Subsidiaries (other than the
Acquired Subsidiaries) in and to the Acquired Cardholder Information;
(r) the Bank's ICA numbers and bank identification numbers (BIN)
relating to the Accounts;
(s) the assets set forth in Schedule 2.2(s) (the "Other Assets");
(t) all rights, claims, causes of action and suits which Sellers have or
may have against any third party in connection with the foregoing assets, the
Business (other than in connection with any Retained Asset) or the Assumed
Liabilities;
(u) to the extent assignable or transferable, all permits, licenses,
franchises, approvals, qualifications, registrations, certifications or similar
authorizations from any Governmental Authority required for the conduct of the
Business as currently conducted (other than in connection with any Retained
Asset); and
(v) any and all assets taken into account on the Reference Balance
Sheet, the Estimated Closing Date Balance Sheet or the Closing Date Balance
Sheet, and all assets acquired by Sellers since the date of the Reference
Balance Sheet which, had they been held by Sellers as of that date, would have
been taken into account on the Estimated Closing Date Balance Sheet or the
Closing Date Balance Sheet, except, in the case of the Reference Balance Sheet
or the Estimated Closing Date Balance Sheet, to the extent disposed of in the
ordinary course of business in accordance with Section 6.1.
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Section 2.3. Retained Assets. Sellers and their Subsidiaries shall
retain ownership of their existing rights, title and interest in the following
assets (the "Retained Assets"), which shall not be included as Purchased
Interests and shall not be taken into account in the calculation of Total Equity
as of the date of the Reference Balance Sheet, the Estimated Closing Date
Balance Sheet or the Closing Date Balance Sheet:
(a) cash-on-hand (other than any xxxxx cash-on-hand at the facilities
located on the Real Property) and cash and cash equivalents in bank accounts
maintained by Sellers, including any cash suspense accounts, but excluding any
Securitization Cash Collateral;
(b) Sellers' equipment, furniture, fixtures and other tangible personal
property, other than as provided in Section 2.2(m);
(c) any Tax refunds (or credits) to the extent provided in Article VIII;
(d) any assets of Sellers or of any of their Affiliates not used or held
for use primarily in the Credit Card Business or the Financial Products
Business, including: (i) all assets, contractual rights and other property
(whether real or personal and whether tangible or intangible) primarily used or
held for use in or relating to the retail merchandizing businesses (including
any catalog business) of Sears or any of its Affiliates and (ii) all of the
capital stock or equivalent ownership interests of any Subsidiary or Affiliate
of Sears (other than the Acquired Subsidiary Stock);
(e) any insurance covering Retained Liabilities;
(f) any rights of Sellers under the Account Agreements or any of the
other Purchased Interests to fees and reimbursements under such agreements and
any indemnification, hold-harmless or similar rights in favor of Sellers or
their Subsidiaries (other than the Acquired Subsidiary) relating to the conduct
of the Credit Card Business or the Financial Products Business prior to the
Closing;
(g) any rights to any security deposits or other amounts deposited with
any state or other jurisdiction or regulatory authority in connection with the
qualification, certification, licensing or permitting of Sellers in connection
with the conduct of Sellers' businesses, including the Credit Card Business and
the Financial Products Business, except with respect to such security deposits
or other amounts deposited that relate to a qualification, certification,
license or permit that are transferred to Purchaser pursuant to Section 2.2(u);
(h) all rights and interests in any interest rate swap Contract or other
derivative financial instrument relating to the secured or unsecured debt of
Sears and its Affiliates;
(i) the customer data included in the Sears Customer Data Warehouse,
even if such data is duplicated in the Acquired Cardholder Information; and
(j) the assets set forth in Schedule 2.3(j) and as may be provided in
Section 6.2(e) (the "Other Retained Assets").
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Section 2.4. Assumed Liabilities. At the Closing, Purchaser or its
permitted assigns shall assume and agree to pay, perform and discharge, and
shall pay, perform and discharge as they become due, only the following
Liabilities of Sellers to the extent such Liabilities are not specifically
listed as Retained Liabilities (the "Assumed Liabilities"):
(a) all accrued Liabilities in categories that are reflected on both the
Reference Balance Sheet and the Closing Date Balance Sheet, but only to the
extent such accrued Liabilities are set forth on the Closing Date Balance Sheet;
(b) all Liabilities to Borrowers under each of the Account Agreements
that are incurred or accrue on or after the Closing Date to the extent such
Liabilities do not arise from any breach or default by any Seller or any
Affiliate of any Seller prior to the Closing;
(c) all fees and expenses relating to the Accounts that are incurred or
accrue on or after the Closing Date;
(d) the obligations of the holder of the Purchased Interests under the
Securitization Documents that are incurred or accrue on or after the Closing
Date to the extent such obligations do not arise from or are not related to any
breach or default under the Securitization Documents by any Seller or any
Affiliate of any Seller or the Servicer prior to the Closing;
(e) [Intentionally Omitted];
(f) all fees, normal operating assessments and other charges of the Card
Association relating to the Accounts that are incurred or accrue on or after the
Closing Date;
(g) the Liabilities of Purchaser or any of its Affiliates, acting in
its/their capacity as successor servicer under the Securitization Documents (to
the extent set forth in the Securitization Transfer Agreements), that are
incurred or accrue on or after the Closing Date to the extent such Liabilities
do not arise from or are not related to any conduct of any Seller or any
Affiliate of any Seller or the Servicer prior to the Closing;
(h) all Liabilities assumed pursuant to Section 6.16;
(i) all Liabilities under each of the Assumed Contracts that are
incurred or accrue on or after the Closing Date to the extent such Liabilities
do not arise from or are not related to any breach or default under the Assumed
Contracts by any Seller or any Affiliate of any Seller prior to the Closing;
(j) all Liabilities and obligations for Taxes relating to the Business,
the Purchased Interests, the Acquired Subsidiary Stock, the Acquired Subsidiary
or the Trust (or their respective assets), to the extent provided in Article
VIII;
(k) other than Liabilities of the Acquired Subsidiary, all Liabilities
under any Insurance Contract, that are incurred or accrue on or after the
Closing Date to the extent such Liabilities do not arise from or are not related
to any breach or default by any Seller or any Affiliate of any Seller prior to
the Closing;
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(l) all Liabilities arising out of or relating to the Purchased
Interests or the Business to the extent attributable to occurrences or
circumstances arising on or after the Closing Date and not included in the
Retained Liabilities; and
(m) the Liabilities set forth on Schedule 2.4(m)(the "Other Assumed
Liabilities").
Section 2.5. Retained Liabilities. Notwithstanding anything to the
contrary set forth in this Agreement, Purchaser shall not assume, or be deemed
to have assumed, and the Sellers shall be solely and exclusively liable with
respect to, all Liabilities, other than the Assumed Liabilities, of Sellers and
their Affiliates (the "Retained Liabilities"), including the following:
(a) all Liabilities to the extent relating to or incurred in connection
with the Retained Assets;
(b) all indebtedness for borrowed money, capital leases or guarantees or
other support arrangements in respect of any of the foregoing of Sellers and
their Affiliates, other than the indebtedness for borrowed money of the Trust
evidenced by the Trust Certificates;
(c) all Liabilities and obligations for Damages or Taxes for which Sears
is responsible pursuant to Article VIII;
(d) except as otherwise provided in Section 6.16, all Liabilities of
Sellers and their Affiliates relating to the Business Employees or to the
compensation and benefits of the Business Employees;
(e) all Liabilities of Sears and its Affiliates to the extent arising in
connection with their operations that are unrelated to the Credit Card Business
or the Financial Products Business;
(f) all legal, accounting, brokerage and finder's fees, if any, or other
fees and expenses incurred by Sellers in connection with this Agreement or the
consummation of the transactions contemplated hereby;
(g) all Liabilities related to, associated with or arising out of any
action, claim, suit or judicial, arbitral or administrative proceeding with
respect to the operation of the Credit Card Business (including relating to the
Trust, the Securitization Interests or the Securitization Documents) or the
Financial Products Business prior to the Closing Date, whether such action,
claim, suit or proceeding is brought prior to, on or after the Closing Date;
(h) all Liabilities related to, associated with, or arising out of any
breach or default, failure to perform and overcharges or under payments, in each
case, arising under the Assumed Contracts prior to the Closing;
(i) all Liabilities that result from an act, or failure to act, by the
Sellers or any of their Affiliates prior to the Closing Date that relates to any
claims by any Borrower, in each case
22
net of any merchant charge-backs or other set-offs permissible under the
operating rules and regulations of the applicable Card Association in effect at
such time;
(j) all Pre-Closing Environmental Liabilities and Costs; and
(k) the Liabilities set forth on Schedule 2.5(k) (the "Other Retained
Liabilities").
Section 2.6. Allocation of Purchase Price. (a) Purchaser and Sellers
agree that at least 96 percent of the Premium Amount is attributable to one or
more of the following entities: Sears Holding, Sears Intellectual Property
Management Company, SMTB Inc., SVFT, Inc., SLRR, Inc. and SRFG, Inc.
(b) Purchaser and Sellers shall endeavor in good faith to agree, within
120 days after the Closing Date, on a further allocation of the total
consideration among the Purchased Interests, the Acquired Subsidiary Stock and
the Program Agreement (and an allocation of the ADSP among the assets of the
Acquired Subsidiary) (the "Allocation Statement"), which allocation shall
incorporate, reflect and be consistent with Section 2.6(a). If Purchaser and
Sellers have not agreed on the Allocation Statement by such date, Purchaser and
Sellers shall endeavor in good faith to resolve such disagreement. If Purchaser
and Sellers are unable to resolve such disagreement within 15 days, each of
Purchaser and Sellers shall use its own allocation for purposes of Section
2.6(c), which allocation shall incorporate, reflect and be consistent with
Section 2.6(a). The Allocation Statement, if any, shall incorporate, reflect and
be consistent with Section 2.6(a). The Allocation Statement, if any, shall be
prepared in accordance with Sections 338 and 1060 of the Code and the rules and
regulations promulgated thereunder.
(c) Except as may be required by a Determination, Purchaser and Sellers
agree to report the allocation of the total consideration among the Purchased
Interests, the Acquired Subsidiary Stock and the Program Agreement (and of the
ADSP among the assets of the Acquired Subsidiary) in accordance with Section
2.6(a) (and, if Purchaser and Sellers agree on an Allocation Statement, the
Allocation Statement) and agree to act in accordance with Section 2.6(a) (and,
if Purchaser and Sellers agree on an Allocation Statement, the Allocation
Statement) in the preparation and filing of all Tax Returns (including filing
Form 8883 and Form 8594 with their respective federal income Tax Returns for the
taxable year that includes the Closing Date and any other forms or statements
required by the Code, Treasury regulations, the Internal Revenue Service or any
applicable state or local Tax authority) and in the course of any Tax
Proceeding.
(d) Purchaser and Sears shall promptly inform one another of any
challenge by any Governmental Authority to any allocation made pursuant to this
Section 2.6 and agree to consult and keep one another informed with respect to
the status of, and any discussion, proposal or submission with respect to, such
challenge.
ARTICLE III
THE CLOSING AND POST-CLOSING ADJUSTMENTS
Section 3.1. Closing. Subject to Section 3.7 hereof, the closing of the
transactions provided for in this Agreement (the "Closing") shall take place
(i) at the offices of Wachtell, Lipton, Xxxxx & Xxxx, 00 Xxxx 00xx Xx.,
Xxx Xxxx, Xxx Xxxx, 00000 at 9:00 a.m.,
23
New York City time, on the second Business Day following the date on which the
last of the conditions required to be satisfied or waived pursuant to Article
VII is either satisfied or waived (other than those conditions that by their
nature are to be satisfied at the Closing), or (ii) at such other place, time or
date as the parties shall agree upon in writing. The date on which the Closing
is to occur is referred to herein as the "Closing Date."
Section 3.2. Preliminary Information. At least two (2) Business Days
prior to the Closing Date, Sears, on behalf of Sellers, shall deliver to
Purchaser (i) the Preliminary Closing Tape, (ii) instructions designating the
account or accounts to which the Closing Purchase Price shall be deposited by
federal funds wire transfer on the Closing Date, (iii) the Estimated Closing
Date Balance Sheet, and (iv) in the event that the Closing Date is to occur
after October 31, 2003, a statement setting forth the Six-Month Average Net
Customer Receivables (the "Preliminary Average Receivables Statement").
Section 3.3. Closing Purchase Price. Subject to Section 3.7, the
"Closing Purchase Price" (in addition to the Assumed Liabilities) shall be the
sum of the following:
(i) the Premium Amount; and
(ii) an amount which is equal to the Total Equity, after
giving effect to the adjustments, as reflected on the Estimated
Closing Date Balance Sheet (the "Estimated Total Equity").
Section 3.4. Sellers' Deliveries at Closing. At the Closing, Sellers
shall deliver to Purchaser or its permitted assigns:
(a) a stock certificate evidencing the Acquired Subsidiary Stock, duly
endorsed in blank or with stock powers executed in proper form for transfer, and
with any required stock transfer stamps affixed thereto;
(b) one or more assignment and assumption agreements, duly executed, to
effect the transactions described in Sections 2.2 and 2.4;
(c) the Transition Services Agreement, duly executed;
(d) the Licensing Agreement, duly executed;
(e) each of the amendments, assignment and assumption agreements,
resignation and replacement agreements and other agreements and documents
identified as "Securitization Transfer Agreements" on Schedule 3.4(e), each of
which shall be in a form reasonably mutually satisfactory to Sellers and
Purchaser (the "Securitization Transfer Agreements"), duly executed, along with
all Securitization Cash Collateral;
(f) the resignations of the officers, as corporate officers, and
directors and auditors of the Acquired Subsidiary set forth on Schedule 3.4(f)
(which list includes all officers and directors of the Acquired Subsidiary
elected or appointed by Sears Life Holding);
(g) the Officer's Certificate required pursuant to Section 7.2(d);
24
(h) bargain and sale deeds with covenants against grantor's acts in
recordable form relating to the Owned Real Property;
(i) the Reinsurance Agreement, duly executed;
(j) [Intentionally Omitted];
(k) a duly executed certificate of non-foreign status (a "FIRPTA
Certificate") from each of the Sellers (or from Sears with respect to any
Seller) in the form and manner that complies with Section 1445 of the Code and
the Treasury Regulations promulgated thereunder; provided, however, that if a
FIRPTA Certificate is unable to be furnished by a Seller (or by Sears with
respect to such Seller), then such Seller (or Sears with respect to such Seller)
may instead provide a certificate (an "Alternate Certificate") pursuant to which
such Seller certifies under penalties of perjury that it is not disposing of any
United States real property interest (as defined in Section 897(c) of the Code
and the Treasury Regulations promulgated thereunder). Notwithstanding anything
to the contrary contained herein, if any Seller fails to provide to Purchaser a
FIRPTA Certificate or an Alternate Certificate, Purchaser shall be entitled to
withhold from the Closing Purchase Price the amount required to be withheld
pursuant to Section 1445 of the Code and the Treasury Regulations promulgated
thereunder.
(l) a general assignment, in a form reasonably acceptable to Purchaser
and, with respect to any Intellectual Property that is the subject of a
registration or application with the United States Patent and Trademark Office
or United States Copyright Office, assignments in recordable form, conveying the
Acquired Intellectual Property to Purchaser pursuant to the terms of this
Agreement, and any other documents reasonably requested by Purchaser to perfect
or record Purchaser's right, title and interest in and to such Intellectual
Property; and
(m) all such additional instruments, documents and certificates provided
for by this Agreement or as may be (i) necessary to vest in Purchaser good and
marketable title to the Purchased Interests or (ii) reasonably requested by
Purchaser in connection with the Closing of the transactions contemplated by
this Agreement.
Section 3.5. Purchaser's Deliveries at Closing. At the Closing,
Purchaser shall deliver to Sears, on behalf of Sellers, or at Sears' request to
Sellers directly (in each case consistent with Section 3.2 hereof):
(a) an amount equal to the Closing Purchase Price to be paid by
Purchaser by federal funds wire transfer of immediately available funds to the
account or accounts designated pursuant to Section 3.2(ii);
(b) one or more assignment and assumption agreements, duly executed, to
effect the transactions described in Sections 2.2 and 2.4;
(c) the Transition Services Agreement, duly executed;
(d) the Licensing Agreement, duly executed;
(e) the Securitization Transfer Agreements, duly executed;
25
(f) the Officer's Certificate required pursuant to Section 7.3(d);
(g) the Reinsurance Agreement, duly executed;
(h) [Intentionally Omitted]; and
(i) all such additional instruments, documents and certificates provided
for by this Agreement or as may be (i) necessary for, or (ii) reasonably
requested by Sellers in connection with, the Closing of the transactions
contemplated by this Agreement.
Section 3.6. Proceedings at Closing. All proceedings to be taken and
all documents to be executed and delivered by the parties at the Closing shall
be deemed to have been taken and executed simultaneously, and, except as
permitted hereunder, no proceedings shall be deemed taken nor any documents
executed or delivered until all have been taken, executed and delivered.
Section 3.7. Delayed Closing. (a) Notwithstanding anything to the
contrary contained herein, in the event that the conditions set forth in Article
VII have been satisfied, except that the transfer of the Acquired Subsidiary
Stock or any Purchased Interest used or held for use in the Financial Products
Business (such Acquired Subsidiary Stock and Purchased Interests, the "FP
Delayed Closing Assets") or the assumption of any Assumed Liability related to
the Financial Products Business (the "FP Delayed Closing Liabilities") requires
any approval of any Governmental Authority that has not been received, the
Closing shall be effected as contemplated hereby subject to subsections 3.7(b)
to (e) hereof.
(b) At the Closing, in the event there shall be a Financial Products
Delayed Closing, the FP Delayed Closing Assets or the FP Delayed Closing
Liabilities shall not be transferred to Purchaser. A subsequent closing (the
"Financial Products Delayed Closing") with respect to the FP Delayed Closing
Assets and the FP Delayed Closing Liabilities shall occur on the second Business
Day (the "Financial Products Delayed Closing Date") following receipt of the
applicable approvals of any Governmental Authority or at the expiration of any
applicable waiting period. At the Financial Products Delayed Closing, Sellers
and Purchaser shall make such deliveries as may be reasonably necessary or
reasonably mutually desirable to transfer and assign the FP Delayed Closing
Assets, and to assume any FP Delayed Closing Liabilities, as contemplated by
Sections 2.2 and 2.4 of this Agreement.
(c) From the Closing Date to the Financial Products Delayed Closing,
Sellers shall, with any necessary cooperation from Purchaser, take such actions
with respect to such FP Delayed Closing Assets and such FP Delayed Closing
Liabilities as may be reasonably requested by Purchaser to the extent permitted
by law and shall preserve each FP Delayed Closing Asset and hold and operate
each such FP Delayed Closing Asset in trust for the account of Purchaser and
provide Purchaser the economic benefit thereof, and Purchaser shall be liable
for all obligations relating to such FP Delayed Closing Assets and for the FP
Delayed Closing Liabilities. To the extent that any Seller is not lawfully able
to hold and operate any FP Delayed Closing Asset in trust for the account of
Purchaser as contemplated by the preceding sentence, such Seller shall use its
reasonable best efforts to enter into an arrangement that passes through to
Purchaser the economic costs and benefits of ownership of such FP Delayed
Closing Assets.
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The foregoing shall be undertaken pursuant to documentation mutually agreed upon
by Purchaser and Sellers.
(d) In respect of the FP Delayed Closing Assets and the FP Delayed
Closing Liabilities, from the Closing Date to the Financial Products Delayed
Closing, Sellers and Purchaser shall continue to comply with all covenants and
agreements contained in this Agreement that are required by their terms to be
performed prior to the Closing and, unless the context clearly requires
otherwise, all references in this Agreement to "Closing" or "Closing Date"
shall, with respect to the FP Delayed Closing Assets, the FP Delayed Closing
Liabilities and all persons employed primarily in or in support of the FP
Delayed Closing Assets, be deemed to refer to the Financial Products Delayed
Closing or the Financial Products Delayed Closing Date, respectively.
(e) In the event the Financial Products Delayed Closing shall not have
occurred within 90 days of the Closing Date, upon the written request of
Purchaser and for no additional consideration, Sellers shall, and shall cause
their Subsidiaries to, to the extent permitted by law, take all such actions as
may be reasonably necessary to effect the orderly transition of the economic
benefits and burdens of the FP Delayed Closing Assets and the FP Delayed Closing
Liabilities to a Person designated by Purchaser, including entering into
reinsurance, marketing and administrative agreements as necessary to effectuate
such transition.
Section 3.8. Closing Date Balance Sheet; Payments on the Settlement
Date. (a) Not later than ten (10) days after the Closing Date or such other time
as is mutually agreed by the parties, Sears, on behalf of Sellers, shall deliver
to Purchaser the Final Closing Tape.
(b) (i) Not later than ninety (90) days after the Closing Date or
such other time as is mutually agreed by the parties, Purchaser shall
prepare, or cause to be prepared, and deliver to Sears (A) a balance sheet
of the Business (including all FP Delayed Transfer Assets and all FP
Delayed Closing Liabilities) (the "Closing Date Balance Sheet"), as of the
Cut-Off Time, based on the Final Closing Tape and other mutually acceptable
documentation substantiating the changes from the Reference Balance Sheet,
and (B) in the event that the Closing Date occurred after October 31, 2003,
a statement setting forth the Six-Month Average Net Customer Receivables
(the "Final Average Receivables Statement"). The Closing Date Balance Sheet
and the Final Average Receivables Statement shall be prepared consistent
with the accounting principles, procedures, policies and methods used by
Sears in preparing the Reference Balance Sheet as such principles,
procedures, policies and methods are described in Schedule 1.1(d) hereto,
including the adjustments set forth in the notes to the Reference Balance
Sheet. Based on the Closing Date Balance Sheet, Purchaser shall prepare a
certificate setting forth a calculation of the Total Equity of the Business
as of the Cut-Off Time (the "Final Total Equity"). In the event that the
Closing Date occurred after October 31, 2003, based on the Final Average
Receivables Statement, Purchaser shall prepare a certificate setting forth
the calculation of the Six-Month Average Net Customer Receivables as of the
Closing Date (the "Final Six-Month Average Net Customer Receivables").
(ii) During the preparation of the Closing Date Balance
Sheet and the Final Average Receivables Statement, if applicable, and the
calculation of Final Total
27
Equity and the Final Six-Month Average Net Customer Receivables, if
applicable, and the period of any dispute within the contemplation of this
Section 3.8, Purchaser shall, and shall cause the Acquired Subsidiary to,
and Sellers shall: (A) provide the other party and the other party's
authorized representatives with reasonable access to the relevant books,
records, facilities and employees and the Purchased Interests; and (B)
cooperate in good faith with the other party and its authorized
representatives, including by providing on a timely basis all information
necessary or useful in the calculation of Final Total Equity or the Final
Six-Month Average Net Customer Receivables, if applicable.
(iii) On the second Business Day after Purchaser and Sears agree
to the Closing Date Balance Sheet and the Final Total Equity, and the Final
Average Receivables Statement and Final Six-Month Average Net Customer
Receivables, if applicable, or Purchaser and Sears receive notice of any
final determination of the Closing Date Balance Sheet and the Final Total
Equity, and the Final Average Receivables Statement and Final Six-Month
Average Net Customer Receivables, if applicable, under Section 3.8(c) (the
"Settlement Day"), if the Estimated Total Equity exceeds the Final Total
Equity, Sears, on behalf of Sellers, shall pay to Purchaser
or, if the Final Total Equity exceeds the Estimated Total Equity, Purchaser
shall pay to Sears, on behalf of Sellers, an amount in dollars equal to the
absolute value of the difference between the Estimated Total Equity and the
Final Total Equity (the "Final Adjustment Payment").
(iv) On the Settlement Day, (A) in the event that the Closing
Date occurred on or prior to October 31, 2003, if the amount reflected on
the Estimated Closing Date Balance Sheet in respect of "Net Customer
Receivables" exceeds the amount reflected on the Closing Date Balance Sheet
in respect of "Net Customer Receivables", Sears, on behalf of Sellers,
shall pay to Purchaser or, if the amount reflected on the Closing Date
Balance Sheet in respect of "Net Customer Receivables" exceeds the amount
reflected on the Estimated Closing Date Balance Sheet in respect of "Net
Customer Receivables", Purchaser shall pay to Sears, on behalf of Sellers,
an amount in dollars equal to 0.1 multiplied by the absolute value of the
difference between the amount reflected on the Estimated Closing Date
Balance Sheet in respect of "Net Customer Receivables" and the amount
reflected on the Closing Date Balance Sheet in respect of "Net Customer
Receivables" or (B) in the event that the Closing Date occurred after
October 31, 2003, if the Six-Month Average Net Customer Receivables set
forth on the Preliminary Average Receivables Statement exceeds the Final
Six-Month Average Net Customer Receivables set forth on the Final Average
Receivables Statement, Sears, on behalf of Sellers, shall pay to Purchaser
or, if the Final Six-Month Average Net Customer Receivables set forth on
the Final Average Receivables Statement exceeds the Six-Month Average Net
Customer Receivables set forth on the Preliminary Average Receivables
Statement, Purchaser shall pay to Sears, on behalf of Sellers, an amount in
dollars equal to 0.1 multiplied by the absolute value of the difference
between the Six-Month Average Net Customer Receivables set forth on the
Preliminary Average Receivables Statement and the Final Six-Month Average
Net Customer Receivables set forth on the Final Average Receivables
Statement (the amount paid pursuant to (A) or (B), as applicable, the
"Final Premium Adjustment Payment").
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(c) Within thirty (30) days following its receipt of the Closing Date
Balance Sheet and the Final Average Receivables Statement, if applicable, Sears
shall deliver to Purchaser either (A) its agreement as to the calculation of the
Closing Date Balance Sheet and the Final Average Receivables Statement, if
applicable, including the Final Total Equity and the Final Six-Month Average Net
Customer Receivables, or (B) its dispute thereof, specifying in reasonable
detail the nature of its dispute; provided that Sears may dispute items
reflected in the Closing Date Balance Sheet and the Final Average Receivables
Statement, if applicable, only on the basis that such amounts were not
determined in accordance with the accounting principles, procedures, policies
and methods employed by Purchaser in preparing the Reference Balance Sheet, or
on the basis of arithmetic error. During the thirty (30) days after the delivery
of such dispute notice to Purchaser, Purchaser and Sears shall attempt in good
faith to resolve any such dispute and finally determine the Closing Date Balance
Sheet and the Final Average Receivables Statement, if applicable. If at the end
of such thirty-day period, Purchaser and Sears have failed to reach agreement
with respect to such dispute, the matter shall be submitted to
PricewaterhouseCoopers which shall act as arbitrator. If PricewaterhouseCoopers
is unable to serve, Purchaser and Sears shall jointly select another nationally
recognized accounting firm that is not the independent auditor for either Sears
or Purchaser and is otherwise neutral and impartial; provided, however, that if
Sears and Purchaser are unable to select such other accounting firm within 45
days after delivery of written notice of a disagreement, either party may
request the American Arbitration Association to appoint, within 20 Business Days
from the date of such request, an independent accounting firm meeting the
requirements set forth above or a neutral and impartial certified public
accountant with significant relevant experience. The accounting firm or
accountant so selected shall be referred to herein as the "Accountant". The
Accountant shall determine all disputed portions of the Closing Date Balance
Sheet and the Final Average Receivables Statement, if applicable, in accordance
with the terms and conditions of this Agreement. In making such determination,
the Accountant may only consider those items and amounts as to which Purchaser
and Sears have disagreed within the time periods and on the terms specified
above and must resolve the matter in accordance with the terms and provisions of
this Agreement; provided that the determination of the Accountant will neither
be more favorable to Purchaser than reflected in the Closing Date Balance Sheet
and/or the Final Average Receivables Statement, as applicable, nor more
favorable to Sellers than reflected in Sears' dispute notice. The Accountant
shall deliver to Sears and Purchaser, as promptly as practicable and in any
event within 45 days after its appointment, a written report setting forth the
resolution of each disputed matter and its determination of the Final Adjustment
Payment and the Final Premium Adjustment Payment determined in accordance with
the terms of this Agreement. Such report shall be final and binding upon the
parties to the fullest extent permitted by applicable law and may be enforced in
any court having jurisdiction. The 45-day period for delivering the written
report may be extended by the mutual written consent of the parties or by the
Accountant for up to 30 days for good cause shown. Each of Purchaser and Sears
shall bear all the fees and costs incurred by it in connection with this
arbitration, except that Purchaser and Sears shall each pay one-half of the fees
and expenses of the Accountant.
(d) The Final Adjustment Payment and the Final Premium Adjustment
Payment, if any (plus, in each case, interest on such amounts from the Closing
Date up to but excluding the date on which each such payment is made at a rate
per annum equal to the Federal Funds Rate as of the Closing Date, calculated on
the basis of a year of 360 days and the actual number of days elapsed), as and
when due and payable under this Section 3.8, shall be made by federal funds
29
wire transfer of immediately available funds to the account(s) of the Party
entitled to receive such payment, which account(s) shall be identified by
Purchaser to Sears or by Sears, on behalf of Sellers, to Purchaser, as the case
may be, not less than two (2) Business Days prior to the date such payment would
be due.
(e) Each Party shall make available to the other Party its and its
accountant's work papers, schedules and other supporting data as may be
reasonably requested by such Party to enable such Party to verify the amounts
set forth on the Reference Balance Sheet, the Closing Date Balance Sheet and the
Final Average Receivables Statement, if applicable.
Section 3.9. Delivery of Books and Records. Except as otherwise
provided in the Transition Services Agreement and subject to all Requirements of
Law, Sellers shall use their reasonable best efforts to deliver all Books and
Records to Purchaser on the Closing Date or as soon as practicable thereafter,
but, in any event, Sellers shall deliver the Books and Records to Purchaser no
later than thirty (30) days after the expiration or termination of the
Transition Services Agreement.
Section 3.10. Transfer of Absolute Title; Filing of Financing
Statements. (a) The parties hereto intend that, for all purposes, the
transactions contemplated hereby shall be treated as a purchase and sale of the
Purchased Interests (including the Accounts and the Receivables) and the
Acquired Subsidiary Stock to be conveyed hereby. Upon Purchaser's purchase of
such Purchased Interests and the Acquired Subsidiary Stock pursuant to this
Agreement, all of Sellers' right, title and interest therein shall be
transferred to Purchasers as provided in Sections 2.1 and 2.2. However, in the
event that the foregoing purchase and sale is deemed to be a pledge, each Seller
hereby grants to Purchaser a first priority security interest in all the
Sellers' right to and interest in the Purchased Interests, Acquired Subsidiary
Stock and proceeds thereof to secure a loan deemed to have been made by
Purchaser to Sellers in an amount equal to the Closing Purchase Price.
(b) Purchaser shall prepare at or prior to the Closing such financing
statements (the "Financing Statements") as Purchaser reasonably determines are
necessary or appropriate to fully preserve, maintain and protect the interest of
Purchaser in the Purchased Interests, Acquired Subsidiary Stock and proceeds
thereof. Each Seller hereby authorizes Purchaser to file such Financing
Statements and any continuation statements and amendments thereto in all
jurisdictions and with all filing offices as Purchaser may reasonably determine,
are necessary or advisable to protect the interest of Purchaser in the Purchased
Interests, Acquired Subsidiary Stock and proceeds thereof. Such Financing
Statements may describe as collateral, the Purchased Interests, Acquired
Subsidiary Stock and proceeds thereof in the same manner as described herein or
may contain an indication or description of collateral that describes such
property in any manner as Purchaser may reasonably determine is necessary,
advisable or prudent to ensure the perfection of a security interest in the
Purchased Interests, Acquired Subsidiary Stock and proceeds thereof granted to
Purchaser, including describing such property as "all assets" or "all personal
property". Following filing of such Financing Statements in such jurisdictions
as Purchaser may reasonably determine is necessary or appropriate to fully
preserve, maintain and protect the interest of Purchaser in the Purchased
Interests, Acquired Subsidiary Stock and proceeds thereof, Purchaser shall
provide Sellers with file-stamped copies of, or filing receipts for, such
Financing Statements as soon as available following such filing.
30
Section 3.11. Power of Attorney. Effective upon the Closing Date and
for the term provided in the Program Agreement, each Seller hereby irrevocably
names, constitutes, and appoints Purchaser and any of Purchaser's officers,
agents, employees, or representatives its duly authorized attorney and agent
with full power and authority to (i) endorse in such Seller's name any check,
draft, or other instrument of payment relating to the Accounts, including
through the use of a rubber stamp with the signature of such Seller thereon,
(ii) receive and collect any and all monies due under such Accounts, and (iii)
enforce performance of all Purchased Interests purchased by Purchaser pursuant
to this Agreement. The power of attorney granted by this provision is coupled
with an interest and is irrevocable.
Section 3.12. Post-Closing Payments on Account Receivables. (a) Subject
to the terms and conditions of the Pooling Agreement, as in effect immediately
prior to the Closing, Sellers shall be entitled to retain all payments on
Receivables properly posted to the Accounts by Sellers prior to the Cut-Off Time
to the extent that the Final Total Equity is reduced thereby.
(b) Subject to the terms and conditions of the Program Agreement and the
Securitization Documents, as amended, Purchaser shall be entitled to retain all
payments on Receivables posted to Accounts on or after the Cut-Off Time. As
specified in the Transition Services Agreement and the Program Agreement, in the
event Sellers receive any payments after the Cut-Off Time, Sellers or any Person
acting on behalf of Sellers shall promptly transmit such payments to Purchaser
by mutually agreeable means (or, if applicable, the means provided in the
Program Agreement), or to the Person designated to receive such payments
pursuant to the Securitization Documents.
(c) The Parties agree that adjustments to the Accounts purchased
hereunder, including debits for returned goods and services, customer service
adjustments, that occur after the Cut-Off Time, even if the original
transactions occurred prior to the Cut-Off Time, shall be governed by the
Program Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as set forth in the Seller Disclosure Schedule,
Sellers, jointly and severally, hereby represent and warrant to Purchaser, as of
the date hereof and as of the Closing Date (or as of such other date as may be
expressly provided in any representation or warranty), as set forth below.
Information disclosed in any section of the Seller Disclosure Schedule shall be
deemed to be disclosed with respect to such other sections of this Agreement or
the Seller Disclosure Schedule to which such disclosure would reasonably pertain
in the light of the form and substance of the disclosure made.
Section 4.1. Organization and Good Standing. Sears is a New York
corporation duly organized, validly existing and in good standing under the laws
of the State of New York. The Bank is a national banking association located in
Tempe, Arizona, duly organized, validly existing and in good standing under the
laws of the United States of America. Each other Seller and the Acquired
Subsidiary is a legal entity duly organized, validly existing and (where
applicable) in good standing under the laws of its jurisdiction of organization
or incorporation, as the case may be. Each Seller and the Acquired Subsidiary
has all requisite
31
corporate power and authority to own the portion of the Purchased Interests
owned by it and to carry on the Business, as currently conducted, and is duly
qualified to do business and is in good standing (to the extent such concept is
recognized in the relevant jurisdiction) as a foreign corporation in each
jurisdiction where the ownership or operation of the portion of the Purchased
Interests or the conduct of the Business requires such qualification. Sears Life
Holding has all requisite corporate power and authority to own the Acquired
Subsidiary Stock.
Section 4.2. Acquired Subsidiary. (a) The authorized capital stock of
the Acquired Subsidiary consists of 100,000 shares of common stock, par value
$25 per share, all of which is issued and outstanding. The Acquired Subsidiary
Stock, (i) is beneficially and legally owned, directly or indirectly, by Sears
and Sears Life Holding, free and clear of all Liens (except Permitted Liens),
and (ii) has been duly authorized, validly issued and is fully paid and
nonassessable and is not subject to any preemptive or subscription rights.
(b) There are no outstanding options, warrants, convertible securities
or other rights, agreements, arrangements or commitments relating to the capital
stock of, or other equity interest in, the Acquired Subsidiary, obligating Sears
or any of its Affiliates, at any time or upon the occurrence of certain events,
to offer, issue, sell, transfer, vote or otherwise dispose of or sell any shares
of capital stock of, or other equity interest in, the Acquired Subsidiary.
Section 4.3. Authorization; Binding Obligations. Each Seller has all
necessary power and authority to make, execute and deliver this Agreement and
the Related Agreements to which it is a party and to perform all of the
obligations to be performed by it hereunder and thereunder. The making,
execution, delivery and performance of this Agreement and the Related Agreements
and the consummation by each Seller of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
on the part of each Seller. This Agreement has been and, as of the Closing Date,
the Related Agreements will be, duly and validly executed and delivered by each
Seller, and assuming the due authorization, execution and delivery by Purchaser,
each of this Agreement and the Related Agreements will constitute the valid,
legal and binding obligation of each Seller that is a party thereto, enforceable
against it in accordance with its terms, except as may be subject to applicable
bankruptcy, insolvency, moratorium or other similar laws, now or hereafter in
effect, relating to or affecting the rights of creditors generally and the
rights of creditors of depository institutions whose accounts are insured by the
FDIC and by legal and equitable limitations on the enforceability of specific
remedies.
Section 4.4. No Conflicts. Assuming the consents and approvals referred
to in Section 4.5 are obtained and the Securitization Transfer Agreements are
validly executed and delivered by the parties thereto (other than the relevant
Sellers and their respective Affiliates), neither the execution and delivery of
this Agreement or the Related Agreements by Sellers, nor the consummation of the
transactions contemplated hereby or thereby, will (i) violate, conflict with,
result in the breach of, constitute a default under, be prohibited by, require
any additional approval under, accelerate the performance provided by, require
the assumption of, give any third party the right to terminate or result in any
other change in right or obligation or the loss of a benefit under (x) any
terms, conditions or provisions of the organizational documents of any Seller or
the Acquired Subsidiary, (y) any mortgage, indenture, deed of trust, loan or
credit agreement or other agreement or instrument to which any Seller or the
Acquired Subsidiary is
32
now a party or by which it is bound, or (z) any Requirements of Law applicable
to the Sellers or the Acquired Subsidiary (including any memorandum of
understanding or similar arrangement with any Governmental Authority), other
than, in the case of clause (y), any such violation, conflict, breach, default,
prohibition, approval, acceleration, assumption, termination right, change in
right or obligation or loss of benefit that would not have a Business Material
Adverse Effect; or (ii) result in the creation or imposition of any Lien (other
than any Permitted Lien), with or without the giving of notice or the lapse of
time or both, upon the Purchased Interests, the Acquired Subsidiary Stock or the
Assumed Liabilities.
Section 4.5. Approvals. No notices, approvals, reports or other filings
are required to be made by any Seller with, nor are there any consents,
registrations, approvals, permits or other authorizations required to be
obtained by any Seller from, any Governmental Authority or other third party in
order for Sellers to execute or deliver this Agreement, the Related Agreements
or the Securitization Transfer Agreements or to consummate the transactions
contemplated hereby or thereby except (i) (A) for the Required Amendments and
(B) as set forth in Section 4.5 of the Seller Disclosure Schedule (the "Seller
Consents") or (ii) where the failure to obtain such third party non-Governmental
consents and approvals would not be material. To the Knowledge of Sellers, there
are no facts, events, circumstances or conditions relating to Sears or any of
its Affiliates now in existence or reasonably likely to exist prior to the
Closing, which facts, events, circumstances or conditions could reasonably be
expected to result in the imposition of an Unreasonable Condition by any
Applicable Governmental Authority.
Section 4.6. Litigation. Except as set forth in Section 4.6 of the
Seller Disclosure Schedule, as of the date hereof, there is no action, suit,
proceeding, claim, arbitration or other litigation pending, or any investigation
by any Governmental Authority pending or, to the Knowledge of Sellers, any
action, suit, proceeding, claim or other litigation or governmental
investigation threatened, against any Seller or the Acquired Subsidiary that has
had or would reasonably be expected to have, individually or in the aggregate, a
Business Material Adverse Effect. Except as set forth in Section 4.6 of the
Seller Disclosure Schedule, there are no judgments, injunctions, writs, orders
or decrees binding upon the Purchased Interests, Assumed Liabilities or the
Credit Card Business, the Financial Products Business or on any Seller or the
Acquired Subsidiary that (i) would reasonably be expected to prevent the
consummation of the transactions contemplated hereby or (ii) would (A) be
binding upon Purchaser following consummation of such transactions and (B)
adversely affect the conduct of the Business by Purchaser in any material
respect. Except as set forth in the Seller Disclosure Schedule, no audit,
investigation, inspection or any other review or inquiry whatsoever by any
Governmental Authority concerning or involving the Credit Card Business or the
Financial Products Business conducted since January 1, 2000 has reported any
material violation by any Seller of any material Requirement of Law.
Section 4.7. Compliance with Requirements of Law. Except as set forth
in Section 4.7(a) of the Seller Disclosure Schedule, each Seller, the Acquired
Subsidiary and, to the Knowledge of Sellers, each third party service provider
acting on behalf of the Sellers in connection with the Business, are in
compliance in all material respects with all applicable Requirements of Law
relating to or in any way materially affecting the Business. Except as set forth
in the Seller Disclosure Schedule, since January 1, 2000, no Seller nor the
Acquired Subsidiary nor, to the Knowledge of Sellers, any third party service
provider acting on behalf of
33
the Sellers in connection with the Business, have (i) violated in any material
respect any Requirements of Law relating to the Business or (ii) received any
written or, to the Knowledge of Sellers, oral notice from (and otherwise does
not have any Knowledge of) any Governmental Authority that alleges any material
noncompliance (or that any Seller or the Acquired Subsidiary or any such third
party service provider is under investigation by any such Governmental Authority
for such alleged material noncompliance) with any Requirements of Law relating
to the Business.
(b) Each Seller has timely filed all regulatory reports, schedules,
forms, registrations and other documents, together with any amendments required
to be made with respect thereto, that each was required to file since January 1,
2000 with any Governmental Authority with respect to the Credit Card Business or
the Financial Products Business (the "Seller Business Documents") and have
timely paid all fees and assessments due and payable in connection therewith,
except where the failure to make such filings or such payments would have a
Business Material Adverse Effect. There is no material unresolved violation or
exception by any such Governmental Authority with respect to any of the Seller
Business Documents. As of their respective dates, the Seller Business Documents
complied, and the Seller Business Documents filed subsequent to the date hereof
will comply as of their respective dates, in all material respects with all
Requirements of Law and did not (or will not in the case of subsequently filed
Seller Business Documents) contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(c) Except as would not have a material adverse effect on the Financial
Products Business, (i) all Applicable Contracts issued by the Acquired
Subsidiary are in compliance with the Requirements of Law and were issued on
forms approved by relevant Governmental Authorities or otherwise permitted under
the Requirements of Law and (ii) all premium rates, rating plans and policy
terms established or used by the Acquired Subsidiary that are required to be
filed with or approved by relevant Governmental Authorities have been so filed
or approved and comply with the insurance laws applicable thereto.
(d) None of the Sellers has, or is required under applicable law to have
established any fiduciary premium trust fund account.
Section 4.8. Transactions with Affiliates. Except as set forth in
Section 4.8 of the Seller Disclosure Schedule, there are no outstanding amounts
payable to or receivable from, or advances by the Sellers or any of their
Subsidiaries to, and neither Sellers nor any of their Subsidiaries is otherwise
a creditor or debtor to, any stockholder, director, employee or Affiliate of the
Sellers or any of their Subsidiaries in connection with the Business other than
as part of the normal and customary terms of such persons' employment with the
Sellers or any of their Subsidiaries. Except as set forth in Section 4.8 of the
Seller Disclosure Schedule, no Seller nor any Subsidiary of any Seller is a
party to any transaction or agreement with any Affiliate, stockholder, director
or executive officer of the Sellers or any of their Subsidiaries or any material
transaction or agreement with any employee, each in connection with the
Business.
Section 4.9. Financial Statements. (a) Purchaser has previously been
provided with (i) a consolidated income statement and consolidated balance sheet
for each of the Credit
34
Card Business and the Financial Products Business at, or for the 12 months
ended, December 2000, 2001 and 2002 (the "Annual Financial Information"), (ii) a
consolidated income statement and consolidated balance sheet for each of the
Credit Card Business and the Financial Products Business at, or for the four
months ended, April 30, 2003 (the "Interim Financial Information") and (iii) the
Reference Balance Sheet (together with the Annual Financial Information and the
Interim Financial Information, the "Financial Information").
(b) The Financial Information (i) is unaudited, (ii) has been prepared
from the books and records of the Credit Card Business and of the Financial
Products Business and takes into account certain adjustments made to reflect the
Credit Card Business and the Financial Products Business as a standalone
business, (iii) is subject to Sellers' internal accounting policies and
procedures, and (iv) except as set forth in Section 4.9 of the Seller Disclosure
Schedule, has been prepared in accordance with GAAP applied on a basis
consistent with past practice and presents fairly in all material respects the
financial condition of each of the Credit Card Business and the Financial
Products Business as of such dates and the results of operations of each of the
Credit Card Business and the Financial Products Business for such periods;
provided that (x) no representation whatsoever is made with respect to any
projected financial information previously provided by or on behalf of Sears,
any other Seller or the Acquired Subsidiary to Purchaser; and (y) the Interim
Financial Information is subject to quarterly- and year-end adjustments.
(c) Since September 30, 2002, the Business has had in place and the
Purchased Interests include "disclosure controls and procedures" and "internal
control over financial reporting" (as defined in Rules 13a-15 and 15d-15 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) reasonably
designed to ensure that all information (both financial and non-financial)
required to be disclosed by Sears with respect to the Credit Card Business and
the Financial Products Business in the reports that Sears files or submits under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission ("SEC") and that all such information is accumulated and communicated
to Sears' management as appropriate to allow timely decisions regarding required
disclosure and to make the certifications of the Chief Executive Officer and
Chief Financial Officer of Sears required under the Exchange Act with respect to
such reports.
(d) The Sellers (i) have previously made available to Purchaser true and
complete copies of the Annual Statements for the Acquired Subsidiary as of and
for the years ended December 31, 2002, 2001 and 2000 and (ii) and will provide
Purchaser with true and complete copies of the Quarterly Statement for the
Acquired Subsidiary for the calendar quarter ended March 31, 2003 and for each
subsequent calendar quarter prior to the Closing when they are available (the
items described in (i) and (ii) collectively, the "Acquired Subsidiary Financial
Statements"). Each Acquired Subsidiary Financial Statement was (or in the case
of Quarterly Statements, will be) prepared in accordance with SAP and presents
(or in the case of Quarterly Statements, will present) fairly in all material
respects the financial position of the Acquired Subsidiary to which such
Acquired Subsidiary Financial Statement relates, as of the respective dates
thereof. The aggregate reserves held in respect of the Liabilities with respect
to Insurance Contracts of the Acquired Subsidiary, as established or reflected
in its December 31, 2002 Annual Statement and each of its Quarterly Statement
(i) were computed in accordance with presently accepted actuarial standards
consistently applied and are fairly stated in accordance
35
with sound actuarial principles, and (ii) meet all Requirements of Law and meet
or exceed the minimum aggregate amounts of all Requirements of Law.
(e) The aggregate reserves held in respect of the Liabilities which
relate to debt cancellation/suspension agreements are, and will at Closing be,
in compliance with all Requirements of Law and are and will at Closing be
established with the calculation methodology used in the February 2003 actuarial
analysis that was conducted in accordance with sound actuarial principles
consistent with industry practice.
Section 4.10. Accounts. (a) Each Account and each Receivable is in all
material respects as described in the Master File and the Final Closing Tape,
and when delivered by Sellers to Purchaser, the information contained in the
Final Closing Tape will be correct in all material respects as of the Cut-Off
Time.
(b) Representative forms of Account Agreements have been provided to
Purchaser and all such forms contain all material terms of the Account
Agreements as currently in effect. Except as set forth in Section 4.10 of the
Disclosure Schedule, the terms of the Account Agreements have not been waived
(other than on a case-by-case basis as reflected in the Books and Records in all
material respects), impaired, altered or modified in any material respect by
Sellers.
(c) Each Account complies in all material respects with the applicable
Account Agreement.
(d) Each Account has been solicited, originated, created, maintained and
serviced in compliance in all material respects with (A) Sellers' standard
policies, practices and procedures, all of the material terms of which have been
fully disclosed in writing to Purchaser prior to the date of this Agreement, and
(B) all applicable Requirements of Law.
(e) (i) All disclosures made in connection with the Accounts
attributable to any Seller or the Acquired Subsidiary complied in all material
respects with all applicable Requirements of Law as of the time made, and (ii)
as of the date hereof, no Requirements of Law requires any supplemental
disclosures which have not already been made in all material respects.
(f) Except as would not have, individually or in the aggregate, a
Business Material Adverse Effect, each Account Agreement is the legal, valid and
binding obligation of the Borrower, each other obligor thereon and the relevant
Seller and is enforceable in accordance with its terms except (i) as such
enforcement may be subject to bankruptcy, receivership, insolvency,
reorganization, moratorium, fraudulent transfer and other laws relating to or
affecting the rights of creditors generally and by legal and equitable
limitations on the enforceability of specific remedies and (ii) for the rights
of Borrowers under 12 C.F.R. ss. 226.12(c), 12 C.F.R. ss. 226.13(d) and the
Soldier and Sailors Civil Relief Act.
(g) The interest rates, fees, charges and minimum payments in connection
with the Accounts comply in all material respects with all applicable
Requirements of Law and applicable Account Agreements.
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(h) To the Knowledge of Sellers, all Account Agreements (including
amendments thereto) and Accounts are freely assignable by Sellers, do not
require the approval or consent of any Borrower or any other Person to
effectuate the valid assignment of the same in favor of Purchaser.
(i) The Receivables are payable only in United States dollars. To the
Knowledge of Sellers, no Borrower had a billing address outside a state,
territory or dependency of the United States (including the District of
Columbia) or the Commonwealth of Puerto Rico.
(j) Each of the Receivables arises from or in connection with a bona
fide sale or loan transaction (including any amounts in respect of finance
charges, annual fees and other charges and fees assessed on the Accounts). No
Receivable issued by the Bank is a "commercial loan" as such term is used in the
United States Bank Holding Company Act.
(k) Each of the Sellers has performed all material obligations required
to be performed by it under the Account Agreements and no Seller is in material
default under, and no event has occurred with respect to a Seller's performance
under the Account Agreements, which, with the lapse of time or action by a third
party, will or is reasonably likely to result in a material default by such
Seller under any such Account Agreements.
Section 4.11. Trust; Securitization. (a) Each Seller or Acquired
Subsidiary and, to the Knowledge of Sellers, each other party thereto has
performed in all material respects each obligation to be performed by it under
each of the Securitization Documents, including without limitation, the filing
of any financing statements, continuation statements or amendments under the
Uniform Commercial Code of each applicable jurisdiction with the appropriate
filing offices. Each of the Securitization Documents to which any Seller or
Acquired Subsidiary is a party is in full force and effect and is a valid,
binding and enforceable obligation of such Seller or Acquired Subsidiary and, to
the Knowledge of Sellers, the other parties thereto, except as enforcement
thereof may be subject to bankruptcy, receivership, insolvency, moratorium,
reorganization, fraudulent transfer or similar laws affecting the enforcement of
the rights of creditors generally and the rights of creditors of depository
institutions whose accounts are insured by the FDIC and by legal and equitable
limitations on the enforceability of specific remedies. True and complete copies
of the Securitization Documents have been made available to Purchaser and there
have been no amendments or modifications to the Securitization Documents made
since the date such copies were made available to Purchaser.
(b) The Pooling Agreement is not required to be qualified under the
Trust Indenture Act of 1939, as amended, and the Trust is not required to be
registered as an investment company under the Investment Company Act of 1940, as
amended.
(c) No event or condition exists which is or with either notice or the
passage of time would constitute a Receivable Repurchase Event, Rapid
Amortization Event, default or event of default under the Pooling Agreement or
any other Securitization Document and no event or condition exists which
constitutes or is reasonably likely to constitute a Servicer Termination Event
or other similar event permitting the termination of the Servicer under the
Securitization Documents. Assuming all required consents and approvals referred
to in Section 4.5 are obtained, the consummation of the transactions
contemplated hereby (including, without
37
limitation, the execution and delivery of the Required Amendments) shall not
cause the occurrence of any Receivable Repurchase Event, Rapid Amortization
Event, default or other event, that with either notice or the passage of time
would constitute a default or event of default under the Pooling Agreement or
any other Securitization Document or a Servicer Termination Event or other
similar event permitting the termination of the Servicer under the
Securitization Documents, nor shall such consummation or the receipt of such
required consents in connection therewith trigger any requirement under any
Securitization Document to fund an increase in any spread account, reserve
account or similar account, or any draw on any such account under the terms of
any Securitization Document or to otherwise increase any credit enhancement
required under the Securitization Documents.
(d) Other than the series of Trust Certificates issued pursuant to the
series supplements described on Schedule 2.2(i) and outstanding, the Seller
Certificate represents the entire interest in the Trust. SRFG is the sole owner
of the Securitization Retained Interests.
(e) Either the Trust or SRFG has filed with the SEC all forms, reports
and other documents (including all prospectuses and registration statements)
required to be filed by the Trust with respect to all periods commencing on or
after July 15, 1994 (the "SEC Documents"). As of their respective filing dates
(or effective dates, in the case of prospectuses and registration statements)
the SEC Documents, including any amendments or supplements thereto complied, and
SEC Documents to be filed subsequent to the date hereof will comply as of their
respective dates, in all material respects with the requirements of the
Securities Act of 1933 (the "Securities Act") or the Exchange Act, as
applicable, and the rules and regulations of the SEC promulgated thereunder and
did not (or will not, in the case of subsequently filed SEC Documents) contain
any untrue statement of any material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading.
(f) There are no pending or, to the Knowledge of Sellers, threatened
proceedings, stop actions, lawsuits, or administrative actions alleging
violations of the Securities Act or the Exchange Act relating to any of the
registration statements or prospectuses or to any Securitization Retained
Interests or other Trust Certificates issued under the Pooling Agreement or the
Trust itself or the Servicer.
(g) The list of Securitization Documents set forth in Schedule 2.2(i)
is, in all material respects, an accurate and complete list of the contracts
relating to the Trust to which any Seller or the Acquired Subsidiary is a party
as of the Closing Date.
(h) No interests in the Trust have been issued since February 28, 2003.
(i) Each of the Securitization Retained Interests is a valid, binding
and enforceable obligation of such Seller or Acquired Subsidiary and the Trust
and, to the Knowledge of Sellers, the other parties thereto, except as
enforcement thereof may be subject to bankruptcy, receivership, insolvency,
moratorium, reorganization, fraudulent transfer or similar laws affecting the
enforcement of the rights of creditors generally and the rights of creditors of
depository institutions whose accounts are insured by the FDIC and by legal and
equitable limitations on the enforceability of specific remedies.
38
(j) Each series of Trust Certificates is a valid, binding and
enforceable obligation of the Trust, except as enforcement thereof may be
subject to bankruptcy, receivership, insolvency, moratorium, reorganization,
fraudulent transfer or similar laws affecting the enforcement of the rights of
creditors generally and the rights of creditors of depository institutions whose
accounts are insured by the FDIC and by legal and equitable limitations on the
enforceability of specific remedies.
Section 4.12. Effective Transfer. The Sellers collectively are the sole
owners of and control good and marketable title to the Purchased Interests and
the Acquired Subsidiary Stock free and clear of any Liens (other than Permitted
Liens). Upon consummation of the transactions contemplated by this Agreement,
including the execution and delivery of the documents to be delivered at the
Closing, at the Closing Purchaser shall be vested with good and marketable title
in and to the Purchased Interests and the Acquired Subsidiary Stock, free and
clear of all Liens, except Permitted Liens, and the Securitization Transfer
Documents, when executed and delivered to Purchaser at the Closing, shall
constitute a valid assignment of Sellers' interests in the Servicer Rights and
Securitization Interests enforceable against Sellers and, upon the filing of the
Financing Statements, against all other persons.
Section 4.13. Sufficiency of Assets. The Acquired Subsidiary Stock and
the Purchased Interests together with the Business Employees and the rights of
Purchaser and its Affiliates under the Related Agreements, include as of the
date hereof or will include, as of the Closing Date and immediately thereafter,
without limitation, all the assets, properties, rights, interests and employees
(including, without limitation, real property and tangible and intangible
property) necessary for Purchaser to conduct the Business as currently conducted
and as the same will be conducted on the Closing Date.
Section 4.14. Employee Benefit Plans; Employee Matters. (a) Section
4.14(a)-1 of the Seller Disclosure Schedule lists each material Seller Benefit
Plan. Section 4.14(a)-2 of the Seller Disclosure Schedule lists each individual
Contract for the employment of any Business Employee or the provision of
severance, retention or change of control benefits to any Business Employee (the
"Employment Agreements"), and any collective bargaining or similar agreements to
which Sears or any of its Affiliates are party with any labor organization or
union representing any of the Business Employees. No Seller Benefit Plan is
sponsored, maintained or contributed to or required to be contributed to by the
Acquired Subsidiary or any of its Subsidiaries and neither the Acquired
Subsidiary nor any of its Subsidiaries are party to any Employment Agreement.
(b) With respect to each Seller Benefit Plan, Sears has heretofore
delivered or made available to Purchaser true and complete copies of the Seller
Benefit Plan and any amendments thereto, any related trust or other funding
vehicle, any reports or summaries required under ERISA or the Code and the most
recent determination letter received from the Internal Revenue Service with
respect to each Seller Benefit Plan intended to qualify under section 401 of the
Code.
(c) Each of the Seller Benefit Plans (i) is in compliance with the
applicable provisions of ERISA, the Code, and all other applicable laws and (ii)
has been administered, operated and managed in accordance with its governing
documents, except where failure to be in
39
compliance or to have been so administered, operated or managed would not,
individually or in the aggregate, reasonably be expected to result in a Business
Material Adverse Effect.
(d) Except as would not, individually or in the aggregate, reasonably be
expected to result in a Business Material Adverse Effect, there does not now
exist, nor do any circumstances exist that would reasonably be expected to
result in, any liabilities under (i) Title IV of ERISA, (ii) Section 302 of
ERISA, or (iii) Sections 412 and 4971 of the Code, in each case, that could
reasonably be expected to be a liability of Seller and its Affiliates (including
for this purpose the Acquired Subsidiary and its Subsidiaries) following the
Closing Date. No liability under Title IV of ERISA or under Section 302 of ERISA
has been incurred by the Seller or any ERISA Affiliate that has not been
satisfied in full.
(e) Except as would not result in a Liability to Purchaser and its
Affiliates, the consummation of the transactions contemplated by this Agreement
will not, either alone or in combination with another event, (i) entitle any
Business Employee to severance pay, unemployment compensation or any other
payment, except as expressly provided in this Agreement, or (ii) accelerate the
time of payment or vesting, or increase the amount of compensation due any such
Business Employee.
(f) Seller has delivered to Purchaser a true and complete copy of the
Master Business Employee Database (or similar database) which list includes the
following information (or equivalent information) as of the most recent
practicable date with respect to each Business Employee: (i) date of hire and
effective service date, (ii) job title or position held, (iii) base salary or
current wages and target bonus, and (iv) employment status (i.e., active or on
leave, short-term disability or long-term disability and full-time or
part-time).
(g) The Internal Revenue Service has issued a favorable determination
letter with respect to each Seller Benefit Plan that is intended to be qualified
under Section 401(a) of the Code (a "Qualified Plan") and the related trust that
has not been revoked, and Sears knows of no existing circumstances and no events
have occurred that could adversely affect the qualified status of any Qualified
Plan or the related trust, except as would not, individually or in the
aggregate, reasonably be expected to result in a Business Material Adverse
Effect.
(h) There are no pending or threatened claims (other than claims for
benefits in the ordinary course), lawsuits or arbitrations which have been
asserted or instituted, and, to the Knowledge of Sellers, no set of
circumstances exists which may reasonably give rise to a claim (other than
claims for benefits in the ordinary course) or lawsuit, against the Seller
Benefit Plans, any fiduciaries thereof with respect to their duties to the
Seller Benefit Plans or the assets of any of the trusts under any of the Seller
Benefit Plans which could reasonably be expected to result in any material
liability of Sellers to the Pension Benefit Guaranty Corporation, the Department
of Treasury, the Department of Labor, any multi-employer plan, any Seller
Benefit Plan, any participant in a Seller Benefit Plan, or any other Person,
except as would not, individually or in the aggregate, reasonably be expected to
result in a Business Material Adverse Effect. There are no pending or threatened
claims (other than claims for benefits in the ordinary course), lawsuits or
arbitrations which have been asserted or instituted with respect to the
Retention Agreements, except as would not, individually or in the aggregate,
reasonably be expected to result in a Business Material Adverse Effect.
40
(i) With respect to the Business Employees, no labor organization or
group of employees of any Seller has made a pending demand for recognition or
certification, and there are no representation or certification proceedings or
petitions seeking a representation proceeding presently pending or threatened to
be brought or filed, with the National Labor Relations Board or any other labor
relations tribunal or authority. There are no organizing activities, strikes,
work stoppages, slowdowns, lockouts, material arbitrations or material
grievances, or other material labor disputes pending or threatened against or
involving the Business Employees, and in the past two years there has not been
any such action, in each case, except as would not, individually or in the
aggregate, reasonably be expected to result in a Business Material Adverse
Effect. Each Seller is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment, wages
and hours and occupational safety and health, except as would not, individually
or in the aggregate, reasonably be expected to result in a Business Material
Adverse Effect.
(j) To the extent the representations in this Section 4.14 are made as
of the date hereof, the term "Business Employee" shall mean any person who would
be a Business Employee under clause (i) or (ii) of the definition of Business
Employee, determined (i) without regard to the proviso in such definition and
(ii) as if each reference in such definition to the Closing Date was, instead, a
reference to the "date hereof".
Section 4.15. No Brokers or Finders. Any Liability incurred by Sears or
any of its Affiliates for any financial advisory fees, brokerage fees,
commissions or finder's fees directly or indirectly in connection with this
Agreement or the transactions contemplated hereby will be borne by Sears.
Section 4.16. Undisclosed Liability. There are no undisclosed
Liabilities relating to the Purchased Interests, any Assumed Liability, the
Credit Card Business or the Financial Products Business, and there is no
existing condition, situation or set of circumstances that, individually or in
the aggregate, could reasonably be expected to result in such a Liability, other
than:
(i) Liabilities that are reflected on or reserved against on
the Reference Balance Sheet to the extent so reflected or reserved
thereon;
(ii) Liabilities disclosed on the Seller Disclosure Schedule;
(iii) Liabilities that constitute Retained Liabilities; or
(iv) other Liabilities which, individually or in the aggregate,
would not result in a Business Material Adverse Effect.
Section 4.17. Real Property. (a) Schedule 2.2(l)-1 sets forth the
address or other description of each parcel of Owned Real Property that is a
Purchased Interest. With respect to each such parcel of Owned Real Property: (i)
the Seller has good and marketable indefeasible fee simple title, free and clear
of all Liens, except for Permitted Liens; (ii) there are no outstanding options,
rights of first offer, rights of reverter or rights of first refusal to purchase
such Owned Real Property or any portion thereof or interest therein and (iii)
the Acquired
41
Subsidiary is not a party to any agreement or option to purchase any real
property or interests therein.
(b) Schedule 2.2(l)-2 sets forth the address or other description of
each parcel of Leased Real Property. True, correct and complete copies of
Sellers' real estate files for the Leased Real Property have been provided. To
the Knowledge of Sellers, there are no Contracts for the Leased Real Property
that are not contained within the real estate files which would materially
increase the obligations or materially decrease the rights of Sellers in respect
of the Leased Real Property. With respect to the Leases for each Leased Real
Property: (i) there are no material disputes with respect to such Lease; (ii) no
security deposit or portion thereof deposited with respect such Lease has been
applied in respect of a breach or default under such Lease which has not been
redeposited in full; (iii) the Sellers do not owe any brokerage commissions or
finder's fees with respect to such Lease; (iv) the Sellers have not subleased,
licensed or otherwise granted any Person the right to use or occupy such Leased
Real Property or any portion thereof; (v) the Sellers have not collaterally
assigned or granted any other security interest in such Lease or any interest
therein; and (vi) there are no Liens on the estate or interest created by such
Lease except for Permitted Liens.
(c) To the Knowledge of the Seller, (i) all Improvements are in
reasonably good condition and repair in all material respects and sufficient for
the operation of the Business, as currently conducted, subject to reasonable
wear and tear, and (ii) there are no facts or conditions affecting any of the
Improvements which would interfere in any material respect with the use or
occupancy of the Improvements or any portion thereof in the operation of the
Business, as currently conducted.
(d) Except as set forth in Section 4.17(d) of the Seller Disclosure
Schedule, all of the Real Property is free from any use or occupancy
restrictions, except those imposed by applicable zoning laws, ordinances and
regulations, none of which materially interferes with the use of the Real
Property in connection with the Business, as currently operated, and from all
special taxes or assessments.
(e) Sellers have not received any written notice that the present use of
the land, buildings, structures and improvements on the Real Property are not in
conformity with all applicable laws, rules, regulations and ordinances,
including all applicable zoning laws, ordinances and regulations and with all
registered deed or other restrictions of record, and the Sellers have no
Knowledge of any proposed change therein that would so affect any of the Real
Property. There exists no material conflict or dispute with any Governmental
Authority or other Person relating to any Real Property or the activities
thereon.
(f) Prior to the date hereof, the Sellers have delivered to, or made
available for review by, Purchaser true and correct copies of all deeds,
mortgages, surveys, licenses, title insurance policies, permanent certificates
of occupancy, or equivalent documentation with respect to the Real Property and
other documents relating to or affecting the title to the Owned Real Property or
leasehold interests in the Leased Real Property that are in the real estate
files of Sellers.
42
(g) To the Knowledge of Sellers, (i) vehicular and/or pedestrian access
to the each parcel of Real Property has not been denied in the past; and (ii)
Sellers have not received written notice that vehicular and/or pedestrian access
to any parcel of Real Property will be denied in the future.
Section 4.18. Insurance. Sellers and the Acquired Subsidiary maintain
insurance policies and fidelity bonds (including financial institutions bond,
property and casualty insurance, professional liability insurance and workers'
compensation insurance) relating to the Business of the type and in amounts
customarily carried by persons conducting similar businesses. Sellers have no
Knowledge of any threatened termination of or material alteration of coverage
under any of such policies or bonds.
Section 4.19. Licenses and Permits. Except as set forth in Section 4.19
of the Seller Disclosure Schedule or as would not have, individually or in the
aggregate, a Business Material Adverse Effect: (i) all licenses (including any
licenses to participate in any MasterCard credit card program), franchises,
permits, certificates, approvals or other similar authorizations affecting, or
relating in any way to, the Purchased Interests, the Assumed Liabilities or the
conduct of that portion of the Credit Card Business or the Financial Products
Business operated by the Acquired Subsidiary (the "Seller Permits") are valid
and in full force and effect in every state in the United States
where they are required under applicable law; (ii) no Seller or Acquired
Subsidiary is in default, and no condition exists that with notice or lapse of
time or otherwise would constitute a default, under the Seller Permits; and
(iii) none of the Seller Permits shall be terminated or impaired or become
terminable, in whole or in part, as a result of the transactions contemplated
hereby and by the Related Agreements.
Section 4.20. Absence of Certain Changes. Except as set forth in
Section 4.20 of the Seller Disclosure Schedule or as permitted under Section
6.1, since December 28, 2002 the Business has been conducted in the ordinary
course and there has not been:
(i) any Account Agreement entered into, Account opened or
Credit Card or Account number issued other than in the ordinary course of
business and in compliance in all material respects with all Requirements
of Law and all underwriting policies, practices and procedures of Sears;
(ii) any material change in: (x) any financial accounting
practices, policies or procedures (to the extent any such change would be
binding on or otherwise affect the Business or Purchaser following the
Closing, and except for any change in accounting practices, policies and
procedures required by reason of a concurrent change in GAAP or SAP); (y)
any collections, pricing, origination, charge-off, reaging, credit or
underwriting practices, policies and procedures of Sellers with respect to
the Accounts or (z) in the servicing practices, policies and procedures of
the Servicer with respect to the Receivables;
(iii) any creation or incurrence of any Lien (other than a
Permitted Lien) on any Purchased Interest (other than the rights, claims
and interests arising under the Pooling Agreement and the other
Securitization Documents); or
43
(iv) any Business Material Adverse Effect.
Section 4.21. Marketing Agreements. Except as set forth in Section 4.21
of the Seller Disclosure Schedule, there are and have been no Contracts,
licenses, plans, arrangements or commitments to which any Seller or the Acquired
Subsidiary is or was a party or by which any Seller or the Acquired Subsidiary
or any assets of the Credit Card Business or of the Financial Products Business
are or were bound or obligated which relate to the marketing of any product or
service to the Borrowers obligated on any Account or which relate to the
Accounts, which in any such case are material to the Credit Card Business or the
Financial Products Business and would in any way be binding upon Purchaser.
Section 4.22. Certain Contracts. Sellers have made available true and
complete copies of each material Assumed Contract and each material Contract of
the Acquired Subsidiary (collectively, the "Applicable Contracts"), including
(i) any material agreement for the incurrence of indebtedness (including sale
and leaseback transactions, capitalized lease transactions and similar financing
transactions); (ii) any non-competition agreement or obligation (other than any
Seller Permit or other license granted by any Governmental Authority) which
limits in any material respect (A) the ability of the Business to solicit
customers or (B) the manner in which, or the localities in which the Business,
or following the consummation of the transactions contemplated hereby,
Purchaser's businesses, is or would be conducted; (iii) any joint venture or
partnership agreement; (iv) any agreement that grants any right of first refusal
or right of first offer or similar right or that limits or purports to limit the
ability of the Sellers or any of their Subsidiaries to own, operate, sell,
transfer, pledge or otherwise dispose of any material amount of assets or
business (other than in connection with securitization or financing transactions
or contracts entered into in the ordinary course of business that require that
the particular transactions that are the subject thereof to be conducted with
the counterparty or counterparties to the contract); (v) any Contract providing
for any material future payments that are conditioned, in whole or in part, on a
change of control or similar event of the Business; (vi) any collective
bargaining agreement; (vii) any agreement regarding any agent bank or other
similar relationships with respect to lines of business; (viii) any material
Insurance Contract; (ix) any material Contract that contains a "most favored
nation" clause; (x) any agreement relating to any card member benefit or
enhancement program or other similar service offered to Borrowers in connection
with an Account; and (xi) any Lease. Except as would not, individually or in the
aggregate, result in a Business Material Adverse Effect, each Applicable
Contract, is the legal, valid and binding obligation of each Seller or the
Acquired Subsidiary, as applicable, that is a party thereto and, to the
Knowledge of Sellers, of each other party thereto, enforceable in accordance
with its terms subject to bankruptcy, receivership, insolvency, reorganization,
moratorium, fraudulent transfer and other laws relating to or affecting the
rights of creditors in general or the rights of creditors of depository
institutions whose accounts are insured by the FDIC and by legal and equitable
limitations on the enforceability of specific remedies. Except as would not,
individually or in the aggregate, result in a Business Material Adverse Effect,
neither any Seller nor the Acquired Subsidiary that is a party thereto nor, to
the Knowledge of Sellers, any other party, is in violation or default of any
term of any such Applicable Contract and no condition or event exists which with
the giving of notice or the passage of time, or both would constitute a
violation or default by a Seller or the Acquired Subsidiary, as the case may be,
or any other party thereto or permit the termination, modification, cancellation
or acceleration of
44
performance of the obligations of a Seller or the Acquired Subsidiary, as the
case may be, or any other party to the Applicable Contract.
Section 4.23. Ratings. Except as publicly disclosed prior to the date
hereof, none of Standard & Poor's, a division of The XxXxxx-Xxxx Companies,
Inc., Xxxxx'x Investors Service, Inc., Fitch, Inc., doing business as Fitch
Ratings, or A.M. Best has indicated that it has under surveillance or review its
rating of the financial strength or claims-paying ability of the Acquired
Subsidiary and, to the Knowledge of Sellers, there exists no circumstance or
condition reasonably likely to cause any rating presently held by the Acquired
Subsidiary to be modified, qualified, lowered or placed under such surveillance.
Section 4.24. Intellectual Property.
(a) A Seller either owns or has a valid right to use all of the Acquired
Intellectual Property.
(b) The Acquired Intellectual Property constitutes all of the rights,
grants and licenses with respect to Intellectual Property, when taken together
with the rights of Purchaser with respect to Intellectual Property under the
Related Agreements, necessary to conduct the Business substantially as it is
currently conducted and for the continued conduct of the Business after the
Closing in substantially the same manner as conducted prior to the Closing.
(c) To the Knowledge of Sellers, the operations of the Credit Card
Business and the Financial Products Business, as currently conducted on the date
hereof and as contemplated to be conducted as of the Closing, do not infringe on
any Intellectual Property rights of any third party, and during such period, no
Seller or agent of any Seller has, in connection with the operations of the
Credit Card Business and the Financial Products Business, induced or contributed
to any infringement of any such Intellectual Property by any Person.
(d) There are no governmental or court proceedings pending or
threatened, involving any Owned Intellectual Property or, to the Knowledge of
Sellers, involving any Licensed Intellectual Property. Except as set forth in
Section 4.24(d) of the Seller Disclosure Schedule: (i) no Seller has Knowledge
of any interference, infringement, misappropriation or opposition of any
Acquired Intellectual Property by any Person, and neither the Sellers, nor any
officers or directors of Sellers, have received a material charge, complaint,
claim, demand or notice alleging any such interference, infringement or
misappropriation relating thereto; (ii) the Owned Intellectual Property and, to
the Knowledge of Sellers, the Licensed Intellectual Property, is not subject to
any outstanding judgment, injunction, writ, order, decree or agreement
prohibiting or restricting the use thereof by Sellers or prohibiting or
restricting the assignment, licensing or transfer thereof by Sellers to
Purchaser, or restricting the use thereof by Purchaser; and (iii) Sellers are
not currently a party in any third-party claim, action, suit or proceeding
relating to, or have not otherwise been notified of, any claim of infringement
of any Acquired Intellectual Property, no Owned Intellectual Property is
currently the subject of any re-examination, opposition, cancellation or
invalidation proceeding before any Governmental Authority, and all Owned
Intellectual Property registered or filed with a Governmental Authority is
currently in compliance with all formal legal requirements, including with
respect to payment of maintenance and renewal fees.
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(e) None of the operations of Sellers involve the unlicensed or
unauthorized use of confidential or proprietary information, including Acquired
Cardholder Information. Sellers have taken all reasonable measures to protect
the trade secrets and the confidential and proprietary information of third
Persons used in, held for use in or related to the operations of the Credit Card
Business and Financial Services Business.
(f) Except as set forth in Section 4.24(f) of the Seller Disclosure
Schedule or to the extent that it would not have a Business Material Adverse
Effect, all records and systems (including without limitation computer systems)
and all data and information collected or used by Sellers in the operations of
Business are recorded, stored, maintained or operated or otherwise held by or
under the control of Sellers and are not wholly or partly dependent on any
facilities (other than public infrastructure) that are not under the exclusive
ownership or control of Sellers.
g) Sears or one of its Affiliates has the rights to grant the
Intellectual Property rights and provide the services to be granted to Purchaser
under the Related Agreements.
Section 4.25. Taxes. (a) Except as would not reasonably be expected to
have a Business Material Adverse Effect, (i) all Tax Returns required to have
been filed by or with respect to the Business, the Acquired Subsidiary, the
Acquired Subsidiary Stock, the Purchased Interests or the Trust (or their
respective assets) have been filed on a timely basis, and (ii) all Taxes shown
to be due on such Tax Returns have been paid. All such Tax Returns were true,
correct and complete, except where the failure of such Tax Returns to be true,
correct and complete would not reasonably be expected to have a Business
Material Adverse Effect.
(b) Except as would not reasonably be expected to have a Business
Material Adverse Effect, (i) no written notice has been received of any
deficiencies for Taxes claimed, proposed or assessed by any Governmental
Authority with respect to the Business, the Acquired Subsidiary, the Acquired
Subsidiary Stock, the Purchased Interests or the Trust (or their respective
assets) for which any member of the Sears Group, the Acquired Subsidiary or the
Trust may have any Liability; (ii) there are no pending, current or, to the
Knowledge of the Sellers, proposed in writing audits, suits, proceedings,
investigations, claims or administrative proceedings for or relating to any
liability in respect of any such Taxes; (iii) there are no outstanding written
agreements or waivers extending the statutory period of limitations applicable
to any Tax Returns required to be filed with respect to the Acquired Subsidiary
or the Trust, nor is any written request for any such agreement or waiver
pending; (iv) no amounts are or will be due from the Acquired Subsidiary or the
Trust under any tax-sharing or tax-allocation agreement; (v) neither the
Acquired Subsidiary nor the Trust has received a ruling from any Governmental
Authority relating to Taxes; and (vi) no closing agreement pursuant to Section
7121 of the Code (or any similar provision of state, local or foreign law) has
been entered into by or with respect to any of the Acquired Subsidiary or the
Trust.
(c) Sears Life Holding owns an amount of stock in the Acquired
Subsidiary, which amount of stock is described in Section 1504(a)(2) of the
Code.
(d) (i) All Trust Certificates not owned directly by SRFG are properly
treated as debt and (ii) the Trust is not, and since its formation has not been,
an entity subject to tax, in each
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case, for federal income and state (for any state where the servicer has
conducted substantial servicing activities in respect of accounts) income and/or
franchise tax purposes.
It is agreed and understood by the parties that except for the representations
and warranties contained in Section 4.14 and this Section 4.25, no
representations or warranties are made by Sellers relating to Taxes.
Section 4.26. No Use of Borrower Lists. Except as set forth in Section
4.26 of the Seller Disclosure Schedule, Sears has not transferred, delivered, or
granted access to its list of Borrowers, or any part thereof, to any Person
engaged, directly or indirectly, in the marketing or distribution of any Credit
Card product or General Financial Services Product (each as defined in the
Program Agreement).
Section 4.27. Environmental Matters. (a) Except as set forth in Section
4.27(a)-1 of the Seller Disclosure Schedule, the Sellers and the Acquired
Subsidiary are in compliance with all applicable Environmental Laws affecting
the Business (which compliance includes, but is not limited to, the possession
by each Seller and the Acquired Subsidiary of all Permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof), except where failure to be in compliance
would not have a Business Material Adverse Effect. All material Permits and
other governmental authorizations currently held with respect to the Business by
Sellers and the Acquired Subsidiary pursuant to applicable Environmental Laws
are set forth in Section 4.27(a)-2 of the Seller Disclosure Schedule.
(b) Except as would not result in a Business Material Adverse Effect,
there is no Environmental Claim pending or, to the Knowledge of Sellers,
threatened against any of the Sellers or the Acquired Subsidiary or, to the
Knowledge of the Sellers, against any Person whose liability for any
Environmental Claim any of the Sellers or the Acquired Subsidiary has retained
or assumed either contractually or by operation of law.
(c) Except as set forth in Section 4.27(c) of the Seller Disclosure
Schedule and in the reports set forth therein or as would not have a Business
Material Adverse Effect, there are no present (or, to the Knowledge of the
Sellers, past) actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the Release, threatened Release or
presence of any Hazardous Material which would be reasonably likely to form the
basis of any Environmental Claim against any of the Sellers or the Acquired
Subsidiary, or, to the Knowledge of the Sellers, against any Person whose
liability for any Environmental Claim any of the Sellers or the Acquired
Subsidiary has or may have retained or assumed either contractually or by
operation of law.
(d) The Sellers have delivered or otherwise made available for
inspection to Purchaser true, complete and correct copies and results of any
material reports, studies, analyses, tests or monitoring that are in the
possession of any of the Sellers or the Acquired Subsidiary pertaining to
Hazardous Materials on, from or affecting any Owned Real Property or Leased Real
Property, or regarding the Business's compliance with applicable Environmental
Laws.
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Section 4.28. No Other Representations or Warranties. Except for the
representations and warranties contained in this Agreement (including the
Exhibits hereto and Schedules hereto and thereto), no Seller nor any agent,
Affiliate, officer, director, employee or representative of any Seller, nor any
other Person, makes or shall be deemed to make any representation or warranty to
Purchaser. Sellers shall only be entitled to rely upon the representations,
warranties or statements that are expressly set forth herein (including the
Exhibits hereto and the Schedules hereto and thereto), and (in the absence of
fraud) Sellers will not have any right or remedy arising out of any other
representation, warranty or statement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Except as set forth in Purchaser Disclosure Schedule, Purchaser hereby
represents and warrants to Sellers, as of the date hereof and as of the Closing
Date (or as of such other date as may be expressly provided in any
representation or warranty), as set forth below. Information disclosed in any
section of Purchaser Disclosure Schedule shall be deemed to be disclosed with
respect to such other sections of this Agreement or Purchaser Disclosure
Schedule to which such disclosure would reasonably pertain in the light of the
form and substance of the disclosure made.
Section 5.1. Organization and Good Standing. Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Purchaser has all requisite corporate power to own the
Purchased Interests and the Acquired Subsidiary Stock and to carry on the
Business in a manner similar to that currently conducted and, as of the Closing
Date, will be duly qualified to do business and will be in good standing (to the
extent such concept is recognized in the relevant jurisdiction) as a foreign
corporation in each jurisdiction where the ownership or operation of the
Purchased Interests or the conduct of the Credit Card Business or the Financial
Products Business requires such qualification.
Section 5.2. Authorization; Binding Obligations. Purchaser has all
necessary power and authority to make, execute and deliver this Agreement and
the Related Agreements and to perform all of the obligations to be performed by
it hereunder and thereunder. The making, execution, delivery and performance of
this Agreement and the Related Agreements and the consummation by Purchaser of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of Purchaser. This
Agreement has been, and, as of the Closing Date, the Related Agreements will be,
duly and validly executed and delivered by Purchaser, and assuming the due
authorization, execution and delivery by the Sellers that are party thereto,
each of this Agreement and the Related Agreements will constitute the valid,
legal and binding obligation of Purchaser, enforceable against it in accordance
with its terms, except as may be subject to applicable bankruptcy, insolvency,
moratorium or other similar laws, now or hereafter in effect, relating to or
affecting the rights of creditors generally and the rights of creditors of
depository institutions whose accounts are insured by the FDIC and by legal and
equitable limitations on the enforceability of specific remedies.
Section 5.3. No Conflicts. Assuming the consents and approvals
referred to in Section 5.4 are obtained and the Securitization Transfer
Agreements are validly executed and
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delivered by the parties thereto (other than the relevant Sellers and their
respective Affiliates), neither the execution and delivery of this Agreement by
Purchaser, nor the consummation of the transactions contemplated hereby, will
violate, conflict with, result in the breach of, constitute a default under, be
prohibited by, require any additional approval under, accelerate the performance
provided by, require the assumption of, give any third party the right to
terminate or result in any other change, right or obligation or the loss of a
benefit under (x) any terms, conditions or provisions of Purchaser's
organizational documents or by-laws, (y) any mortgage, indenture, deed of trust,
loan or credit agreement or other agreement or instrument to which Purchaser is
now a party or by which it is bound, or (z), any Requirements of Law applicable
to Purchaser, other than, in the case of clause (y), any such violation,
conflict, breach, default, prohibition, approval, acceleration, assumption,
termination right, change in right or obligation or loss of benefit that would
not have a Purchaser Material Adverse Effect.
Section 5.4. Approvals. No notices, approvals, reports or other
filings are required to be made by Purchaser with, nor are there any consents,
registrations, approvals, permits or other authorizations required to be
obtained by any Purchaser from, any Governmental Authority or other third party
in order for Purchaser to execute or deliver this Agreement, the Related
Agreements or the Securitization Transfer Agreements or to consummate the
transactions contemplated hereby or thereby except (i) for (A) the Required
Amendments and (B) as set forth in Section 5.4 of Purchaser Disclosure Schedule
(the "Purchaser Consents" and, collectively with the Seller Consents, the
"Consents") or (ii) where the failure to obtain such third party
non-Governmental consents and approvals would not be material. To the Knowledge
of Purchaser, there are no facts, events, circumstances or conditions relating
to Purchaser or any of its Affiliates now in existence or reasonably likely to
exist prior to the Closing, which facts, events, circumstances or conditions
could reasonably be expected to result in the imposition of an Unreasonable
Condition by any Applicable Governmental Authority.
Section 5.5. Litigation. There is no action, suit, proceeding, claim or
other litigation pending, or any investigation by any Governmental Authority
pending or, to the Knowledge of Purchaser, any action, suit, proceeding, claim
or other litigation or governmental investigation threatened, against Purchaser
or any of its Affiliates that has had or would reasonably be expected to have,
individually or in the aggregate, a Purchaser Material Adverse Effect. There are
no judgments, injunctions, writs, orders or decrees binding upon Purchaser or
any of its Affiliates that would reasonably be expected to have a Purchaser
Material Adverse Effect.
Section 5.6. Compliance with Requirements of Law. Except as set forth
in Section 5.6 of Purchaser Disclosure Schedule, Purchaser is in compliance in
all material respects with all applicable Requirements of Law relating to or in
any way materially affecting its credit card business. Except as set forth in
Purchaser Disclosure Schedule, since January 1, 2000, Purchaser has not (i)
violated in any material respect any Requirements of Law relating to its credit
card business or (ii) received any written or, to the Knowledge of Purchaser,
oral notice from (and otherwise does not have any Knowledge of) any Governmental
Authority that alleges any material noncompliance (or that Purchaser is under
investigation by any such Governmental Authority for such alleged noncompliance)
with any Requirements of Law relating to its credit card business.
49
Section 5.7. Licenses and Permits. Except as set forth in Purchaser
Disclosure Schedule or as would not have, individually or in the aggregate, a
Purchaser Material Adverse Effect: (i) all licenses (including any licenses to
participate in the MasterCard credit card programs), franchises, permits,
certificates, approvals or other similar authorizations affecting, or relating
in any way to, the credit card operations of Purchaser (the "Purchaser Permits")
are valid and in full force and effect; (ii) Purchaser is not in default, and no
condition exists that with notice or lapse of time or otherwise would constitute
a default, under Purchaser Permits; and (iii) none of Purchaser Permits shall be
terminated or impaired or become terminable, in whole or in part, as a result of
the transactions contemplated hereby and by the Related Agreements.
Section 5.8. Servicing Qualifications. Purchaser is, or as of the
Closing will be, licensed and qualified in all jurisdictions necessary to
service the Accounts in accordance with all applicable laws, except where the
failure to be so qualified would not have a Purchaser Material Adverse Effect.
Section 5.9. Absence of Certain Changes. Since December 31, 2002, no
event has occurred which has had a Purchaser Material Adverse Effect.
Section 5.10. Financing. Purchaser will have at the Closing Date
sufficient cash, available lines of credit or other sources of immediately
available funds to enable it to pay the Closing Purchase Price as required by
this Agreement.
Section 5.11. Acquisition of Shares for Investment. Purchaser is
acquiring the Acquired Subsidiary Stock for investment and not with a view
toward or for sale in connection with any distribution thereof, or with any
present intention of distributing or selling the Acquired Subsidiary Stock.
Purchaser acknowledges and agrees that the Acquired Subsidiary Stock may not be
sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed
of without registration under the Securities Act of 1933, as amended, except
pursuant to an exemption from such registration available under such Act, and
without compliance with state and foreign securities laws, in each case, to the
extent applicable.
Section 5.12. No Brokers or Finders. Any Liability incurred by
Purchaser for any financial advisory fees, brokerage fees, commissions or
finder's fees directly or indirectly in connection with this Agreement or the
transactions contemplated hereby will be borne by Purchaser.
Section 5.13. No Inducement or Reliance; Independent Assessment. With
respect to the Purchased Interests, the Acquired Subsidiary Stock, the Business
or any other rights or obligations to be transferred hereunder or pursuant
hereto, Purchaser shall only be entitled to rely upon the representations,
warranties or statements that are expressly set forth herein (including the
Exhibits hereto and the Schedules hereto and thereto), and (in the absence of
fraud) Purchaser will not have any right or remedy arising out of any other
representation, warranty or statement.
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ARTICLE VI
COVENANTS
Section 6.1. Conduct of Business. (a) Except as otherwise contemplated
hereby, and except to the extent required by applicable Requirements of Law or
set forth in the Seller Disclosure Schedule, from the date hereof to the Closing
Date, Sellers and Servicer each agree to conduct, and to cause the Acquired
Subsidiary to conduct, the Business only in the ordinary course of business and
in accordance with their existing policies, practices and procedures and to use
their respective reasonable best efforts (i) to preserve intact the business
organizations and relationships with third parties relating to the Business,
(ii) to maintain and keep current its Certificates of Authority, (iii) to keep
available the services of the Business Employees, and (iv) to preserve existing
beneficial relationships with Borrowers, following substantially the same
practices and standards, including collection practices and accounting practices
for charge-offs and reserves, as in effect on the date hereof. To the extent the
term Business Employee is used in this Section 6.1, such term shall mean any
person who would be a Business Employee under clause (i) or (ii) of the
definition of Business Employee, determined (x) without regard to the proviso in
such definition and (y) as if each reference in such definition to the Closing
Date was, instead, a reference to the applicable date between the date hereof
and the Closing Date.
(b) Except as (x) otherwise contemplated hereby or (y) required by
applicable Requirements of Law, no Seller nor the Acquired Subsidiary, from the
date hereof to the Closing Date, without the prior written consent of Purchaser
(which consent will not be unreasonably withheld or delayed) will:
(i) amend, terminate or otherwise modify any Securitization
Document to which it is a party, except to the extent provided in the
Securitization Transfer Agreements or the Required Amendments or permitted
by paragraph (ii) below;
(ii) for 120 days from the date hereof, except as contemplated
by and pursuant to the Series 2002-VFC Supplement to the Pooling
Agreement, the Credit Agreement, dated March 25, 2003, among SLRR, Inc.,
Sears and Xxxxxxx Xxxxx Mortgage Company (the "SLRR Credit Agreement") or
the Pooling and Servicing Agreement, dated as of October 25, 2002, among
Sears, SFVT, Inc. and The Bank of New York, as trustee, as supplemented by
the Series 2003-A Series Supplement, dated as of March 21, 2003, as
amended (collectively, the "SFVT Pooling Agreement"), each (but in each
case only to the extent each such transaction shall be repaid in full,
redeemed in full or otherwise retired or terminated on or prior to the
Closing Date and upon such repayment, redemption, retirement or
termination, any assets associated with the Series 2002-VFC Supplement to
the Pooling Agreement, the SLRR Credit Agreement or the SFVT Pooling
Agreement are transferred back to the Sellers and made available to
Purchaser for purchase as a Purchased Interest), permit the Trust to issue
any additional Trust Certificates or any other form of certificates of
beneficial interest or increase any outstanding Trust Certificate;
provided that after the expiration of 120 days from the date hereof, the
Trust may issue additional Trust Certificates in the ordinary course of
business; so long as any such additional Trust Certificates; (x) are
repaid in full, redeemed in full or otherwise retired on or prior to the
Closing Date and upon such
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repayment, redemption or retirement, any assets associated with the
additional Trust Certificates are transferred back to the Sellers and made
available to Purchaser for purchase as a Purchased Interest, (y) do not
involve any of the Purchased Interests and (z) only after consultation
with Purchaser, it being understood that any Liabilities associated with
any additional issuances of Trust Certificates after the expiration of 120
days after the date hereof shall constitute Retained Liabilities;
provided, further, in the event that Purchaser is willing to arrange
alternative financing on competitive terms in lieu of any proposed
issuance of additional Trust Certificates not permitted by the foregoing
proviso, Sellers will not permit the Trust to issue additional Trust
Certificates if such alternative financing is provided. Such alternative
financing shall not be a syndicated transaction, without the consent of
Sears to such syndication, which consent shall not be unreasonably
withheld;
(iii) (A) enter into, terminate, subject to any Lien, renew,
amend or otherwise modify any Applicable Contract or any reinsurance
agreement, except as permitted by paragraph (iv) below or (B) terminate,
renew, amend, otherwise modify or exercise any repurchase rights under any
of the Alliance Agreements (as defined in the Memorandum of Understanding,
dated March 17, 2003, by and between Sears and Allstate (each as defined
therein));
(iv) except in the ordinary course of business, amend,
terminate or otherwise modify any of the Account Agreements; provided that
Sellers may implement the Change-in-Terms V program or other program
included in Schedule 6.1(b)(iv);
(v) make use of any Account Agreements not substantially in
the form of one of the Account Agreements included in the Exhibits
attached to the Program Agreement;
(vi) except in the ordinary course of business permit the
origination, creation or acquisition of any Accounts other than the
Accounts in existence on the date of this Agreement or otherwise acquire
any assets if such assets would constitute Purchased Interests;
(vii) with respect to the Accounts, (A) change its financial
accounting practices (to the extent that any change in such financial
accounting practices and standards would be binding on or otherwise affect
the Credit Card Business or Purchaser following the Closing and except for
any change in accounting practices, policies and procedures required by
reason of a concurrent change in GAAP), (B) change its aggregate reserve
for Allowance for Uncollectible Accounts-Consumer Receivables to an amount
below $1.79 billion, which amount shall be evaluated consistent with the
accounting policies considered in establishing the reserve levels set
forth in the Reference Balance Sheet or (C) change its credit and
underwriting, posting, collection (including maintaining current staffing
levels), recoveries, reaging, delinquency or other operating policies,
practices or procedures or its methods of assigning status codes on the
Accounts;
(viii) transfer any Securitization Interests to any other Person
other than Sears or any wholly-owned Subsidiary of Sears;
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(ix) sell, lease or otherwise dispose of any of the Purchased
Interests or Acquired Subsidiary Stock, except where Seller is so
obligated pursuant to the current terms of a Contract or commitment
identified in Schedule 6.1(b)(ix), or, in the case of the Acquired
Subsidiary, declare, set aside or pay any dividend or distribution,
provided that (A) any Seller may transfer (including by means of a
dividend or other distribution) any Purchased Interest or the Acquired
Subsidiary Stock to Sears or any wholly owned Subsidiary of Sears (other
than the Acquired Subsidiary), (B) the Acquired Subsidiary may transfer
(including by means of a dividend or other distribution) any asset to
Sears or any wholly owned Subsidiary of Sears, and (C) any Seller may
consummate any portfolio sale of Charged-Off Accounts contemplated as of
the date hereof;
(x) offer to Borrowers an annual percentage rate or fee that
(A) contravenes any Requirements of Law or (B) except in the ordinary
course of business, consistent with its current policies and procedures,
cannot be changed by Purchaser;
(xi) (A) materially increase the compensation or benefits
(including any bonus, option, incentive or deferred compensation, salary,
severance, welfare or retirement benefits) of any Business Employee,
except for (1) increases to any Business Employee in the ordinary course
of business consistent with past practice, (2) increases that occur as a
result of a Permitted Seller Benefit Plan Action (as defined in Section
6.1(b)(xi)(B)) and (3) new hires and promotions in the ordinary course of
business consistent with past practice, (B) adopt, enter into, amend, or
take any action to clarify, any material provision of any Seller Benefit
Plan or Employment Agreements, except for any adoption, entrance,
amendment, or action that applies uniformly to similarly situated
employees of Seller and its Affiliates, it being understood that such
comparison group of similarly situated employees must include groups of
employees other than Business Employees (any such adoption, entrance,
amendment, or action permitted by this exception, a "Permitted Seller
Benefit Plan Action") or (C) issue any broadly distributed communication
of a general nature to Business Employees (including general
communications relating to benefits and compensation) or customers without
the prior written approval of Purchaser (which will not be unreasonably
delayed or withheld), except for communications in the ordinary course of
business that do not relate to the transactions contemplated hereby;
provided, however, that Seller and Purchaser agree to make best efforts to
prepare and disseminate to the Business Employees a communication relating
to the transaction contemplated hereby as soon as practicable after the
date hereof;
(xii) make any capital expenditure or any commitment to make
capital expenditures with respect to the Business, except for such
expenditures or commitments made in the ordinary course of the Business
consistent with past practice which do not exceed $1 million individually
or $5 million in the aggregate;
(xiii) create or incur of any Lien on any Purchased Interest or
the Acquired Subsidiary Stock, except for a Permitted Lien;
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(xiv) (A) transfer, sell or disclose to any other Person any
Acquired Cardholder Information or (B) use, or permit the use of, all or a
portion of any Acquired Cardholder Information, in each case for any
purpose other than as necessary to perform any obligations under the
Account Agreements, this Agreement or any Related Agreement;
(xv) terminate or modify any service provided by Sellers and
their Affiliates to the Business;
(xvi) settle any material claim, action or proceeding or waive
any material rights or claims in respect of the Business in a manner that
would adversely affect the Business or any Purchased Interest or Assumed
Liability after the Closing;
(xvii) make, change or revoke any Tax election, settle any Tax
audit, file any amended Tax Return or change any method of Tax accounting,
in each case, of the Acquired Subsidiary in a jurisdiction that does not
provide for an election corresponding to the 338(h)(10) Election; or
(xviii) agree, commit or state its intention to do, or allow
any of its directors, officers, employees, agents or representatives to
do, any of the foregoing.
Section 6.2. Access and Confidentiality. (a) From the date hereof
to the Closing, subject to applicable Requirements of Law, (i) each of Sellers,
on the one hand, and Purchaser, on the other, will permit the other and their
respective representatives to have reasonable access, during regular business
hours and upon reasonable advance notice for purposes reasonably consistent with
this Agreement, to their respective properties, premises, facilities, employees
and representatives and books and records, including all computer tapes and
similarly stored data, but only to the extent that such access does not
unreasonably interfere with the business of Sellers or Purchaser, as the case
may be, and only to the extent related to the transactions contemplated by this
Agreement and by the Related Agreements, (ii) each Seller or Purchaser, as
applicable, shall direct its respective employees, agents and representatives
and shall cause the employees, agents and representatives of its respective
Affiliates, to cooperate fully with Purchaser or Sellers, as the case may be,
and its respective representatives and (iii) to the extent permitted by
Requirements of Law, each Seller shall, and shall cause its Subsidiaries to,
furnish promptly to Purchaser a copy of (x) each material report, schedule,
registration statement and other document filed by it with any Governmental
Authority and (y) the internal or external reports prepared by such Seller or
such Subsidiary in the ordinary course that are reasonably required by Purchaser
promptly after such reports are made available to such Seller's personnel;
provided that, in each case, Purchaser and each Seller, as applicable, and its
respective representatives shall comply with the confidentiality obligations
contained herein; and provided, further, that the foregoing shall not (i)
require Sears or any of its Affiliates, on the one hand, or Purchaser or any of
its Affiliates, on the other, to permit any inspection, or to disclose any
information, that (x) would result in the disclosure of any trade secrets of
third parties, or any trade secrets of Sears or Purchaser, as the case may be,
or of any of their respective Affiliates, unless such trade secrets are related
to the transactions contemplated hereby and by the Related Agreements, or (y)
violate any obligations of Sears or Purchaser, as the case may be, to any third
party with respect to confidentiality, provided that Sears or Purchaser, as
applicable, shall have
54
used its reasonable best efforts to obtain the consent of such third party to
such inspection or disclosure or (ii) require any disclosure by Sears or
Purchaser, as the case may be, or any of their respective Affiliates, that would
reasonably be expected, as a result of such disclosure, and in the opinion of
counsel, to have the effect of causing the waiver of any attorney-client
privilege.
(b) To the fullest extent not prohibited by Requirements of Law, in
furtherance of the terms of Section 6.2(a) and subject to the provisos set forth
therein, from the date hereof to the Closing Date, (i) senior officers of the
Business and of the credit card business of Purchaser shall meet on a regular
basis (no less than bi-weekly) to review the financial performance and
operational affairs of the Business to achieve an orderly integration of the
Business by Purchaser as of the Closing, and (ii) no later than 10 Business Days
from the date hereof, Sellers and Purchaser shall each appoint three officers
with knowledge of, and experience in, the Business to comprise a transition team
(the "Transition Team") which shall meet on a regular basis to discuss and
implement reasonable steps necessary to achieve an orderly integration of the
Business by Purchaser as of the Closing and to attempt to minimize Purchaser's
reliance on interim services from Sellers following the Closing. Prior to the
Closing, the Transition Team shall identify which Business Employees shall be
retained by Sellers ("Retained Business Employees") and shall update Schedule
1.1(a) accordingly. The Transition Team shall also establish a transition of the
responsibilities of the Retained Business Employees to Purchaser employees and a
transition of the services of the Retained Business Employees to other Seller
businesses in order to ensure an orderly transition. The Transition Team shall
negotiate in good faith the terms of the Transition Services Agreement which
shall incorporate the terms and provisions set forth on Exhibit B, pursuant to
which Sellers and their respective Affiliates shall provide to Purchaser and its
Affiliates all interim services as are necessary, including the provision of
shared real property and services provided by third parties under certain
Contracts that are Retained Assets, in combination with the Acquired Subsidiary
Stock, the Purchased Interests, the Business Employees and the rights of
Purchaser and its Affiliates under the other Related Agreements, to allow
Purchaser to conduct the Business as it will be conducted immediately prior to
the Closing. Such Transition Services Agreement shall provide, among other
things, that Sears and its Affiliates will (i) facilitate the implementation and
administration of employee welfare benefits for Continuing Business Employees,
which shall be sponsored and maintained by Purchaser as the employer thereunder,
for the Benefits Transition Period (as defined in the next sentence), and (ii)
continue to provide payroll services with respect to Continuing Business
Employees. Purchaser shall bear all direct and indirect costs associated with
providing such transitional arrangement with respect to employee welfare
benefits and payroll services. The Benefits Transition Period shall mean the
period commencing on the Closing Date and concluding on the later of (x) the
30th day following the Closing Date or (y) December 31, 2003.
(c) In addition to the confidentiality arrangements contained herein,
all information provided or obtained in connection with the transactions
contemplated by this Agreement (including pursuant to subsection (a) above but
excluding any information to the extent relating primarily to the Credit Card
Business or the Financial Products Business acquired hereunder by Purchaser)
will be held by Purchaser in accordance with the Confidentiality Agreements,
dated April 11, 2003 and May 19, 2003, between Purchaser and Sears
(collectively, the "Confidentiality Agreement"). In the event of a conflict or
inconsistency between the terms of this Agreement and the Confidentiality
Agreement, the terms of this Agreement will govern. For the avoidance of doubt,
the parties and their Affiliates (and any employee, representative or
55
other agent of such Persons) shall be permitted to disclose the "tax structure"
and "tax treatment" (within the meaning of Treasury Regulation Section 1.6011-4)
of the transactions contemplated hereby from and after the earliest of: (i) the
date of public announcement of discussions regarding such transactions, (ii) the
date of public announcement of such transactions and (iii) the date hereof.
(d) Each Party hereto shall preserve and keep all books and records and
all information relating to the accounting, business, and financial affairs that
are retained by Sears or any of its Affiliates or obtained by Purchaser
hereunder, as the case may be, which information relates to the Purchased
Interests, the Acquired Subsidiary Stock, the Assumed Liabilities or that
portion of the Business that is conducted by the Acquired Subsidiary, for a
reasonable period (not less than five (5) years) after the Closing Date, or for
any longer period (i) as may be required by any Governmental Authority and (ii)
as may be reasonably necessary with respect to the prosecution or defense of any
audit or other legal action that is then pending or threatened and with respect
to which the requesting Party has notified the other Party as to the need to
retain such books, records or information. Notwithstanding the foregoing
provisions of this Section 6.2(d), the provisions of Article VIII shall govern
the preservation, retention and sharing of Tax Returns and Tax work papers.
(e) Purchaser and its representatives shall be entitled to perform a
Phase II environmental investigation (the "Investigation") of the New Orleans,
LA facility (Sears Xxxx # 0000). Purchaser agrees to commence the Investigation
within 15 days of the date of this Agreement. The Investigation shall be
performed by a nationally recognized environmental consulting firm and Purchaser
shall provide Sellers with a letter, acceptable to Sellers, expressly stating
that Sellers and the Acquired Subsidiary have the right to rely on the
Investigation. Sellers shall have the right to review and comment on the scope
of work for the Investigation. Sellers shall provide Purchaser and its
representatives such access to the New Orleans facility as is reasonably
necessary to conduct the Investigation. Purchaser and its representatives shall
perform the Investigation in manner that minimizes any disruption to the
Sellers' operations at the New Orleans facility. If the Investigation shows a
Release in the soil or groundwater at or affecting the New Orleans facility in
excess of regulatory standards for commercial or industrial property under
applicable Environmental Laws, then at Sellers' irrevocable election (to be
confirmed by written notice to Purchaser within five days following Sellers'
receipt of the written findings of the Investigation):
(i) Sellers, as soon as reasonably practicable following
receipt of the written results of the Investigation, shall (at Sellers' sole
cost and to the reasonable satisfaction of Purchaser) Cleanup the soil and/or
groundwater contaminated with Hazardous Materials and such conditions shall be
deemed Pre-Closing Liabilities and Costs included as Retained Liabilities under
Section 2.5, and further Sellers shall perform any such Cleanup in a manner that
minimizes any disruption to the Purchaser's operations at the New Orleans
facility. In connection with the foregoing, the parties shall agree upon a
program to effectuate the Cleanup in a manner that will avoid disruption to
Purchaser's operations; or
(ii) Sellers shall retain ownership of the New Orleans
property and such property shall be deemed a Retained Asset under Section 2.3,
in which case Purchaser,
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pursuant to Transition Services Agreement, shall lease the New Orleans property
from Sellers for a period of up to 18 months following the Closing Date.
Section 6.3. Delivery of Securitization Transfer Agreements. Sears
shall, and shall cause its Affiliates to, obtain all necessary consents and
approvals, including all necessary consents and approvals relating to the
Required Amendments and the Consents, and shall execute and deliver all
necessary documents, including the Securitization Transfer Agreements and the
Required Amendments, required to complete the transactions contemplated hereby.
Purchaser shall reasonably cooperate with Sears in connection therewith. Sears
and Purchaser shall cause the Trust to file any and all SEC Documents relating
to the Required Amendments and Securitization Transfer Documents with the SEC no
later than 15 Business Days after the effectiveness thereof. The costs
associated with the preparation and filing of such SEC Documents shall be borne
by the Party that is required to make such filing.
Section 6.4. Advice of Changes. From the date hereof to the Closing
Date, the Sellers, on the one hand, and Purchaser, on the other hand, shall
promptly advise the other in writing upon acquiring Knowledge of any fact which,
if existing or known at the date hereof, would have been required to be set
forth or disclosed pursuant to this Agreement or of any fact which, if existing
or known at the date hereof, would have made any of the representations of such
Party contained herein untrue in any material respect. No such information shall
impact any representation or warranty of the Party disclosing such information
or any rights or remedies available to the Party receiving such information in
connection with any breach of any representation or warranty; provided that a
breach of this Section 6.4 shall not be considered for purposes of determining
the satisfaction of the closing conditions set forth in Article VII or give rise
to a right of termination under Article IX if the underlying breach or breaches
with respect to which the other Party failed to give notice would not result in
the failure of the closing conditions set forth in Article VII or would not
result in the ability of such non-breaching Party to terminate this Agreement
under Article IX, as the case may be.
Section 6.5. Efforts; Filings. (a) Subject to the terms and conditions
of this Agreement, each of Sears and Purchaser shall use its reasonable best
efforts to take, agree to take, or cause to be taken, any and all actions and to
do, or cause to be done, any and all things necessary, proper or advisable under
Requirements of Law or otherwise, so as to, as promptly as practicable: (i)
permit consummation of the purchase of the Purchased Interests and the Acquired
Subsidiary Stock and the assumption of the Assumed Liabilities and (ii)
otherwise enable consummation of the transactions contemplated by this
Agreement, the Related Agreements and the Securitization Transfer Agreements,
and each shall, and shall cause its respective Affiliates to, cooperate fully to
that end. As used in this Section 6.5, "reasonable best efforts" shall be deemed
to include promptly agreeing to take, taking, or causing to be taken any and all
actions required by any Governmental Authority, including but not limited to the
U.S. Federal Trade Commission, the Antitrust Division of the U.S. Department of
Justice, any state attorney general, or any state insurance commissioner, to the
extent necessary to consummate the transactions contemplated by this Agreement
as promptly as reasonably practicable, so long as such actions are expressly
conditioned on the Closing of the transactions contemplated by this Agreement
and provided that nothing in this Agreement shall require Purchaser to agree to
any Unreasonable Condition.
57
(b) As promptly as practicable but in no event later than 5 Business
Days after the date of this Agreement, if and to the extent required under the
HSR Act, Sears and Purchaser shall prepare and file all documents and
notifications with the Federal Trade Commission and the United States Department
of Justice as are required to comply with the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act"). Sears and Purchaser shall cooperate with each other
in good faith in the preparation of all such filings and responses, and shall
do, or cause to be done, all things and take, or cause to be taken, all actions
required to obtain the prompt termination of the waiting period thereunder.
(c) Without limiting the foregoing, each of Sears and Purchaser agrees
to use its reasonable best efforts to prepare all documentation (including the
Required Amendments), to effect all filings and to obtain all permits, consents,
clearances, approvals and authorizations of all Governmental Authorities and
other Persons (including, if applicable, the Card Association and TSYS)
necessary to consummate the transactions contemplated by this Agreement, the
Related Agreements and Securitization Transfer Agreements as promptly as
practicable. In connection with effecting any such filing or obtaining any such
permit, consent, clearance, approval or authorization necessary to consummate
the transactions contemplated by this Agreement, the Related Agreements and
Securitization Transfer Agreements, each of Sears and Purchaser shall, subject
to applicable law, (i) permit counsel for the other party to review in advance,
and consider in good faith the views of the other party in connection with, any
proposed written communication to any Governmental Authority, and (ii) provide
counsel for the other party with copies of all filings made by such party, and
all correspondence between such party (and its advisors) with any Governmental
Authority and any other information supplied by such party and such party's
Subsidiaries to a Governmental Authority or received from such a Governmental
Authority; provided, however, that materials may be redacted or withheld (x) to
the extent they concern the valuation of the Business or alternatives to the
transactions contemplated by this Agreement and (y) as necessary to comply with
contractual arrangements. Each of Sears and Purchaser agrees not to participate,
or to permit its respective Subsidiaries to participate, in any substantive
meeting or discussion, either in person or by telephone, with any Governmental
Authority in connection with the consummation of the transactions contemplated
hereby unless it consults with the other party in advance and, to the extent not
prohibited by such Governmental Authority, gives the other party the opportunity
to attend and participate.
Section 6.6. No Solicitation. The Sellers shall not, nor shall they
permit any of their respective Subsidiaries to, or authorize or permit any
director, officer or employee of the Sellers or any of their respective
Subsidiaries or any investment banker, attorney, accountant or other advisor or
representative of the Sellers or any of their respective Subsidiaries to,
directly or indirectly, (i) solicit, initiate or encourage, or take any other
action knowingly to facilitate, any Alternative Proposal or (ii) enter into,
continue or otherwise participate in any discussions or negotiations regarding,
or furnish to any person any information with respect to, or otherwise cooperate
in any way with, any Alternative Proposal. The term "Alternative Proposal" means
any inquiry, proposal or offer from any Person relating to, or that is
reasonably likely to lead to, any direct or indirect acquisition, in one
transaction or a series of transactions, including any merger, consolidation,
exchange offer, binding share exchange, business combination, recapitalization,
liquidation, dissolution, joint venture or similar transaction, of any assets,
stock (or other equity or voting interests) or businesses that constitute or
represent 10% or more of the
58
total revenue, operating income, EBITDA or assets of the Business, other than
with respect to the transactions contemplated by this Agreement and the Related
Agreements and asset dispositions to the extent permitted under Section 6.1.
Section 6.7. Further Assurances. (a) After the Closing Date, each of
Sears and Purchaser shall use its reasonable best efforts from time to time to
execute and deliver at the reasonable request of the other Party such additional
documents and instruments (including any assignments, bills of sale, assumption
agreements, consents and other similar instruments in addition to those required
by this Agreement) as may be reasonably required to give effect to this
Agreement and the transactions contemplated hereby, to provide whatever
documents or other evidence of ownership as may be reasonably requested by
Purchaser to confirm Purchaser's ownership of the Purchased Interests and
Acquired Subsidiary Stock and to provide whatever documents or other evidence as
may be reasonably requested by Sears to confirm Purchaser's assumption of the
Assumed Liabilities. In addition, on and after the Closing Date, Sears and
Purchaser shall give such reasonable further assurances to Purchaser and its
Affiliates and to Sears and its Affiliates, respectively, and shall execute,
acknowledge and deliver all such acknowledgments and other instruments and take
such further action as may be reasonably necessary and appropriate effectively
to relieve and discharge Purchaser from any Excluded Liability and Sellers from
any Assumed Liabilities, respectively.
(b) Each of the Sellers and the Servicer shall cooperate with Purchaser
in connection with the preparation of any offering document (including any
exhibits, amendments, attachments or supplements thereto) and other materials
(the "Financing Materials") to be delivered to prospective investors or
creditors relating to any securities or other financing involving the transfer
by Purchaser of some or all of the Accounts, Receivables or other Purchased
Interests to a special purpose entity to be formed as part of a publicly issued
or privately placed asset-backed securities transaction or other secured
financing transaction (a "Subsequent Financing"). In connection with the
foregoing, each of the Sellers, in their capacities as originators of the
Purchased Interests, and Sears, as Servicer prior to the Closing Date shall:
(i) provide a description of its business and historical
financial condition for inclusion in any Financing Materials and
certificates of public officials or officers of the Sellers or Servicer,
as the case may be, as are reasonably believed necessary by Purchaser or
any trustee or rating agency involved in a Subsequent Financing in
connection therewith. Any information provided by any Seller or the
Servicer pursuant to this Section 6.7(b)(i) shall be accurate and complete
in all material respects and shall not contain, as of the date of any
Financing Materials, an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; and
(ii) make the representations and warranties to Purchaser
contained in Section 4.10 as of the Closing Date with respect to the
Accounts and Receivables on the closing date of such Subsequent Financing.
59
Purchaser shall pay all third-party costs and actual out-of-pocket expenses
associated with the preparation of the information specified in Section
6.7(b)(i). The provisions of this Section 6.7(b) shall survive the termination
of this Agreement.
(c) For the period of 12 months after the Closing Date, each of the
Sellers and the Servicer shall cooperate with Purchaser in connection with the
preparation and delivery of any report, certificate or filing required to be
made by Purchaser as successor to the Servicer in connection with the
Securitization Documents.
(d) Sellers shall cooperate in good faith with Purchaser (including
without limitation, providing reasonable notice regarding, and including
Purchaser in, all communications, teleconferences and meetings, and exchange of
any information with Allstate) to terminate, renew, or amend any terms of, or
exercise any repurchase rights under, any of the Alliance Agreements (as defined
in the Memorandum of Understanding, dated March 17, 2003, by and between Sears
and Allstate (such as defined therein)), as reasonably directed by Purchaser. In
the event that upon written request of Purchaser Sellers exercise any repurchase
right under any of the Alliance Agreements prior to Closing pursuant to this
Section 6.7(d), Purchaser shall reimburse Sellers for any such repurchase price
on the Closing Date.
Section 6.8. Assignment of Contracts; Approvals and Consents. (a)
Notwithstanding anything in this Agreement to the contrary, this Agreement shall
not constitute an agreement to assign any Contract, lease or Seller Permit or
any claim, right or benefit arising thereunder or resulting therefrom if an
attempted assignment thereof, without the consent of a third party thereto,
would constitute a breach or other contravention thereof, be ineffective with
respect to any party thereto or in any way adversely affect the rights of any
Seller or Purchaser thereunder.
(b) With respect to any Contract, lease or Seller Permit and any claim,
right or benefit arising thereunder or resulting therefrom, Sellers and
Purchaser will use their reasonable best efforts to obtain as expeditiously as
possible the written consent of the other parties to such Contract, lease or
Seller Permit for the assignment or, if required, novation thereof to Purchaser
or amendment or, alternatively, written confirmation from such parties
reasonably mutually satisfactory in form and substance to Sellers and Purchaser
that such consent, novation or amendment is not required. In furtherance of the
foregoing, as soon as practicable following the date hereof, Sellers shall
submit to the other party or parties to any such Contract, lease or Seller
Permit documentation seeking the written waiver or approval of such other
contracting party or parties thereto to the transfer, assignment, novation or
amendment of all of the applicable Seller's claims, rights, benefits and
liabilities thereunder to Purchaser. In no event, however, shall any Seller or
Purchaser be obligated to pay any money (other than a de minimis amount) to any
Person or to offer or grant other financial or other accommodations to any
person in connection with obtaining any consent, waiver, confirmation, novation,
amendment or approval with respect to any Contract, lease or Seller Permit.
(c) If any consent, waiver, confirmation, novation or approval is not
obtained with respect to any Contract, lease or Seller Permit, Sears and
Purchaser will cooperate to establish an agency type or other similar
arrangement reasonably satisfactory to Sears and Purchaser under which Purchaser
would obtain, to the fullest extent practicable and not
60
prohibited by any applicable Requirements of Law or any Contract, the claims,
rights and benefits and assume the corresponding liabilities and obligations
thereunder in accordance with this Agreement (including by means of any
subcontracting, sublicensing or subleasing arrangement) or under which the
applicable Seller would enforce at the direction of and for the benefit of
Purchaser, with Purchaser assuming and agreeing to pay such Seller's obligations
and expenses, any and all claims, rights and benefits of such Seller against a
third party thereto. In such event (i) Sears or the applicable Seller will
promptly pay, assign and remit to Purchaser when received all monies and other
consideration relating to the period after the Closing Date received by it under
any Contract or any claim, right or benefit arising thereunder not transferred
pursuant to this Section 6.8 and (ii) Purchaser will promptly pay, perform or
discharge when due any obligation or liability (including any Tax Liability)
arising thereunder after the Closing Date; provided, however, the costs and
expenses incurred in obtaining any such waivers or approvals or complying with
Section 6.8(c) shall be borne by Sellers.
(d) The provisions of this Section 6.8 shall not affect any
representation or warranty of any Seller under this Agreement.
Section 6.9. Notice of Proceedings. Purchaser will promptly notify
Sears in writing, and Sears will promptly notify Purchaser in writing, upon (a)
becoming aware of any order or decree or any complaint praying for an order or
decree restraining or enjoining the execution of this Agreement or the
consummation of the transactions contemplated hereunder, or (b) receiving any
notice from any Governmental Authority of its intention (i) to institute a suit
or proceeding to restrain or enjoin the execution of this Agreement or the
consummation of the transactions contemplated hereby, or (ii) to nullify or
render ineffective this Agreement or such transactions if consummated.
Section 6.10. Guaranties; Letters of Credit; Intercompany Agreements.
(a) To the extent that any Seller would otherwise retain liability thereunder
with respect to any post-Closing period, Purchaser shall cause itself or one or
more of its Affiliates to be substituted in all respects for any Seller,
effective as of the Closing, in respect of all obligations of each such Seller
under each of the guaranties, bonding arrangements, letters of credit and
letters of comfort identified in Schedule 6.10(a) (the "Guaranties"), each of
which was obtained by any such Seller for the benefit of the Credit Card
Business or the Financial Products Business. If Purchaser is unable to effect
such a substitution with respect to any Guaranty after using its reasonable best
efforts to do so, Purchaser shall hold the relevant Sellers harmless with
respect to the obligations covered by each of the Guaranties for which Purchaser
does not effect such substitution. As a result, no Seller shall from and after
the Closing have any obligation whatsoever arising from or in connection with
the Guaranties except for obligations, if any, for which such Seller will be
fully indemnified by Purchaser.
(b) Except as set forth on Schedule 6.10(b) or as otherwise contemplated
by this Agreement, Sellers shall, and shall cause their respective Affiliates
to, immediately prior to the Closing, execute and deliver such releases,
termination agreements and discharges as are necessary to (i) release and
discharge Sellers and such Affiliates (other than the Acquired Subsidiary or the
Trust) from any and all obligations owed (x) to the Acquired Subsidiary or the
Trust or (y) in connection with the Business, to Sears or any of its Affiliates,
(ii) release and discharge the Acquired Subsidiary and the Trust from any and
all obligations owed to any Seller
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or any Affiliate thereof (other than the Acquired Subsidiary or the Trust) and
(iii) terminate all arrangements, commitments, contracts and understandings
among any Seller and any Affiliate thereof, which would, absent such
termination, constitute a Purchased Interest or an Assumed Liability.
Section 6.11. Bulk Sales Law. Purchaser hereby waives compliance by any
Seller, in connection with the transactions contemplated hereby, with the
provisions of any applicable bulk sales law (including the Uniform Commercial
Code Bulk Transfer provisions).
Section 6.12. IBM Master Agreement; Other Sears Service Provider
Agreements. (a) Purchaser acknowledges and agrees that (i) none of Purchaser,
the Acquired Subsidiary, or, from and after the Closing Date, the Business is a
third-party beneficiary under the IBM Master Agreement and (ii) from and after
the Closing Date, Purchaser shall, and shall cause the Acquired Subsidiary to,
direct all formal communications to Sears and not to IBM regarding any Services
(as defined in the IBM Master Agreement) that IBM may continue to provide to the
Business pursuant to Section 21.9(d) of the IBM Master Agreement.
(b) From and after the Closing, Sears and Purchaser shall, and shall
cause their respective Affiliates to, reasonably cooperate to cause Sears or any
of its Affiliates to receive up to the maximum credit, if any, against any
material spending commitment that Sears or any such Affiliate has with any
Service Provider, to which Sears or any such Subsidiary may be entitled pursuant
to the terms of any material Sears Service Provider Agreement in respect of any
revenue that such Service Provider receives under any agreement that Purchaser
or any of its Affiliates may enter into with such Service Provider for the
provision of any services to the Business after the Closing Date (not otherwise
including other Purchaser businesses) similar to those services provided under
the applicable Sears Service Provider Agreement to the Business (any such
agreement, a "Purchaser Service Provider Agreement"); provided nothing herein
shall obligate Purchaser to enter into or continue any Purchaser Service
Provider Agreement, nothing herein shall obligate Purchaser in its discretion to
forego any benefits to which it may be entitled under any existing or future
contract with any such Service Provider with respect to the Business, including
the benefit of any preferential price structure or volume discounts, and nothing
herein shall require Purchaser and its Affiliates to share relevant information
that any of them reasonably determines to be confidential or competitively
sensitive.
Section 6.13. MasterCard Agreements. From the date hereof until the
Closing Date, Sellers shall, and shall cause their Affiliates to, operate and
conduct the Credit Card Business in a manner that continues to observe the terms
of the MasterCard Agreements to the same extent that the operation and conduct
of the Credit Card Business by Sears and its Affiliates would have been subject
to the terms of the MasterCard Agreements had the transactions contemplated by
this Agreement and the Related Agreements not occurred. Sellers and Purchaser
shall cooperate in good faith to terminate (including providing releases and
other customary documents upon such termination) or amend any terms of the
MasterCard Agreements, as reasonably directed by Purchaser. To the extent not
prohibited by applicable Requirements of Law, for these purposes, Sellers shall,
among other things, provide reasonable notice regarding, and include Purchaser
in, all communications, teleconferences and meetings, and exchange of any
information with MasterCard. Purchaser agrees (i) subject to the terms of
Article X, to indemnify Sears and the Bank for any Damages, including reasonable
attorneys'
62
and other professional fees, resulting from, arising out of or related to (A)
the termination or amendment of the MasterCard Agreements or (B) any claim by
MasterCard of a breach by the Bank of Section 7 of the Mastercard Agreement
arising out of the consummation of the transactions contemplated hereby or the
conduct of the Credit Card Business by Purchaser on or after the Closing; and
(ii) to reimburse Sellers for the reasonable costs and expenses of cooperating
with Purchaser in accordance with this Section 6.13.
Section 6.14. Notice to Cardholders. Promptly following the Closing
Date, Sears and Purchaser shall prepare jointly a form or forms of notice to
each Cardholder to the effect that such Cardholder's Account has been acquired
by Purchaser and that the owner of the debt cancellation agreements is changing.
Such notice shall be in the form approved by both parties, which approval will
not be unreasonably withheld or delayed, and will comply with all applicable
Requirements of Law. The costs of preparation and mailing of such notices shall
be borne jointly by Sears and Purchaser. The mailing shall be made in such
manner and at such time as Sears and Purchaser may mutually agree.
Section 6.15. Change Name of the Acquired Subsidiary. As soon as
practicable after the Closing, Purchaser shall cause the articles of
incorporation of the Acquired Subsidiary to be amended to remove any reference
to "Sears" from its name and make related filings in jurisdictions where the
Acquired Subsidiary is doing business. Until such time, the use of "Sears" in
the Acquired Subsidiary name shall be deemed permitted by and subject to the
terms of the Licensing Agreement.
Section 6.16. Employee Matters. Employment of Continuing Business
Employees. Effective as of the Closing Date, Purchaser shall offer employment to
each Business Employee, in the identical geographic location as in effect with
respect to such Business Employee immediately prior to the Closing Date, with
base pay at least equal to such Business Employee's base rate of pay as in
effect immediately prior to the Closing Date, and with incentive compensation
opportunities that are substantially comparable to those in effect for such
Business Employee immediately prior to the date hereof; provided that there will
be no reduction in excess of 10% in such Business Employee's annual earnings
potential. Each Business Employee who accepts such offer of employment
(including Business Employees described in clause (ii) of the definition thereof
who commence active employment within the period of time during which their
reemployment rights are guaranteed under applicable law or under Sears' leave of
absence or short-term disability policy) with Purchaser is referred to herein as
a "Continuing Business Employee"; provided, however, that (1) a Business
Employee who commences a leave of absence (other than short-term disability
leave or a leave of absence with respect to which the Business Employee's
employment rights are guaranteed under applicable law) between the date hereof
and the Closing Date and who is on such leave of absence on the Closing Date
shall become a Continuing Business Employee only if such Business Employee
commences active employment within the period that such Business Employee's
reemployment rights would be guaranteed under applicable law or the applicable
leave of absence policy of Purchaser and its Affiliates and (2) a Business
Employee who is on short-term disability leave on the Closing Date shall become
a Continuing Business Employee only if such Business Employee commences active
employment prior to or upon the expiration of such short-term disability leave.
Such employment by Purchaser shall commence effective as of the Closing Date.
Subject to the next sentence, Purchaser shall have no liability with respect to
Business Employees who
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are absent from work on the Closing Date on account of short-term disability or
other leave of absence who do not become Continuing Business Employees.
Notwithstanding the preceding sentence, Purchaser shall be responsible for
short-term disability benefits to all Business Employees who are on short-term
disability on the Closing Date; provided, however, that if more than one hundred
(100) Business Employees are on short-term disability on the Closing Date, then
Sellers shall reimburse Purchaser for all such amounts paid by Purchaser in
respect of all such Business Employees on short-term disability who do not
become Continuing Business Employees. Nothing in this Agreement shall be deemed
to limit the right of Purchaser or any of its Affiliates to terminate the
employment of any Business Employee, other than as explicitly set forth in
Section 6.16(j) hereof.
(b) Employee Benefits Generally. From the Closing Date through the
first anniversary of the Closing Date, Purchaser shall provide, or shall cause
to be provided, to the Continuing Business Employees as a group compensation and
benefits that are comparable in the aggregate to those provided to such
Continuing Business Employees immediately prior to the date hereof under the
Seller Benefit Plans listed on Schedule 4.14(a)-1; provided, however, that the
determination of whether such compensation and benefits are so comparable shall
not take into account retiree medical benefits. The parties agree that the
package of compensation and benefits provided by Purchaser to Continuing
Business Employees shall include eligibility to participate in the retiree
medical plans of Purchaser and its Affiliates on terms no less favorable than
those provided to similarly situated employees of Purchaser and its Affiliates.
Except as may be specifically required by this Agreement or by applicable law,
Purchaser shall not be obligated to provide any particular employee benefits to
any Continuing Business Employee for any specific period of time.
(c) Preexisting Conditions; Deductibles; Credited Service. Effective as
of the Closing, Purchaser shall (i) cause to be waived all limitations as to
preexisting conditions, exclusions and waiting periods with respect to
participation and coverage requirements applicable to Continuing Business
Employees under any welfare plan of Purchaser or its Subsidiaries or Affiliates
in which such Continuing Business Employees may be eligible to participate after
the Closing, to the extent that such conditions, exclusions and waiting periods
would have been waived or satisfied under the corresponding welfare plan in
which any such Continuing Business Employee participated immediately prior to
the Closing, (ii) cause to be provided to each Continuing Business Employee
credit for any co-payments and deductibles paid prior to the Closing, in respect
of the calendar year in which the Closing Date occurs, in satisfying any
applicable deductible or out-of-pocket requirements under any welfare plans of
Purchaser or its Subsidiaries or Affiliates in which such Continuing Business
Employees may be eligible to participate after the Closing and (iii) cause to be
provided to each Continuing Business Employee credit for all purposes
(including, without limitation, eligibility, vesting, and amount of benefits
(including for purposes of determining the annual cash balance benefit credit
under the Citigroup Pension (cash balance) Plan for Continuing Business
Employees eligible to participate in such plan), for all service recognized by
Sears under the corresponding Seller Benefit Plan, under each employee benefit
plan, program or arrangement of Purchaser or its Subsidiaries or Affiliates in
which such Continuing Business Employees are eligible to participate after the
Closing; provided, however, that in no event shall the Continuing Business
Employees be entitled to service credit to the extent that such service credit
would result in a duplication of benefits with respect to the same period of
service.
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(d) COBRA. Sears shall retain responsibility for continuation coverage
under Sections 601 et seq. of ERISA and any state continuation coverage
requirements ("COBRA Obligations") to all Business Employees (and their
qualified beneficiaries) for whom a "qualifying event" under COBRA occurs on or
prior to Closing. Purchaser shall be responsible for COBRA Obligations with
respect to the Continuing Business Employees and their beneficiaries for whom a
"qualifying event" under COBRA occurs after the Closing.
(e) Retirement Plans. Purchaser agrees to have in effect on the Closing
Date a defined contribution plan or plans with a salary reduction arrangement
that covers Continuing Business Employees, the terms of which meet the
requirements of Sections 401(a) and 401(k) of the Code (such plan or plans, the
"Purchaser Savings Plan"). Each Continuing Business Employee who is eligible to
contribute to the Sears 401(k) Savings Plan (the "Sears Savings Plan") on the
Closing Date shall be eligible to participate and contribute to Purchaser
Savings Plan commencing as soon as administratively practicable after the
Closing Date but not later than 60 days after the Closing Date if the Closing
Date occurs in 2003, and not later than 30 days after the Closing Date if the
Closing Date occurs in 2004. As soon as practicable following the Closing Date,
Purchaser shall permit Continuing Business Employees who are participants in
such Purchaser Savings Plan to rollover, in cash, their account balances in the
Sears Savings Plan into Purchaser Savings Plan. Each Continuing Business
Employee who is eligible to participate in the Sears Pension Plan on the Closing
Date shall be eligible to participate in the Citigroup Pension (cash balance)
Plan commencing as soon as administratively practicable after the Closing Date
but not later than 60 days after the Closing Date if the Closing Date occurs in
2003, and not later than 30 days after the Closing Date if the Closing Date
occurs in 2004.
(f) Annual Bonuses for Year of Closing Date; Equity Awards; Employment
Agreements. Without limiting the generality of any other provision of this
Agreement, Sears shall be responsible for (i) subject to Section 6.16(i), all
Liabilities relating to all Employment Agreements and (ii) all Liabilities made
by or in respect of Business Employees with respect to the delivery of shares of
Sears capital stock under all stock options and shares of restricted stock
granted before the Closing Date to such Business Employees under Sears' equity
plans. Except as set forth in the last sentence of this Section 6.16(f), Sears
shall pay to each Continuing Business Employee a pro rata portion (based on the
portion of the year preceding the Closing Date) of such Continuing Business
Employee's target incentive award under Sears' annual incentive plan for such
year. The prorated payment will be made following the end of the plan year, at
the same time as bonus payments are made to Sears associates participating in
the applicable bonus plan (or, in the event that no such bonus payments are made
to Sears associates other than the Continuing Business Employees with respect to
such year, in no event later than ninety days following the end of such year).
Sears shall not be required to make such payments to any Continuing Business
Employee who is not employed by Purchaser or its Affiliates at the time such
payment is required to be made, unless the termination of employment from
Purchaser and its Affiliates of the applicable Continuing Business Employee was
involuntary.
(g) Severance Benefits; Certain Claims. Purchaser shall be solely
responsible for all Liabilities relating to the termination or alleged
termination of any Continuing Business Employee's employment with Purchaser that
occurs following the Closing Date. Purchaser shall provide to each Continuing
Business Employee whose employment is terminated during the Severance Transition
Period (as defined in the next sentence) severance pay and benefits not less
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favorable than the greater of the severance pay and benefits that would have
been provided to such Continuing Business Employee under Purchaser's separation
pay plan or the applicable Sears' severance credit business transition pay plan,
as in effect on the date hereof, taking into account all service with Purchaser
and its Affiliates from and after the Closing Date plus all service before the
Closing Date for which such Continuing Business Employee would have been
entitled to credit under the applicable Sears credit business transition pay
plan. The Severance Transition Period shall mean the period commencing on the
Closing Date and concluding on the later of (i) the six-month anniversary of the
Closing Date or (ii) June 30, 2004.
(h) WARN Act. In reliance on the agreements of Purchaser set forth in
Section 6.16(a), Purchaser and Sears agree that none of Sears or its Affiliates
shall deliver any notice to Business Employees pursuant to the United States
Federal Worker Adjustment and Retraining Notification Act of 1988, any successor
United States federal law, and any other applicable plant closing, mass layoff
or termination pay or notification law (collectively, the "WARN Act"). As soon
as practicable after the Closing (but in no event more than five days after the
Closing Date), Sears will provide Purchaser with a list of all Business
Employees who suffered an "employment loss" (as defined in the WARN Act) during
the period commencing on the date hereof and concluding as of the Closing.
(i) Retention Agreements. The parties acknowledge that the agreements
listed on Schedule 6.16(i) (the "Retention Agreements") provide, among other
things, for certain retention payments (alternately defined in the various
Retention Agreements as "Retention Payments," "Transaction Incentives," "Basic
Retention Payments," "Additional Retention Incentives," and "Success Bonuses")
to the Business Employees who are parties to such agreements in the event of a
"Full Sale" (as defined in the applicable Retention Agreements), and provide
that 50% of such payments will be made within thirty days of the Closing Date
(the "First Installment") and the remaining 50% of such payments (the "Second
Installment") will be made six-months after the Closing Date (or earlier,
pursuant to the terms of the various Retention Agreements). The parties
acknowledge that consummation of the transactions contemplated hereby will
constitute a "Full Sale" under the Retention Agreements. Other than the payments
required to be made by Purchaser pursuant to the final sentence of this Section
6.16(i), Seller agrees to make all payments required to be made under the
Retention Agreements in accordance with the terms of such Retention Agreements
as in effect on the date hereof and at the time or times set forth in such
Retention Agreements as in effect on the date hereof, and Seller agrees not to
amend such Retention Agreements after the date hereof. Seller further agrees to
make all payments of the First Installment no earlier than the final Business
Day on which such payments may permissibly be made under the terms of the
applicable Retention Agreement. The parties hereby agree that, except as
explicitly set forth in the next sentence, none of the liabilities relating to
the Retention Agreements shall be an Assumed Liability. Purchaser hereby agrees
to make all payments with respect to the Second Installment due under the
Retention Agreements in effect for Continuing Business Employees in accordance
with the terms of such Retention Agreements as in effect on the date hereof
(regardless of whether such payments become due six-months after the Closing or
become due earlier pursuant to the terms of the Retention Agreements );
provided, however, that in no event shall Purchaser be required to pay more than
$6,500,000 under this Section 6.16(i).
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(j) Limitation on Terminations. Purchaser agrees that terminations of
employment with respect to Continuing Business Employees shall be governed in
accordance with the provisions of Schedule 6.16(j).
(k) Certain Restrictions. For one year following the Closing, the
Sellers shall not, nor shall they permit any of their respective Subsidiaries
to, either directly or indirectly, on their own behalf or in the service or on
behalf of others, solicit or hire, continue to employ, or attempt to solicit
hire, or continue to employ any Business Employee, whether or not such Business
Employee is a full-time, part-time, or a temporary employee of Purchaser or any
of their Affiliates; provided, however, that the restriction set forth above
shall not prohibit Sellers or their Subsidiaries from (i) hiring or continuing
in employment following Closing any Business Employees who are absent from work
on the Closing Date on account of short-term disability or other leave of
absence who do not become Continuing Business Employees, and (ii) soliciting by
means of a general purpose advertisement not targeted at Purchaser or the
Business Employees.
(l) Cooperation. Sears and Purchaser shall cooperate in good faith, and
Sears and Purchaser and their respective Affiliates shall provide access to such
information as is reasonably necessary or appropriate, to facilitate
implementation of the provisions of this Section 6.16.
Section 6.17. Board of Directors of Acquired Subsidiary. Sellers hereby
agree to (i) deliver or cause to be delivered to Purchaser duly signed
resignations or other evidence of removal of all or certain directors and
officers of the Acquired Subsidiary as requested by Purchaser, effective as of
Closing, and (ii) cause the persons designated by Purchaser to be appointed
directors thereof effective as of immediately after the Closing.
Section 6.18. Unsecured Debt of Sears. Sears shall use its reasonable
best efforts to take, or cause to be taken, all steps necessary or advisable to
redeem, call, repurchase, defease or otherwise cause to cease to be outstanding,
as soon as reasonably practicable following the Closing (but in no event later
than the date that is four months after the end of the month in which the
Closing occurs), all the securities issued under the indentures set forth on
Schedule 6.18 hereof which are all the indentures under which any unsecured
securities of Sears are issued and outstanding.
Section 6.19. Covenant Not to Petition. From the date hereof, Purchaser
agrees that it shall not at any time file, or join in the filing of, a petition
against SRFG under the Federal Bankruptcy Code, or join in the commencement of
any bankruptcy, reorganization, arrangement, insolvency, liquidation or other
similar proceeding against SRFG.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1. Conditions of All Parties to Closing. The respective
obligations of each Party hereunder to consummate the transactions contemplated
hereby shall be subject to the fulfillment or waiver, at or prior to the Closing
Date, of the following conditions:
(a) Execution and Delivery of Securitization Transfer Agreements. Each
Securitization Transfer Agreement shall have been executed and delivered by each
Party hereto
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which is a party thereto, and by each other party thereto, in each case to be
effective from and after the Cut-Off Time.
(b) Execution, Delivery and Effectiveness of the Related Agreements.
The Related Agreements shall have been executed and delivered by each Party
hereto which is a party thereto, and by each other party thereto, in each case
to be effective from and after the Closing.
(c) Xxxx-Xxxxx-Xxxxxx. Any applicable waiting period under the HSR Act
with respect to the transactions contemplated hereby shall have expired or been
terminated.
(d) Other Regulatory Approvals. Subject to Section 3.7, all approvals
or authorizations of, filings and registrations with, and notifications to, all
Governmental Authorities including the Applicable Governmental Authorities and
the Card Association with respect to the Credit Card Business and the Financial
Products Business, if any, required to effect the transactions contemplated
hereby or by the Related Agreements shall be in full force and effect and all
waiting periods required by law shall have expired or been terminated, and no
Unreasonable Condition shall have been imposed by any Applicable Governmental
Authority in connection therewith, except for where the failure of such
approvals, authorizations, filings, registrations and notifications to be in
full force and effect would not have a Business Material Adverse Effect.
(e) Required Amendments. The Required Amendments shall have been duly
authorized, executed and delivered and shall have become valid, binding and
effective in accordance with their terms.
(f) No Injunction. No Governmental Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) that, in each case, prohibits consummation of the
transactions contemplated by this Agreement.
Section 7.2. Conditions to Obligations of Purchaser to Close.
Purchaser's obligation to effect the transactions contemplated by this Agreement
is subject to the satisfaction or waiver (in its sole discretion), prior to or
at the Closing, of each of the following conditions:
(a) Each of the representations and warranties of Sellers contained in
this Agreement shall be true and correct as of the date hereof and as of the
Closing Date as though made on and as of the Closing Date, except (i) that those
representations and warranties which address matters only as of a particular
date shall be true and correct as of such particular date and (ii) where the
failure to be so true and correct (after excluding the effect of any Knowledge
of Sellers, Business Material Adverse Effect or materiality qualifications set
forth in any such representation or warranty) has not had a Business Material
Adverse Effect.
(b) Each of the obligations of Sellers to be performed on or before the
Closing Date pursuant to the terms of this Agreement shall have been duly and
fully performed in all material respects on or before the Closing Date.
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(c) Sellers shall have delivered or caused to be delivered to Purchaser
each of the documents specified in Section 3.4 hereof.
(d) Purchaser shall have received at the Closing a certificate dated
the Closing Date and validly executed on behalf of each Seller by an appropriate
officer certifying that the conditions specified in Section 7.2(a) and Section
7.2(b) have been satisfied.
(e) Sellers shall have furnished to Purchaser opinions of counsel to
Sellers reasonably acceptable to Purchaser, in each case dated the Closing Date
and addressed to Purchaser and covering the matters contained in Schedule
7.2(f).
Section 7.3. Conditions to Obligations of Sellers to Close. The
obligations of Sellers to effect the transactions contemplated by this Agreement
are subject to the satisfaction or waiver (in the sole discretion of Sears),
prior to or at the Closing, of each of the following conditions:
(a) Each of the representations and warranties of Purchaser contained
in this Agreement shall be true and correct as of the date hereof and as of the
Closing Date as though made on and as of the Closing Date, except (i) that those
representations and warranties which address matters only as of a particular
date shall be true and correct as of such particular date and (ii) where the
failure to be so true and correct (after excluding the effect of any Knowledge
of Purchaser, Purchaser Material Adverse Effect or materiality qualifications
set forth in any such representation or warranty) has not had a Business
Material Adverse Effect.
(b) Each of the obligations of Purchaser to be performed on or before
the Closing Date pursuant to the terms of this Agreement shall have been duly
and fully performed in all material respects on or before the Closing Date.
(c) Purchaser shall have delivered or caused to be delivered to Sears
each of the documents specified in Section 3.5 hereof.
(d) Sears, on behalf of Sellers, shall have received at the Closing a
certificate dated the Closing Date and validly executed on behalf of Purchaser
by an appropriate officer of Purchaser certifying that the conditions specified
in Section 7.3(a) and Section 7.3(b) have been satisfied.
ARTICLE VIII
TAX MATTERS
Section 8.1. Liability for Taxes; Refunds and Credits. (a) Sears shall
be responsible for and shall indemnify Purchaser and its Affiliates (including
the Acquired Subsidiary but not the Trust) (the "Purchaser Tax Indemnitees")
from and against all:
(i) Excluded Taxes;
(ii) (A) Taxes resulting from any breach of or inaccuracy in
any representation or warranty contained in any FIRPTA Certificate or
Alternate Certificate of or with respect to any Seller or (B) Taxes
(including the net present value of any
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reasonably anticipated future Taxes) resulting from any breach of or
inaccuracy in any representation or warranty contained in Section 4.25(c);
(iii) Taxes resulting from any breach of any covenant by Sears
or any Seller contained in Section 2.6 or this Article VIII (but then only
to the extent appropriate to reflect the relative fault of Sears, on the
one hand, and Purchaser, on the other hand, with respect to such Tax); and
(iv) Damages or Taxes (including the net present value of any
reasonably anticipated future Taxes) incurred by any Purchaser Tax
Indemnitee resulting from any breach of or inaccuracy in any
representation or warranty contained in Section 4.25(d);
provided, however, that (A) the Purchaser Tax Indemnitees shall not be entitled
to indemnification pursuant to clause (iv) for any Damages or Taxes to the
extent resulting from any breach of Section 8.3(d) or for any Damages or Taxes
to the extent resulting from any action taken by Purchaser or any of its
Affiliates (including, the Acquired Subsidiary or the Trust) after the Closing
(including any issuance of Trust Certificates after the Closing) and (B) any
indemnification pursuant to Section 8.1(a)(ii)(B) or 8.1(a)(iv) shall be subject
to the limits set forth in Section 10.5 and the requirements of Section 10.8;
provided further, however, that Sears shall not be required to make
indemnification payments pursuant to Section 8.1(a)(iv) to the extent
indemnification payments thereunder would exceed in the aggregate one hundred
fifty million dollars ($150,000,000) (increased dollar-for-dollar (but not by
more than fifty million dollars ($50,000,000)) by the amount, if any, of
indemnification payments that Sellers would have been required to make (for the
absence of doubt, in respect of claims not pursuant to Section 8.1(a)(iv))
pursuant to Section 10.2(c) or Section 8.1(a)(ii)(B) but for the application of
the Threshold). For the absence of doubt, the Trust itself shall have no right
or claim against Sears under this Section 8.1(a). Except as set forth in Section
8.11, Sears shall be entitled to any refund of or against (or credit of or
against) any Excluded Taxes or any other Taxes for which Sears is responsible
under this Section 8.1(a) and any refund (or credit) to the extent so provided
in Section 8.11.
(b) Purchaser shall be responsible for and shall indemnify Sears, Sears
Canada, Sears Mexico and their respective Affiliates (the "Seller Tax
Indemnitees") from and against all:
(i) Taxes of or relating to the Business, the Purchased
Interests, the Acquired Subsidiary Stock, Purchaser or the Acquired
Subsidiary, except for Taxes for which Sears is responsible pursuant to
Section 8.1(a),
(ii) Taxes resulting from any breach of any covenant by
Purchaser contained in Section 2.6 or this Article VIII (but then only
to the extent appropriate to reflect the relative fault of Purchaser, on
the one hand, and Sears, on the other hand, with respect to such Tax),
(iii) one-half of any Transfer Taxes, and
(iv) Taxes described in clause (a), (b), (c), (d) or (e) of the
definition of Excluded Taxes.
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Purchaser and its Affiliates shall be entitled to any refunds (or credits) of or
against Taxes of Purchaser and its Affiliates (including the Acquired Subsidiary
and the Trust) except for (x) refunds (or credits) of Taxes of the Acquired
Subsidiary or the Trust received or credited on or prior to the Closing Date
(except to the extent, if any, that such refunds or credits are reflected as a
Tax asset on the Closing Date Balance Sheet) and (y) any other refunds (or
credits) to which Sears may be entitled under Section 8.1(a).
Section 8.2. Section 338(h)(10) Elections. (a) Sears and such of its
Subsidiaries as are necessary, on the one hand, and Purchaser and such of its
Subsidiaries as are necessary, on the other hand, shall jointly make an
irrevocable election under Section 338(h)(10) of the Code (and any corresponding
elections under state or local Tax law) with respect to the Acquired Subsidiary
(the "338(h)(10) Election"). Sears and Purchaser shall and shall cause their
respective Subsidiaries and Affiliates to (i) treat the 338(h)(10) Election as
valid, (ii) file all Tax Returns in a manner consistent with such 338(h)(10)
Election and (iii) take no position contrary thereto, except to the extent
required to do otherwise pursuant to a determination (as defined in Section
1313(a) of the Code or any similar state or local Tax law) (a "Determination").
(b) Purchaser and Sears shall jointly prepare, in a manner that
incorporates, reflects and is consistent with the Allocation Statement (if any)
and Section 2.6(a), any form or document required to effect a valid and timely
338(h)(10) Election.
(c) In furtherance of Section 8.2(a) and (b), (i) prior to the Closing,
Sears and Purchaser shall agree based on information then available on the form
and content of IRS Form 8023 ("Form 8023"), in a manner that is consistent with
the Allocation Statement (if any) and Section 2.6(a), on which the 338(h)(10)
Election shall be made for United States federal income Tax purposes; (ii) at or
prior to the Closing, Sears and such of its Subsidiaries as are necessary and
Purchaser and such of its Subsidiaries as are necessary shall execute Form 8023
containing information then available and in a manner that is consistent with
the Allocation Statement (if any) and Section 2.6(a), which Purchaser shall
promptly file or cause to be filed with the Internal Revenue Service; (iii)
Sears (and such of its Subsidiaries as are necessary) and Purchaser (and such of
its Subsidiaries as are necessary) shall jointly and timely make any elections
under state or local Tax law corresponding to the 338(h)(10) Election for United
States federal income Tax purposes; and (iv) Sears Life Holding (and Sears or
any other Subsidiaries of Sears as are necessary) and Purchaser (and such of its
Subsidiaries as are necessary) shall, as promptly as practicable following the
Closing Date, cooperate with each other to file such forms or Tax Returns, make
such elections, and provide such schedules and other documents as may be
required to effect a timely 338(h)(10) Election in accordance with the
provisions of Treasury Regulations Section 1.338(h)(10)-1 (or any corresponding
provisions of state or local Tax law) and all such forms, Tax Returns,
elections, schedules and other documents shall be in a manner that is consistent
with (and to the extent applicable incorporates and reflects) the Allocation
Statement (if any) and Section 2.6(a).
(d) To the extent permissible by or required by law, Sears (and such of
its Subsidiaries as are necessary) and Purchaser (and such of its Subsidiaries
as are necessary) shall cooperate in the preparation and timely filing of (i)
any corrections, amendments or supplements to Form 8023 (including Form 8883)
and (ii) any state or local forms or reports that are necessary or appropriate
for purposes of complying with the requirements for making any
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elections under state or local Tax law corresponding to the 338(h)(10) Election
for United States federal income Tax purposes; provided, however, that all such
forms and reports shall be in a manner that incorporates, reflects and is
consistent with the Allocation Statement (if any) and Section 2.6(a). To the
extent necessary for the valid filing of any such corrections, amendments,
supplements, forms or reports, Sears (and such of its Subsidiaries as are
necessary) and Purchaser (and such of its Subsidiaries as are necessary) shall
cooperate in the timely execution thereof.
(e) Neither Sears nor Purchaser shall, or shall permit any of its
Subsidiaries (including the Acquired Subsidiary) to modify any of the forms or
reports (including any corrections, amendments and supplements thereto) that are
required for the making of the 338(h)(10) Election (including any corresponding
elections under state or local Tax law) after their execution or to modify or
revoke the 338(h)(10) Election following the filing of Form 8023 by Purchaser
without the written consent of Sears or Purchaser, as the case may be, except in
each case as may be required pursuant to a Determination; provided, however,
that Form 8883 may be filed without the consent of the other party so long as
such form is filed in a manner that incorporates, reflects and is consistent
with the Allocation Statement (if any) and Section 2.6(a).
(f) Sears and Purchaser shall, and shall cause their respective
Affiliates to, treat any Retained Assets that are distributed by the Acquired
Subsidiary to the Sellers or Sears as having been distributed in the deemed
liquidation resulting from the 338(h)(10) Election.
Section 8.3. Filing Responsibility. (a) Sears shall prepare and file,
or cause to be prepared and filed, when due: (i) all consolidated, combined,
affiliated or unitary Tax Returns of the Sears Affiliated Group, (ii) any Tax
Return of, or which includes, Sears or any member of the Sears Group, whether
combined, consolidated, affiliated, unitary or otherwise, (iii) any Tax Return
relating to the Purchased Interests, the Acquired Subsidiary Stock, the Acquired
Subsidiary or the Trust required to be filed on or prior to the Closing Date,
and (iv) any other Tax Return of or with respect to the Purchased Interests, the
Acquired Subsidiary Stock, the Acquired Subsidiary or the Trust (or their
respective assets) for any Pre-Closing Tax Period. Except in the case of Taxes
of the Trust, Sears shall pay or cause to be paid all Taxes due and payable in
respect of all such Tax Returns (subject to any indemnification obligations of
Purchaser under this Article VIII). In the case of any Tax Return of the
Acquired Subsidiary required to be prepared and filed by Sears pursuant to this
subsection for a jurisdiction that does not provide for a 338(h)(10) Election,
such Tax Return shall be filed in a manner consistent with the past practice, if
any, of the Acquired Subsidiary, Sears shall deliver a draft of such Tax Return
to Purchaser for its review at least twenty (20) Business Days prior to the due
date of such Tax Return (taking into account valid extensions), Purchaser shall
be entitled to review such Tax Return and to object to such Tax Return solely on
the basis that it is not prepared consistent with the Acquired Subsidiary's past
practice and, if Purchaser so objects in writing within ten (10) Business Days
of receipt of such Tax Return from Sears, the parties shall endeavor in good
faith to resolve such dispute, and failing resolution by the parties, such
dispute shall be resolved by the Accountant in accordance with the standards set
forth in this sentence.
(b) Purchaser shall, except to the extent that filing such Tax Returns
is the responsibility of Sears under Section 8.3(a), prepare and file, or cause
to be prepared and filed, all Tax Returns relating to the Business, the Acquired
Subsidiary, the Acquired Subsidiary Stock,
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the Purchased Interests and the Trust (or their respective assets). In the case
of any Tax Return required to be prepared and filed by Purchaser pursuant to
this subsection for which any Taxes are the responsibility of Sears, such Tax
Return shall be prepared and filed in a manner that is consistent with Sears'
prior practices, if any, and Purchaser shall deliver a draft of such Tax Return
to Sears for its review at least twenty (20) Business Days prior to the due date
of such Tax Return (taking into account valid extensions) and shall provide
Sears with Purchaser's calculation, in reasonable detail, of Sears' share of the
Taxes with respect to such Tax Return (determined in the case of a Straddle
Period in accordance with Section 8.3(c)); provided, however, that such drafts
of any such Tax Return and such calculations of Sears' share of the Taxes with
respect to such Tax Return shall be subject to Sears' review and approval, which
approval shall not be unreasonably withheld, conditioned or delayed. If Sears
disputes any Tax Item on such Tax Return or Purchaser's calculation of Sears'
share of the Taxes with respect to such Tax Return, it shall notify Purchaser
(by written notice within ten (10) Business Days of receipt of Purchaser's
calculation) of such disputed item (or items) and the basis for its objection.
Sears and Purchaser shall act in good faith to resolve any such dispute prior to
the date on which the Tax Return is required to be filed. If Sears and Purchaser
cannot resolve any disputed item, the item in question shall be resolved by the
Accountant in accordance with the standards set forth in this Section 8.3(b) as
promptly as practicable. The fees and expenses of the Accountant shall be shared
equally by Sears and Purchaser. No later than one (1) Business Day prior to the
due date (including extensions) of such Tax Return, Sears shall pay Purchaser in
immediately available funds the amount of Sears' share of the Taxes with respect
to such Tax Return determined pursuant to this Section 8.3(b). Purchaser shall
pay or cause to be paid to the applicable Tax authority all Taxes due and
payable in respect of all Tax Returns required to be prepared by Purchaser
pursuant to this subsection.
(c) In order to apportion appropriately any Taxes relating to a
Straddle Period between the portion of such Straddle Period ending on and
including the Closing Date and the portion of such Straddle Period beginning
after the Closing Date, the Parties shall, to the extent permitted under
applicable law, elect with the relevant Tax authority to treat for all Tax
purposes the Closing Date as the last day of a taxable period. In the case of
any other Taxes for a Straddle Period for which such election to close the
taxable period is not permitted, the portion of such Taxes that are allocable to
the portion of the Straddle Period ending on and including the Closing Date
shall be: (i) in the case of ad valorem or similar Taxes that are imposed on a
periodic basis, deemed to be the amount of such Taxes for the entire period (or,
in the case of such Taxes determined on an arrears basis (such as real property
taxes), the amount of such Taxes for the immediately preceding period)
multiplied by a fraction the numerator of which is the number of days in the
Straddle Period ending on and including the Closing Date and the denominator of
which is the number of days in the entire relevant Straddle Period; and (ii) in
the case of Taxes not described in (i) (such as Taxes that are either (x) based
upon or related to income, receipts or premiums, or (y) imposed in connection
with any sale or other transfer or assignment of property (real or personal,
tangible or intangible)), deemed equal to the amount that would be payable if
the taxable period ended on and included the Closing Date.
(d) Notwithstanding any other provision of this Agreement, Purchaser
shall, and shall cause its Affiliates (including the Acquired Subsidiary and the
Trust) to, act in accordance with the representations set forth in Section
4.25(d) for all purposes, file all Tax Returns consistent with such
representations and defend in good faith such representations in any Tax
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Proceeding, in connection with any Third Party Claim or before any Governmental
Authority, and Purchaser shall not, and shall cause its Affiliates (including
the Acquired Subsidiary and the Trust) not to, take any position or action, or
fail to take any position or action which failure is, inconsistent with the
representations set forth in Section 4.25(d), except to the extent required
pursuant to a Determination.
Section 8.4. Cooperation; Exchange of Information; Tax Proceedings. (a)
The Parties shall cooperate with each other and furnish or cause to be furnished
to each other, upon request, as promptly as practicable, such information
(including access to books and records) and assistance relating to the Business,
the Acquired Subsidiary, the Acquired Subsidiary Stock, the Purchased Interests
or the Trust (or their respective assets) as is reasonably requested for the
preparation or filing of any Tax Returns, for the preparation or conduct of any
Tax Proceeding and for the satisfaction of legitimate Tax or accounting
requirements. Such cooperation and information shall include, without
limitation, Purchaser's facilitation of Sears' exercise of its rights under this
Article VIII to prepare and file, or cause to be prepared and filed, Tax Returns
of the Acquired Subsidiary or the Trust and conduct Tax Proceedings relating
thereto (for example, by way of execution of appropriate powers of attorney in
favor of Sears or by designation of an officer of Sears as an officer of the
Acquired Subsidiary or the Trust for such purposes).
(b) Notwithstanding the definition of Books and Records, Purchaser
shall be entitled to copies of any Tax Returns or Tax work papers of the
Acquired Subsidiary or the Trust that are in the possession of Sears or any
Subsidiary of Sears. Sears shall be entitled to retain all original Tax Returns
and Tax work papers relating to the Acquired Subsidiary, the Trust, the
Purchased Interests or the Acquired Subsidiary Stock. In the case of any
original Tax Return and any original Tax work papers that Purchaser obtains from
Sears (or any Subsidiary of Sears), for a period of five (5) years after the
Closing Date, Purchaser shall, and shall cause its Affiliates (including the
Acquired Subsidiary) to, retain such Tax Returns and Tax work papers.
Thereafter, Purchaser shall not, and shall cause its Affiliates (including the
Acquired Subsidiary) not to, dispose of any such Tax Returns or Tax work papers,
unless it first offers such Tax Returns or Tax work papers to Sears and Sears
fails to accept such offer within ninety (90) days of its being made.
(c) Sears and Purchaser shall, and shall cause their respective
Subsidiaries to, cooperate in the preparation of all Tax Returns that are
required to be filed after the Closing Date relating to Pre-Closing Tax Periods
or to Straddle Periods and any Tax Returns of the Trust.
(d) Purchaser shall promptly notify Sears upon receipt by Purchaser or
any of its Subsidiaries (including the Acquired Subsidiary or the Trust) of
notice of any claim, assessment or dispute relating to any Tax Proceeding for
which Sears has liability pursuant to Section 8.1(a) (or relating to refunds or
credits to which Sears is entitled) and shall promptly forward to Sears any
communications received from or sent to any Tax authority in connection with any
such Tax Proceeding; provided, however, that a failure by Purchaser to give such
notice will not affect the Purchaser Tax Indemnitees' rights to indemnification
pursuant to Section 8.1(a) except to the extent Sears is prejudiced as a
consequence of such failure.
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(e) Sears shall have the sole right to control, contest, resolve and
defend, at Sears' sole expense, any Tax Proceeding (including having the right
to determine whether, when and on what terms to settle any Tax Proceeding) with
respect to (i) any consolidated, combined, affiliated or unitary Tax Returns (or
Taxes) of the Sears Affiliated Group, (ii) any Tax Return of, or which includes,
(or Taxes of) Sears or any member of the Sears Group, whether combined,
consolidated, unitary, affiliated or otherwise (except to the extent such Tax
Proceeding is with respect to a Straddle Period Tax Return (or Straddle Period
Taxes) with regard to the Purchased Interests or the Acquired Subsidiary Stock
which Tax Return (or Tax) is not a consolidated, combined, affiliated or unitary
Tax Return or Tax), (iii) the Trust for a Pre-Closing Tax Period and (iv) any
Tax Proceeding relating to a Sales Tax Recovery claim by Sears pursuant to
Section 8.11(b); provided, however, that in the case of any Tax Proceeding
relating to a Sales Tax Recovery claim by Sears pursuant to Section 8.11(b), (A)
Sears shall provide Purchaser with a timely and reasonably detailed account of
each stage of such Tax Proceeding, (B) Sears shall consult with Purchaser before
taking any significant action in connection with such Tax Proceeding, (C) Sears
shall consult with Purchaser and offer Purchaser an opportunity to comment
before submitting any written materials prepared or furnished in connection with
such Tax Proceeding and (D) Sears shall defend such Tax Proceeding diligently
and in good faith. Any expenses incurred by Purchaser in connection with any Tax
Proceeding covered by this Section 8.4(e) shall be borne by Purchaser.
(f) In the case of any Tax Proceeding with respect to a Tax Return (or
Tax) of the Acquired Subsidiary for any Pre-Closing Tax Period (other than a Tax
Proceeding covered by Section 8.4(e) above), Sears shall be the Controlling
Party, Purchaser shall be the Non-Controlling Party and the provisions of
Section 8.4(h) below shall apply.
(g) In the case of (A) any Tax Proceeding with respect to Taxes with
respect to the Purchased Interests, the Acquired Subsidiary, the Trust or the
Acquired Subsidiary Stock for a Straddle Period (other than a Tax Proceeding
covered by Section 8.4(e) or (f) above) or (B) any Tax Proceeding relating to
the Business, the Acquired Subsidiary, the Trust, the Purchased Interests or the
Acquired Subsidiary Stock (other than a Tax Proceeding covered by Section 8.4(e)
or (f) above) for which Sears may have liability pursuant to Section 8.1(a) (or
relating to refunds or credits to which Sears may be entitled), (i) if the Tax
Proceeding involves a claim for Taxes which would be borne by Sears if the Tax
authority were successful with respect to such claim in the Tax Proceeding (a
"Sears Tax Claim") and a claim for Taxes which would be borne by Purchaser if
the Tax authority were successful with respect to such claim in the Tax
Proceeding (a "Purchaser Tax Claim") and the relevant Tax authority agrees to
permit the Sears Tax Claim and the Purchaser Tax Claim to be separately
contested and settled, then (x) the Sears Tax Claim and the Purchaser Tax Claim
shall be separately contested, (y) Sears shall be the Controlling Party (and
Purchaser shall be the Non-Controlling Party) with respect to any Sears Tax
Claim and the provisions of Section 8.4(h) below shall apply with respect to the
Tax Proceeding in respect of the Sears Tax Claim and (z) Purchaser shall be the
Controlling Party (and Sears shall be the Non-Controlling Party) with respect to
any Purchaser Tax Claim and the provisions of Section 8.4(h) below shall apply
with respect to the Tax Proceeding in respect of the Purchaser Tax Claim, (ii)
if the Tax Proceeding involves a Sears Tax Claim and a Purchaser Tax Claim and
the Sears Tax Claim is not separable from the Purchaser Tax Claim, then the
Controlling Party shall be whichever of Sears and Purchaser would bear the
greater Tax with respect to such Tax Proceeding if the Tax authority were
successful in the Tax Proceeding, the
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Non-Controlling Party shall be whichever of Sears and Purchaser is not the
Controlling Party (unless the Tax Proceeding is with respect to a Tax Return of
a consolidated, combined, unitary or affiliated group of which Purchaser or any
Affiliate of Purchaser (other than the Acquired Subsidiary and the Trust) is the
common parent, in which case the Controlling Party shall be Purchaser and the
Non-Controlling Party shall be Sears) and the provisions of Section 8.4(h) shall
apply, (iii) if the Tax Proceeding involves solely a Sears Tax Claim, then Sears
shall be the Controlling Party, Purchaser shall be the Non-Controlling Party
(unless the Tax Proceeding is with respect to a Tax Return of a consolidated,
combined, unitary or affiliated group of which Purchaser or any Affiliate of
Purchaser (other than the Acquired Subsidiary and the Trust) is the common
parent, in which case the Controlling Party shall be Purchaser and the
Non-Controlling Party shall be Sears) and the provisions of Section 8.4(h) below
shall apply and (iv) if the Tax Proceeding involves solely a Purchaser Tax
Claim, then Purchaser shall be the Controlling Party, Sears shall be the
Non-Controlling Party and the provisions of Section 8.4(h) below shall apply.
(h) The Controlling Party may elect to control, contest, resolve and
defend any Tax Proceeding as to which such party is the Controlling Party. If
the Controlling Party desires to elect to control any such Tax Proceeding, the
Controlling Party shall, within ten (10) Business Days of receipt of the notice
of the Tax Proceeding from the Non-Controlling Party or from the Tax authority,
notify the Non-Controlling Party in writing of its intent to do so. If the
Controlling Party timely elects to control any such Tax Proceeding, then the
Controlling Party shall have the right to determine whether, when and on what
terms to settle such Tax Proceeding; provided, however, that (i) the Controlling
Party shall provide the Non-Controlling Party with a timely and reasonably
detailed account of each stage of such Tax Proceeding, (ii) the Controlling
Party shall consult with the Non-Controlling Party before taking any significant
action in connection with such Tax Proceeding, (iii) the Controlling Party shall
consult with the Non-Controlling Party and offer the Non-Controlling Party an
opportunity to comment before submitting any written materials prepared or
furnished in connection with such Tax Proceeding, (iv) the Controlling Party
shall defend such Tax Proceeding diligently and in good faith as if the
Controlling Party were responsible for 100 percent of the Taxes claimed to be
due in the Tax Proceeding, (v) in the case of Tax Proceedings covered by the
parenthetical language in Section 8.4(g)(ii) or (iii), the consent of Sears, not
to be unreasonably withheld, conditioned or delayed, shall be required prior to
the submission of any written materials prepared or furnished in connection with
such Tax Proceedings that relate to the Sears Tax Claim, and (vi) except in the
case of Tax Proceedings covered by the parenthetical language in Section
8.4(g)(ii) or (iii), the Controlling Party shall not settle such Tax Proceeding
without the consent of the Non-Controlling Party, not to be unreasonably
withheld, conditioned or delayed; provided, however, that if the Non-Controlling
Party withholds its consent to a proposed settlement under this clause (vi),
then the Controlling Party's Liability with respect to such Tax Proceeding shall
be limited to the amount that such Liability would have been under such proposed
settlement. If the Controlling Party does not elect to control a Tax Proceeding
which it is entitled to control pursuant to this subsection (or, after assuming
control, the Controlling Party fails to pursue such Tax Proceeding), the
Non-Controlling Party may, without affecting any rights to indemnification under
this Article VIII, assume and control such Tax Proceeding; provided, however,
that such Non-Controlling Party may not settle such Tax Proceeding without the
consent of the Controlling Party, which consent shall not be unreasonably
withheld, conditioned or delayed; provided further, however, that if the
Controlling Party withholds its consent to a proposed settlement, then the
Non-Controlling Party's Liability with respect to such Tax Proceeding shall
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be limited to the amount that such Liability would have been under such proposed
settlement. The Controlling Party shall bear any expenses incurred by it, and
the Non-Controlling Party shall bear any expenses incurred by it, in connection
with any Tax Proceeding to which this Section 8.4(h) applies.
(i) Notwithstanding any other provision of this Agreement or the
Related Agreements, neither Purchaser, nor any of the Acquired Subsidiary, the
Trust and their respective Subsidiaries and Affiliates shall be entitled to
participate in any Tax Proceeding with respect to any consolidated, combined,
affiliated or unitary Tax Return which includes Sears or any member of the Sears
Group, and neither Purchaser, nor any of the Acquired Subsidiary, the Trust and
their respective Subsidiaries and Affiliates shall be entitled to any
information regarding or copy of any such Tax Return, except to the extent that
such Tax Proceeding or Tax Return relates solely to the Acquired Subsidiary or
the Trust.
(j) In the case of any Third Party Claim (that is not a Tax Proceeding)
with respect to which Sears may have any liability under Section 8.1(a)(iv), the
provisions of Section 10.4 shall apply.
Section 8.5. Tax Sharing Agreements. Notwithstanding anything in any
other agreement to the contrary, all liabilities and obligations between Sears
or any of its Affiliates (other than the Acquired Subsidiary or Trust), on the
one hand, and the Acquired Subsidiary and the Trust, on the other hand, under
any Tax allocation or Tax sharing agreement in effect prior to the Closing Date
(other than this Agreement) shall cease and terminate as of the Closing Date.
Section 8.6. [Intentionally Omitted]
Section 8.7. Transfer Taxes. Purchaser and Sears shall share equally
all documentary, sales, use, real property transfer, real property gains,
registration, value added, transfer, stamp, recording and similar Taxes, fees
and costs together with any interest thereon, penalties, fines, costs, fees,
additions to tax or additional amounts with respect thereto incurred in
connection with the transactions contemplated by this Agreement ("Transfer
Taxes"). Purchaser and Sears shall be responsible for jointly preparing and
timely filing (and cooperating with one another in preparing and filing) any Tax
Returns required with respect to any such Transfer Taxes. Sears and Purchaser
will provide to one another a true copy of each such Tax Return as filed and
evidence of the timely filing thereof.
Section 8.8. Survival. All rights and obligations under this Article
VIII shall survive the Closing Date and continue until sixty (60) days after the
expiration of all applicable statutes of limitation (including extensions
thereof), except that the right to commence any claim under Section
8.1(a)(ii)(B) or any claim for Taxes under Section 8.1(a)(iv) shall survive
until the date that is sixty (60) days after the Expiration Date and the right
to commence any claim for Damages under Section 8.1(a)(iv) shall survive until
the one year anniversary of the Expiration Date; provided, however, that in the
event written notice of any bona fide claim for indemnification under this
Article VIII shall have been given in accordance herewith within the applicable
survival period, the rights and obligations that are the subject of such claim
for indemnification shall survive with respect to such claim until such time as
such claim is fully and finally resolved. Except for the representations and
warranties contained in Section 4.25(c) and
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Section 4.25(d), the representations and warranties contained in Section 4.25
shall not survive the Closing and shall not form the basis of any claim for
indemnification under this Agreement. The representations and warranties
contained in Section 4.25(c) and Section 4.25(d) (for purposes of claims for
Taxes) shall survive until sixty (60) days after the Expiration Date. The
representations and warranties contained in Section 4.25(d) (for purposes of
claims for Damages) shall survive until the one year anniversary of the
Expiration Date.
Section 8.9. Post-Closing Dispositions. For the absence of doubt, the
covenants of Purchaser and the Acquired Subsidiary and the Trust set forth in
this Article VIII shall apply to Purchaser and the Acquired Subsidiary and the
Trust regardless of any post-Closing disposition of the Acquired Subsidiary or
the Trust by Purchaser or any of its Affiliates.
Section 8.10. Tax Treatment of Payments. Sears, Purchaser, the Acquired
Subsidiary and their respective Affiliates shall treat any and all payments
under this Article VIII or Section 3.7 or Section 3.8 or Article X (and the
amount of any Receivables posted to accounts on or prior to the Closing Date but
on or after the Cut-off Time) as an adjustment to the purchase price for all Tax
purposes unless they are required to treat such payments otherwise pursuant to a
Determination.
Section 8.11. Sales Tax Recoveries. (a) Sears shall not be entitled to,
and except as provided in Section 8.11(b) hereof shall not claim, any Sales Tax
Recovery attributable to any charge-off by Purchaser of receivables originated
under an Account and found to be worthless and uncollectible to the extent such
charge-off accrues and is claimed as a deduction by Purchaser (i) after the
Cut-off Time and (ii) before the Tax Recovery End Date with respect to such
receivables. Notwithstanding the foregoing, Sears shall be entitled to, and in
no event shall Purchaser be entitled to, any Sales Tax Recovery attributable to
a charge-off of a receivable originated under any Account to the extent such
charge-off is reflected on the Closing Date Balance Sheet.
(b) In the case of any Sales Tax Recovery described in the first
sentence of Section 8.11(a) that may not be claimed by Purchaser or any of its
Affiliates (including the Acquired Subsidiary and the Trust) under applicable
Tax law and is permitted under applicable Tax law to be claimed by Sears or any
Subsidiary thereof, Sears (or such Subsidiary) shall, upon the written request
of Purchaser, claim such Sales Tax Recovery, but only if Purchaser (i) provides
Sears with a written opinion of counsel or an accounting firm (which counsel or
accounting firm is an expert regarding Sales Tax Recoveries in the applicable
jurisdiction and is reasonably acceptable to Sears and which opinion is
reasonably acceptable to Sears) to the effect that such Sales Tax Recovery is
more likely than not to be allowed on the merits under applicable Tax law and
(ii) agrees to reimburse Sears for Sears' reasonable out-of-pocket expenses
incurred in pursuing such Sales Tax Recovery claim (including any reasonable
out-of-pocket expenses arising from a Tax Proceeding relating to such Sales Tax
Recovery claim). Sears shall promptly forward to Purchaser any resulting Sales
Tax Recovery to the extent actually realized by Sears or any Subsidiary thereof
in cash (including an actually realized reduction in the amount of Sales Tax
Liability that Sears or any Subsidiary thereof would have been required to pay
in cash but for such Sales Tax Recovery). To the extent any such Sales Tax
Recovery forwarded by Sears to Purchaser is subsequently disallowed, Purchaser
shall promptly
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pay such disallowed amount to Sears (together with any interest, penalties and
additional amounts related thereto) and hold Sears harmless against such
disallowance.
(c) In the case of any Sales Tax Recovery described in the first
sentence of Section 8.11(a), Sears shall, upon the written request of Purchaser,
provide Purchaser with such cooperation and shall deliver to Purchaser such
required information and data, to the extent such information and data are in
Sears' (or a Sears Subsidiary's) possession, as Purchaser may reasonably request
in order to enable Purchaser to pursue such Sales Tax Recovery claim, but only
if Purchaser agrees to reimburse Sears for Sears' reasonable out-of-pocket
expenses incurred in providing Purchaser with such cooperation, required
information and data and, in the case of such information and data in Sears' or
a Sears Subsidiary's possession that is not readily available to Sears or a
Sears Subsidiary, to reimburse Sears for any reasonable out-of-pocket expenses
incurred by Sears and the allocable portions of employee salaries and reasonable
bonuses in connection with mining or retrieval of such information or data.
ARTICLE IX
TERMINATION
Section 9.1. Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time before the
Closing Date only:
(a) By the mutual written consent of Purchaser and Sears;
(b) By either Purchaser or Sears, upon notification of the non-
terminating Party by the terminating Party, if any permanent injunction or
action by any Governmental Authority of competent jurisdiction prohibiting
consummation of the transactions contemplated by this Agreement shall have been
issued or taken and shall have become final and nonappealable;
(c) By either Purchaser or Sears, if the transactions contemplated by
this Agreement are not consummated by the date that is nine (9) months after the
first month end following the date hereof (the "Termination Date"), except to
the extent that such failure arises out of, or results from, a material breach
by the Party seeking to terminate this Agreement of any representation, warranty
or covenant of such Party contained herein; provided that if the failure to
consummate the transactions contemplated hereby by the Termination Date is
caused by a delay in satisfying Section 7.1(c) hereof or obtaining any approval
of a Governmental Authority necessary to satisfy Section 7.1(d) hereof, no Party
shall have the right to terminate this Agreement pursuant to this Section 9.1(c)
until the date that is three months after the Termination Date;
(d) By Sears (i) if Purchaser shall have breached or failed to perform
in any material respect any of its representations, warranties, covenants or
other agreements contained in this Agreement, which breach or failure to perform
would render any condition to Sellers' obligations under Section 7.1 or 7.3
hereof incapable of being satisfied; provided, however, that if such breach or
failure to perform is curable by Purchaser through the exercise of its
reasonable best efforts, and for so long as Purchaser continues to exercise such
reasonable best efforts, Sears may not terminate this Agreement under this
Section 9.1(d); provided, further, that the preceding
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proviso shall not in any event be deemed to extend the date set forth in Section
9.1(c), or (ii) if a condition under Section 7.1 hereof to Sellers' obligations
hereunder has been rendered incapable of being satisfied; or
(e) By Purchaser (i) if any Seller shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach or
failure to perform would render any condition to Purchaser's obligations under
Section 7.1 or 7.2 hereof incapable of being satisfied; provided, however, that
if such breach or failure to perform is curable by such Seller through the
exercise of its reasonable best efforts, and for so long as such Seller
continues to exercise such reasonable best efforts, Purchaser may not terminate
this Agreement under this Section 9.1(e); provided, further, that the preceding
proviso shall not in any event be deemed to extend the date set forth in Section
9.1(c) or (ii) if a condition under Section 7.1 hereof to Purchaser's
obligations hereunder has been rendered incapable of being satisfied.
Section 9.2. Effect of Termination. If this Agreement is terminated, no
Party hereto (or any of its Affiliates, directors, officers, representatives or
agents) will have any Liability or further obligation to any other Party to this
Agreement, except for any Liability arising out of any knowing, willful or
fraudulent breach of this Agreement prior to such termination and except for the
obligations set forth in Sections 6.2(b) and 11.11, which shall survive
termination.
ARTICLE X
INDEMNIFICATION
Section 10.1. Survival of Representations and Warranties and Covenants.
(a) The right to commence any claim under this Article X with respect to the
representations and warranties set forth herein shall survive until the date
that is twenty-four months after the Closing Date; provided that in the event
written notice of any bona fide claim for indemnification under Section 10.2(c)
or Section 10.3(b) shall have been given in accordance herewith within the
applicable survival period setting forth in reasonable detail (including a
reasonable specification of the legal and factual basis for such claim), the
representations and warranties that are the subject of such indemnification
claim shall survive with respect to such claim until such time as such claim is
fully and finally resolved.
(b) Those covenants that contemplate or may involve actions to be taken
or obligations in effect after the Closing shall survive in accordance with
their terms. This Section 10.1 shall not limit any covenant or agreement of the
parties contained in this Agreement which by its terms contemplates performance
after the Closing, and shall not extend the applicability of any covenant or
agreement of the parties contained in this Agreement which by its terms relates
only to a period between the date hereof and the Closing.
Section 10.2. Indemnification of Purchaser. Subject to the terms of
this Article X, from and after the Closing Date, each Seller shall, jointly and
severally, indemnify, defend, save and hold harmless Purchaser and its
Affiliates (including the Acquired Subsidiary and the Trust), each of their
respective officers, directors, employees, agents and representatives, and each
of the heirs, executors, successors and assigns of the foregoing (collectively,
the
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"Purchaser Indemnified Parties"), from and against (whether in connection with a
Third Party Claim or a direct claim) any and all Damages as incurred (payable
promptly upon written request) (including such fees and expenses related to the
enforcement of this Agreement), resulting from, arising out of or related to:
(a) the Retained Liabilities;
(b) the Retained Assets;
(c) any breach by any Seller of any representation or warranty under
this Agreement or in any agreement, certificate, document, or other instrument
delivered pursuant hereto (determined without regard to any Knowledge,
materiality or Business Material Adverse Effect qualification);
(d) the failure by any Seller timely to perform any of its covenants or
agreements contained in this Agreement or in any agreement, certificate,
document, or other instrument delivered pursuant hereto; and
(e) the failure of any Seller to comply with any applicable bulk sales
law, except that this subsection (e) shall not affect the obligation of
Purchaser to pay and discharge any Assumed Liability.
Section 10.3. Indemnification of Sellers. Subject to the terms of this
Article X, Purchaser hereby agrees to indemnify, defend, save and hold harmless
Sellers and their respective Affiliates, each of their respective officers,
directors, employees, agents and representatives, and each of the heirs,
executors, successors and assigns of the foregoing (collectively, the "Seller
Indemnified Parties" and together with the Purchaser Indemnified Parties, the
"Indemnified Parties") from and against (whether in connection with a Third
Party Claim or a direct claim) any and all Damages as incurred (payable promptly
upon written request) (including such fees and expenses related to the
enforcement of this Agreement), resulting from, arising out of or related to:
(a) (i) the Assumed Liabilities and (ii) the failure of the Acquired
Subsidiary (or its successors or assigns) to pay, perform and discharge when due
any of its Liabilities;
(b) any breach by Purchaser of any representation or warranty under
this Agreement or in any agreement, certificate, document, or other instrument
delivered pursuant hereto (determined without regard to any Knowledge,
materiality or Purchaser Material Adverse Effect qualification);
(c) the failure by Purchaser timely to perform any of its covenants or
agreements contained in this Agreement or in any agreement, certificate,
document, or other instrument delivered pursuant hereto; and
(d) any claim by MasterCard of a breach by the Bank of Section 7 of the
MasterCard Agreements.
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Section 10.4. Claims. (a) Third-Party Claims. Upon receipt by an
Indemnified Party of notice of any action, suit, proceedings, audit, claim,
demand, investigation or assessment made or brought by an unaffiliated third
party (a "Third-Party Claim") with respect to a matter for which such
Indemnified Party is indemnified under this Article X which has or is expected
to give rise to a claim for Damages, the Indemnified Party shall promptly (but
in any event within twenty days of receipt of such Third Party Claim), in the
case of a Purchaser Indemnified Party, notify Sears, and in the case of a Seller
Indemnified Party, notify Purchaser (Sears or Purchaser, as the case may be, the
"Indemnifying Party"), in writing, indicating the nature of such Third Party
Claim and the basis therefor; provided, however, that any delay or failure by
the Indemnified Party to give notice to the Indemnifying Party shall relieve the
Indemnifying Party of its obligations hereunder only to the extent, if at all,
that it is materially prejudiced by reason of such delay or failure. Such
written notice shall describe such Third Party Claim in reasonable detail
including the sections of this Agreement which form the basis for such claim;
copies of all material written evidence thereof and the estimated amount of the
Damages that have been or may be sustained by an Indemnified Party. Except for
matters relating to any Environmental Claim and any Cleanup arising therefrom
with respect to which Purchaser shall be entitled to manage any action, suit,
proceedings, audit, claim, demand, investigation or assessment relating thereto,
the Indemnifying Party shall have 30 days after receipt of notice to elect, at
its option, to assume and control the defense of, at its own expense and by its
own counsel, any such Third Party Claim and shall be entitled to assert any and
all defenses available to the Indemnified Party to the fullest extent permitted
by applicable law. If the Indemnifying Party shall undertake to compromise or
defend any such Third Party Claim, it shall promptly notify the Indemnified
Party of its intention to do so, and the Indemnified Party agrees to cooperate
fully with the Indemnifying Party and its counsel in the compromise of, or
defense against, any such Third Party Claim; provided, however, that the
Indemnifying Party shall not settle, compromise or discharge, or admit any
liability with respect to, any such Third Party Claim without the prior written
consent of the Indemnified Party (which consent will not be unreasonably
withheld or delayed) unless the relief consists solely of money damages and
includes a provision whereby the plaintiff or claimant in the matter releases
the Purchaser Indemnified Parties or Seller Indemnified Parties, as applicable,
from all liability with respect thereto. Notwithstanding an election to assume
the defense of such action or proceeding, the Indemnified Party shall have the
right to employ separate counsel and to participate in the defense of such
action or proceeding, and the Indemnifying Party shall bear the reasonable fees,
costs and expenses of such separate counsel if (i) the Indemnified Party shall
have determined in good faith that an actual or potential conflict of interest
makes representation by the same counsel or the counsel selected by the
Indemnifying Party inappropriate or (ii) the Indemnifying Party shall have
authorized the Indemnified Party to employ separate counsel at the Indemnifying
Party's expense. In any event, the Indemnified Party and Indemnifying Party and
their counsel shall cooperate in the defense of any Third Party Claim subject to
this Article X and keep such Persons informed of all developments relating to
any such Third Party Claims, and provide copies of all relevant correspondence
and documentation relating thereto. All costs and expenses incurred in
connection with the Indemnified Party's cooperation shall be borne by the
Indemnifying Party. In any event, the Indemnified Party shall have the right at
its own expense to participate in the defense of such asserted liability. If the
Indemnifying Party receiving such notice of Third Party Claim does not elect to
defend such Third Party Claim or does not defend such Third Party Claim in good
faith, the Indemnified Party shall have the right, in addition to any other
right or
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remedy it may have hereunder, at the Indemnifying Party's expense, to defend
such Third Party Claim; provided, however, that (i) the Indemnified Party shall
not have any obligation to participate in the defense of, or defend, any such
Third Party Claim; (ii) the Indemnified Party's defense of or participation in
the defense of any such Claim shall not in any way diminish or lessen the
obligations of the Indemnifying Party under this Article X; and (iii) the
Indemnified Party shall not settle, compromise or discharge, or admit any
liability with respect to, any such Third Party Claim without the written
consent of the Indemnifying Party (which consent will not be unreasonably
withheld or delayed). The above provisions of this Section 10.4(a) shall not
apply to Tax Proceedings but shall apply to any Third Party Claim (that is not a
Tax Proceeding) with respect to which Sears may have any liability under Section
8.1(a)(iv).
(b) Direct Claims. Each Party hereto also agrees that any direct claim
which such Party may bring against any other Party hereto under the provisions
of this Agreement shall be governed exclusively by the provisions of this
Article X, other than Section 10.4(a).
Section 10.5. Limitations. (a) Notwithstanding anything contained in
this Agreement to the contrary, (i) Sellers shall not be liable for any amounts
for which Purchaser Indemnified Parties are otherwise entitled to
indemnification pursuant to Section 8.1(a)(ii)(B), Section 8.1(a)(iv) or Section
10.2(c) unless (x) a claim is asserted during the survival period specified in
Section 8.8 or Section 10.1(a) (as applicable), and (y) the aggregate amount of
all Damages and Taxes for which Purchaser Indemnified Parties are entitled to
indemnification pursuant to Section 8.1(a)(ii)(B), Section 8.1(a)(iv) and
Section 10.2(c) exceeds, on a cumulative basis, fifty million dollars
($50,000,000) (the "Threshold"), and then only to the extent of such excess, and
(ii) Sellers shall not be required to make indemnification payments pursuant to
Sections 8.1(a)(ii)(B), Section 8.1(a)(iv) or 10.2(c) to the extent
indemnification payments thereunder would exceed in the aggregate five hundred
million dollars ($500,000,000) (the "Maximum Indemnification Amount").
(b) Notwithstanding anything contained in this Agreement to the
contrary, (i) Purchaser shall not be liable for any amounts for which Seller
Indemnified Parties are otherwise entitled to indemnification pursuant to
Section 10.3(b) unless (x) a claim is timely asserted during the survival period
specified in Section 10.1(a) and (y) the aggregate amount of all Damages for
which Seller Indemnified Parties are entitled to indemnification pursuant to
Section 10.3(b) exceeds, on a cumulative basis, the Threshold, and then only to
the extent of such excess, and (ii) Purchaser shall not be required to make
indemnification payments pursuant to Section 10.3(b) to the extent
indemnification payments thereunder would exceed in the aggregate the Maximum
Indemnification Amount.
(c) In determining the foregoing Threshold and in otherwise determining
the amount to which Indemnified Parties are entitled to assert a claim for
indemnification pursuant to Article VIII or this Article X, no claim for lost
profits or opportunity costs shall be taken into account.
(d) Amounts payable by the Indemnifying Party to the Indemnified Party
in respect of any Damages for which such party is entitled to indemnification
hereunder ("Indemnity Payments") shall be paid in immediately available funds
within ten (10) Business Days after the later of (i) the receipt of a written
request from the party entitled to such
83
Indemnity Payment and (ii) the date of payment of the amount that is the subject
of the Indemnity Payment by the party entitled to receive the Indemnity Payment,
except to the extent contested by the Indemnifying Party. All such Indemnity
Payments shall be made to the designated account of, and in the manner specified
in writing by, the party entitled to such Indemnity Payments.
Section 10.6. Insurance; Tax Benefits. (a) Notwithstanding anything
herein to the contrary, Damages shall be net of any insurance or other
recoveries actually received by the Indemnified Party or its Affiliates in
connection with the facts giving rise to the right of indemnification. If an
Indemnified Party shall have used its reasonable best efforts to recover any
amounts recoverable under insurance policies and shall not have recovered the
applicable Damages in full within 120 days, the Indemnifying Party shall
promptly pay upon written request the amount with interest accrued thereon, by
which such Damages exceeds the amounts actually recovered.
(b) The Indemnified Party shall claim on the appropriate Tax Return any
Benefit Item arising from the incurrence or payment of Damages if the
Indemnified Party believes such Benefit Item is allowable or if the Indemnifying
Party provides the Indemnified Party with an opinion of a nationally recognized
law firm or accounting firm (which firm and opinion shall be reasonably
acceptable to the Indemnified Party) to the effect that such Benefit Item
"should" be allowable. Not more than ten (10) Business Days after filing the Tax
Return on which such Benefit Item is claimed, the Indemnified Party shall pay
the Indemnifying Party the amount of any realized Tax Benefit arising from such
Benefit Item (net of the Tax cost, including the net present value of any
reasonably anticipated future Tax cost, to the Indemnified Party or its
Affiliates arising from the receipt of the indemnification payment).
Section 10.7. Remedies Exclusive. Except in cases of common law fraud
or as otherwise specifically provided herein (including Section 10.9 hereof),
the remedies provided in Article VIII and this Article X shall be the exclusive
monetary remedies (including equitable remedies that involve monetary payment,
such as restitution or disgorgement, other than specific performance to enforce
any payment or performance due hereunder) of the parties hereto from and after
the Closing in connection with any breach of a representation or warranty, or
non-performance, partial or total, of any covenant or agreement contained
herein.
Section 10.8. Mitigation. Each Indemnified Party shall use its
reasonable best efforts to mitigate any claim or liability that an Indemnified
Party asserts or is reasonably likely to assert under Article VIII and this
Article X. In the event that an Indemnified Party shall fail to make such
reasonable best efforts to mitigate any such claim or liability, then
notwithstanding anything else to the contrary contained herein, neither Sellers
nor Purchaser, as the case may be, shall be required to indemnify any
Indemnified Party for that portion of any Damages that could reasonably be
expected to have been avoided if the Indemnified Party had made such efforts.
Section 10.9. Tax Indemnification. Except as expressly provided in
Article VIII or this Article X, this Article X shall not apply to
indemnification with respect to Taxes.
84
Section 10.10. Termination of Indemnification. Except as otherwise
expressly provided in this Article X, the obligations to indemnify and hold
harmless any party pursuant to Sections 10.2 and 10.3 shall not terminate.
ARTICLE XI
MISCELLANEOUS
Section 11.1. Notices. All notices, demands, and other communications
required or permitted to be given to any Party under this Agreement shall be in
writing and any such notice, demand or other communication shall be deemed to
have been duly given when delivered by hand, courier or overnight delivery
service or, if mailed, two (2) Business Days after deposit in the mail,
certified or registered mail, return receipt requested and with first-class
postage prepaid or, in the case of facsimile notice, when sent and transmission
is confirmed, and, regardless of method, addressed to the Party at its address
or facsimile number set forth below (or at such other address or facsimile
number as the Party shall furnish the other parties in accordance with this
Section):
(a) If to Sears:
Sears, Xxxxxxx and Co.
0000 Xxxxxxx Xxxx
Xxxxxxx Xxxxxxx, Xxxxxxxx 00000
Attn: General Counsel
Chief Financial Officer
Facsimile: (000) 000-0000
Telephone confirmation: (000) 000-0000
With a copy to the Bank:
Sears National Bank
0000 Xxxxx Xxxxx Xxxxx
Xxxxx, Xxxxxxx 00000
Attn: President
Facsimile: (000) 000-0000
Telephone confirmation: (000) 000-0000
With a further copy to:
Wachtell, Lipton, Xxxxx & Xxxx
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxxxxxx, Esq.
Xxxxx X. Xxxxxxxxx, Esq.
Facsimile: (000) 000-0000
Telephone confirmation: (000) 000-0000
(b) If to Purchaser:
85
Citicorp
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
Attn: General Counsel
Facsimile: (000) 000-0000
Telephone confirmation: (000) 000-0000
With a copy to:
Citigroup Inc.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
Attn: Deputy General Counsel
Facsimile: (000) 000-0000
Telephone confirmation: (000) 000-0000
With a copy to:
Citigroup Inc.
Corporate Law Department
2nd Floor
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Associate General Counsel Mergers & Acquisitions
Facsimile: (000) 000-0000
Telephone confirmation: (000) 000-0000
86
With a copy to:
Citibank USA, N.A.
701 East 000 Xxxxxx Xxxxx
Xxxxx Xxxxx, Xxxxx Xxxxxx 00000
Attn: General Counsel
Facsimile: (000) 000-0000
Telephone confirmation: (000) 000-0000
With a copy to:
Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP
Xxxx Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
Telephone confirmation: (000) 000-0000
Section 11.2. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed entirely within such State, without regard
to the conflict of laws principles of such State.
Section 11.3. Jurisdiction; Venue; Consent to Service of Process. (a)
Each Party hereby irrevocably and unconditionally submits, for itself and its
property, to the jurisdiction of the Delaware Court of Chancery or any federal
court sitting in the City of Wilmington, and any appellate court from any such
court, in any suit, action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment resulting from any
such suit, action or proceeding, and each Party hereby irrevocably and
unconditionally agrees that all claims in respect of any such suit, action or
proceeding may be heard and determined in the Delaware Court of Chancery or, to
the extent permitted by law, by removal or otherwise, in such federal court. The
Parties further agree, to the extent permitted by law, that final and
unappealable judgment against any of them in any action or proceeding
contemplated above shall be conclusive and may be enforced in any other
jurisdiction within or outside the United States by suit on the judgment, a
certified copy of which shall be conclusive evidence of the fact and amount of
such judgment.
(b) To the extent that any Party has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property, each
of such Seller or Purchaser hereby irrevocably waives such immunity in respect
of its obligations with respect to this Agreement.
(c) It shall be a condition precedent to each Party's right to bring
any suit, action or proceeding arising out of or relating to this Agreement that
such suit, action or proceeding, in
87
the first instance, be brought in the Delaware Court of Chancery or, to the
extent permitted by law, by removal or otherwise, in such federal court (unless
such suit, action or proceeding is brought solely to obtain discovery or to
enforce a judgment), and if each of the Delaware Court of Chancery and such
federal court refuses to accept jurisdiction with respect thereto, such suit,
action or proceeding may be brought in any other court with jurisdiction;
provided that the foregoing condition precedent shall not apply to any suit,
action or proceeding by a Party seeking indemnification or contribution pursuant
to this Agreement or otherwise in respect of a suit, action or proceeding
against such Party if such suit, action or proceeding by such Party seeking
indemnification or contribution is brought in the same court as the suit, action
or proceeding against such Party.
(d) No Party may move to (i) transfer any such suit, action or
proceeding from the Delaware Court of Chancery or such federal court to another
jurisdiction, (ii) consolidate any such suit, action or proceeding brought in
the Delaware Court of Chancery or such federal court with a suit, action or
proceeding in another jurisdiction or (iii) dismiss any such suit, action or
proceeding brought in the Delaware Court of Chancery or such federal court for
the purpose of bringing the same in another jurisdiction.
(e) Each Party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, (i) any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in the Delaware Court of
Chancery or any federal court sitting in the City of Wilmington, (ii) the
defense of an inconvenient forum to the maintenance of such suit, action or
proceeding in any such court and (iii) the right to object, with respect to such
suit, action or proceeding, that such court does not have jurisdiction over such
Party.
(f) Each Party irrevocably consents to service of process in the manner
provided for the giving of notices pursuant to Section 11.1 of this Agreement.
Nothing in this Section 11.3 shall affect the right of any Party to serve
process in any other manner permitted by law.
Section 11.4. Counterparts. This Agreement may be executed by the
Parties in counterparts which may be delivered by facsimile transmission. Each
counterpart when so executed and delivered shall be deemed an original, and all
such counterparts taken together shall constitute one and the same instrument.
Section 11.5. Entire Agreement. This Agreement, together with the
Related Agreements, the Securitization Transfer Agreements and the
Confidentiality Agreement and all annexes, exhibits and schedules hereto and
thereto, embody the entire agreement of the Parties hereto with respect to the
subject matter hereof and supersede all prior agreements with respect thereto.
The Parties intend that this Agreement shall constitute the complete and
exclusive statement of its terms and that no extrinsic evidence whatsoever may
be introduced in any judicial proceeding involving this Agreement.
Section 11.6. Amendment, Modification and Waiver. No amendment to this
Agreement shall be effective unless it shall be in writing and signed by each
Party hereto. Any failure of a Party to comply with any obligation, covenant,
agreement or condition contained in this Agreement may be waived by the Party
entitled to the benefits thereof only by a written
88
instrument duly executed and delivered by the Party granting such waiver, but
such waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure of compliance.
Section 11.7. Severability. If any provision of this Agreement or the
application of any such provision is invalid, illegal or unenforceable in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or invalidate or render unenforceable such
provision in any other jurisdiction. To the extent permitted by applicable law,
the Parties waive any provision of law that renders any provision of this
Agreement invalid, illegal or unenforceable in any respect. The Parties shall,
to the extent lawful and practicable, use their reasonable best efforts to enter
into arrangements to reinstate the intended benefits, net of the intended
burdens, of any such provision held invalid, illegal or unenforceable.
Section 11.8. Successors and Assigns; No Third-Party Beneficiaries.
This Agreement and all its provisions shall be binding upon and inure to the
benefit of the Parties and their respective permitted successors and assigns.
Nothing in this Agreement, whether expressed or implied, will confer on any
Person, other than the Parties hereto or their respective permitted successors
and assigns, any rights, remedies or Liabilities; provided that the provisions
of Article X will inure to the benefit of the Indemnified Parties. No Party may
assign its rights or obligations under this Agreement without the prior written
consent of the other Parties hereto (which consent may not be unreasonably
withheld) and any purported assignment without such consent shall be void;
provided that Purchaser may, without the consent of Sellers, assign any or all
of its rights or obligations hereunder to any of its Affiliates (although no
such assignment shall relieve Purchaser of its obligations to Sellers or any
Purchaser Indemnified Party hereunder).
Section 11.9. Publicity. Except for any notice which is required by law
or regulation, Sears and Purchaser each agree that neither it nor any of its
Affiliates will issue a press release or make any other public statement with
respect to the transactions contemplated by this Agreement or by the Related
Agreements without the prior written consent of the other, which consent will
not be unreasonably withheld or delayed. Purchaser and Sears agree, to the
extent possible and legally permissible, to notify and consult with the other at
least 24 hours in advance of filing any notice required by law or regulation.
Section 11.10. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
LAW, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
Section 11.11. Expenses. Except as otherwise expressly stated in this
Agreement, any costs, expenses, or charges incurred by any of the Parties hereto
shall be borne by the Party incurring such cost, expense or charge whether or
not the series of transactions contemplated hereby shall be consummated.
89
Section 11.12. Specific Performance and Other Equitable Relief. The
Parties hereby expressly recognize and acknowledge that immediate, extensive and
irreparable damage would result, no adequate remedy at law would exist and
damages would be difficult to determine in the event that any provision of this
Agreement is not performed in accordance with its specific terms or otherwise
breached. Therefore, in addition to, and not in limitation of, any other remedy
available to Purchaser or Sellers, an aggrieved Party under this Agreement would
be entitled to specific performance of the terms hereof and immediate injunctive
relief, without the necessity of proving the inadequacy of money damages as a
remedy. Such remedies and any and all other remedies provided for in this
Agreement shall, however, be cumulative in nature and not exclusive and shall be
in addition to any other remedies whatsoever which any Party may otherwise have.
90
IN WITNESS WHEREOF, each Party hereto has caused this Agreement to
be duly executed on its behalf as of the day and year first above written.
SEARS, XXXXXXX AND CO.
By: /s/ Xxxx X. Xxxx
--------------------------------------
Name: Xxxx X. Xxxx
Title: Chairman of the Board and Chief
Executive Officer
SEARS FINANCIAL HOLDING CORPORATION
By: /s/ Xxxx X. Xxxxx
--------------------------------------
Name: Xxxx X. Xxxxx
Title: Chairman of the Board, President
and Chief Executive Officer
SEARS NATIONAL BANK
By: /s/ Xxxx X. Xxxxx
--------------------------------------
Name: Xxxx X. Xxxxx
Title: Chairman of the Board and Chief
Executive Officer
SEARS XXXXXXX DE PUERTO RICO, INC.
By: /s/ Xxxx Xxxxxxxxx
--------------------------------------
Name: Xxxx Xxxxxxxxx
Title: President
SEARS LIFE HOLDING CORP.
By: /s/ Xxxx X. Xxxxx
--------------------------------------
Name: Xxxx X. Xxxxx
Title: Chief Executive Officer
SRFG, INC.
By: /s/ Xxxxxx X. Xxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxx
Title: President and Chief Executive
Officer
SMTB, INC.
By: /s/ Xxxxxx X. Xxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxx
Title: President and Chief Executive
Officer
SVFT, INC.
By: /s/ Xxxxxx X. Xxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxx
Title: President and Chief Executive
Officer
SLRR, INC.
By: /s/ Xxxxx X. Xxxxx
--------------------------------------
Name: Xxxxx X. Xxxxx
Title: President and Chief Executive
Officer
SEARS INSURANCE SERVICES, LLC
By: /s/ Xxxx X. Xxxxx
--------------------------------------
Name: Xxxx X. Xxxxx
Title: Chief Executive Officer
SEARS INSURANCE AGENCY, INC.
By: /s/ Xxxx X. Xxxxx
--------------------------------------
Name: Xxxx X. Xxxxx
Title: Chief Executive Officer
SEARS INSURANCE SERVICES OF ALABAMA, LLC
By: /s/ Xxxx X. Xxxxx
--------------------------------------
Name: Xxxx X. Xxxxx
Title: Chief Executive Officer
SEARS INSURANCE AGENCY OF MASSACHUSETTS,
INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
--------------------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: President
SEARS INTELLECTUAL PROPERTY MANAGEMENT
COMPANY
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------------
Name: Xxxxxx X. Ginger
Title: President
SEARS BRANDS LLC
By: /s/ Xxxxxx X. Xxxxxx
--------------------------------------
Name: Xxxxxx X. Ginger
Title: President
CITICORP
By: /s/ Xxxxxx X. Xxxxxxxxxx
--------------------------------------
Name: Xxxxxx X. Xxxxxxxxxx
Title: Chief Executive Officer
and President
