This Amendment No. 17 to Schedule 13D (this Amendment No. 17) relates
to shares of common stock, par value $0.01 per share (the Common Stock), of Sears Hometown and Outlet Stores, Inc., a Delaware corporation (the Issuer). This Amendment No. 17 amends the Schedule 13D, as previously
amended, filed with the Securities and Exchange Commission by ESL Partners, L.P., a Delaware limited partnership (Partners), RBS Partners, L.P., a Delaware limited partnership (RBS), ESL Investments, Inc., a Delaware
corporation (ESL), and Edward S. Lampert, a United States citizen, by furnishing the information set forth below. Except as otherwise specified in this Amendment No. 17, all previous Items are unchanged. Capitalized terms used
herein which are not defined herein have the meanings given to them in the Schedule 13D, as previously filed with the Securities and Exchange Commission (SEC).
Item 4. Purpose of Transaction.
Item 4 is hereby amended and supplemented as follows:
On June 1, 2019, the Issuer, Transform Holdco and Transform Merger Corporation (Merger Sub), a wholly owned subsidiary
of Transform Holdco, entered into an Agreement and Plan of Merger (the Merger Agreement). The Merger Agreement provides for the merger (the Merger) of Merger Sub with and into the Issuer on the terms and subject to the
conditions set forth in the Merger Agreement. Prior to the completion of the Merger, the Issuer will be afforded an opportunity to market and sell the Issuers Sears Outlet and Buddys Home Furnishing Stores businesses (together, the
Outlet Segment) to a third party (an Outlet Sale).
At the completion of the Merger, each share of Common Stock
(except for shares of Common Stock (i) owned by the Reporting Persons, other investment affiliates of ESL or Transform Holdco, (ii) held in treasury by the Issuer or owned by any subsidiary of the Issuer or (iii) held by stockholders
who have demanded properly in writing appraisal for such shares in accordance with Section 262 of the General Corporation Law of the State of Delaware) will be cancelled and automatically converted into the right to receive an amount in cash
equal to $2.25 per share of Common Stock, without interest, subject to an upward adjustment in the event that an Outlet Sale that satisfies certain criteria specified in the Merger Agreement has occurred, as described in more detail below.
Under the terms of the Merger Agreement, the Issuer has until August 24, 2019 (extendable until September 3, 2019 in certain
circumstances) (the Outlet Sale Period) to market and enter into a definitive agreement to sell the Outlet Segment to a third party. Any Outlet Sale must satisfy certain terms and requirements set forth in the Merger Agreement, including
the requirement that the net proceeds (after taking account of certain specified deductions, including transaction fees, expenses and taxes incurred by the Issuer in connection with the sale, any net working capital transferred to the buyer of the
Outlet Segment in excess of $75,000,000 and, to the extent such amounts are not paid by the buyer of the Outlet Segment, certain amounts related to employee incentive awards and 50% of the costs of a directors and officers insurance tail
policy to be purchased by the Issuer prior to the closing of the Merger) must be at least $97,500,000 (the Minimum Sale Proceeds). Transform Holdco will have an opportunity to negotiate with the Issuer to increase the merger
consideration (described in the next paragraph) in response to any third-party offer for the Outlet Segment that would result in net proceeds of at least the Minimum Sale Proceeds but less than $120,000,000 to match the economic terms of
such third-party offer. If the Issuer is able during the Outlet Sale Period to negotiate and enter into a definitive agreement providing for an Outlet Sale that would result in net proceeds of at least the Minimum Sale Proceeds and on other terms
consistent with the requirements set forth in the Merger Agreement, the Issuer will have until October 23, 2019 (extendable until November 7, 2019 in certain circumstances) (the Outlet Closing Deadline) to consummate the Outlet
Sale.
If an Outlet Sale is consummated and the net proceeds of the Outlet Sale exceed the Minimum Sales Proceeds, then the base merger
consideration of $2.25 per share of Common Stock will be increased by an amount equal to (i) such excess amount divided by (ii) the aggregate number of shares of Common Stock and unvested Company restricted stock units issued and
outstanding as of the closing of the Merger.
The obligations of the parties to consummate the Merger are subject to the satisfaction or
waiver of certain closing conditions, including closing conditions with respect to the Outlet Sale and with respect to the Issuers financing arrangements. With respect to the Outlet Sale, the Merger Agreement provides that the closing of the
Merger shall not occur before the earliest of (a) the expiration of the Outlet Sale Period without any definitive agreement providing for an Outlet Sale having been entered into, (b) the consummation of an Outlet Sale and (c) the
expiration of the Outlet Closing Deadline. With respect to the Amended and Restated Credit Agreement that the Issuer entered into with a syndicate of lenders (including Bank of America, N.A., as administrative agent and collateral agent) and the
Term Loan Credit Agreement the Issuer entered into with Gordon Brothers Finance Company (as agent, lead arranger, and sole bookrunner) and Gordon Brothers Finance Company, LLC (as lender), the Merger Agreement requires as a closing condition that
all obligations under these agreements shall have been repaid, all commitments of the lenders thereto shall have been terminated and, with respect to the Amended and Restated Credit Agreement, all related letters of credit shall have been terminated
or cash collateralized, except, in each case, as waived by the applicable counterparties to these financing agreements. Transform Holdco is, subject to certain conditions, obligated to cause the repayment of the outstanding obligations under the
aforementioned agreements and the termination or cash collateralization under the Amended and Restated Credit Agreement. In addition, there is a closing condition that no event of default shall have occurred and be continuing under either of the
aforementioned financing agreements, subject to certain exceptions.
Following execution of the Merger Agreement on June 1, 2019, Partners
and Mr. Lampert, holders of a majority of the issued and outstanding shares of Common Stock, duly executed and delivered to the Company a written consent (the Written Consent), approving and adopting the Merger Agreement and the
transactions contemplated thereby. The Merger Agreement contains specified termination rights, including the right of each party to terminate the Merger Agreement if the Merger has not been consummated by an end date of October 31, 2019, which
may be extended under certain circumstances to no later than December 31, 2019. The Merger Agreement does not provide for a termination right of the Issuer to accept any alternative acquisition proposals that may be made by third parties prior
to the end date.
The Merger Agreement contains customary limitations on the conduct of the Issuers and its subsidiaries
business for the period until the consummation of the Merger or the termination of the Merger Agreement. The Merger Agreement also provides that, prior to the consummation of the Merger, Transform Holdco has the right to propose actions or changes
with respect to the operations of the Issuers Hometown business segment (including actions reasonably designed to implement cost savings in anticipation of the common ownership of the Issuer and Transform Holdcos existing business
operations) and the Issuer is obligated to approve and implement such recommendations in good faith (subject to specified exceptions). Transform Holdco also has the right to discuss with the Issuers management on a regular basis the operations
of the Hometown business segment and the Issuer to the extent they materially impact the Hometown business segment.
Concurrently with the
execution of the Merger Agreement, ESL executed a commitment letter (the Equity Commitment Letter) with Transform Holdco pursuant to which ESL committed to contribute, or cause to be contributed, approximately $21 million to Transform
Holdco (subject to the terms and conditions set forth in the Equity Commitment Letter) to enable Transform Holdco to pay the merger consideration. The Issuer is a third party beneficiary of the Equity Commitment Letter solely for purposes of its
right to enforce it in certain circumstances.
In addition, concurrently with the execution of the Merger Agreement, Mr. Lampert and the
Issuer entered into a letter agreement (the Letter Agreement) pursuant to which Mr. Lampert agreed (i) not to, and to cause the Reporting Persons not to, effect any amendment of the Issuers bylaws or take any other stockholder
action that is inconsistent with the terms of the Merger Agreement or that would reasonably be expected to frustrate the transactions contemplated thereby, including an Outlet Sale that meets the requirements set forth in the Merger Agreement, and
(ii) upon request of the Issuer, to take, and cause the Reporting Persons to take, such action as may be necessary to exempt an Outlet Sale that meets the requirements set forth in the Merger Agreement from the requirements of Section 2.10
of the Issuers bylaws.
The consummation of the Merger in accordance with the Purchase Agreement relates to or would result in the
matters referred to in, without limitation, subparagraphs (a), (b), (c), (d), (e), (f), (g), (h) and (i) of Item 4 of Schedule 13D.
The
foregoing description of the Merger Agreement, the Written Consent, the Equity Commitment Letter and the Letter Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, the Written Consent, the
Equity Commitment Letter and the Letter Agreement, attached hereto as Exhibit 99.11, Exhibit 99.12, Exhibit 99.13 and Exhibit 99.14, respectively, and incorporated by reference herein.
On June 3, 2019, Transform Holdco issued a joint news release with the Issuer announcing that they had entered into the Merger Agreement.
A copy of the news release is attached as Exhibit 99.15 and incorporated by reference herein.
Item 5. Interest in Securities of the
Issuer.
Item 5 is hereby amended and restated in its entirety as follows:
(a)-(b) Each Reporting Person declares that neither the filing of this Schedule 13D nor anything herein shall be construed as an
admission that such person is, for the purposes of Section 13(d) or 13(g) of the Act or any other purpose, the beneficial owner of any securities covered by this Schedule 13D.
Each Reporting Person may be deemed to be a member of a group with respect to the Issuer or securities of the Issuer for the purposes of
Section 13(d) or 13(g) of the Act. Each Reporting Person declares that neither the filing of this Schedule 13D nor anything herein shall be construed as an admission that such person is, for the purposes of Section 13(d) or 13(g) of the
Act or any other purpose, (i) acting (or has agreed or is agreeing to act) with any other person as a partnership, limited partnership, syndicate, or other group for the purpose of acquiring, holding, or disposing of securities of the Issuer or
otherwise with respect to the Issuer or any securities of the Issuer or (ii) a member of any syndicate or group with respect to the Issuer or any securities of the Issuer.
As of the time of filing on June 3, 2019, the Reporting Persons may be deemed to beneficially own the shares of Common Stock of the Issuer set
forth in the table below.
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REPORTING
PERSON
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NUMBER OF
SHARES
BENEFICIALLY
OWNED
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PERCENTAGE
OF
OUTSTANDING
SHARES
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SOLE
VOTING
POWER
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SHARED
VOTING
POWER
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SOLE
DISPOSITIVE
POWER
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SHARED
DISPOSITIVE
POWER
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ESL Partners, L.P.
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13,226,598
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(1)(2)
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58.3
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% (3)
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4,656,725
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(2)
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0
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4,656,725
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(2)
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8,569,873
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(1)
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RBS Partners, L.P.
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13,226,598
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(1)(2)
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58.3
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% (3)
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4,656,725
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(2)
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0
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4,656,725
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(2)
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8,569,873
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(1)
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ESL Investments, Inc.
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13,226,598
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(1)(2)
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58.3
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% (3)
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4,656,725
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(2)
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0
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4,656,725
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(2)
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8,569,873
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(1)
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Edward S. Lampert
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13,226,598
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(1)(2)
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58.3
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% (3)
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13,226,598
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(1)(2)
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0
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4,656,725
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(2)
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8,569,873
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(1)
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(1)
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This number includes 8,569,873 shares of Common Stock held by Mr. Lampert. Partners has entered into the
Lock-Up Agreement with Mr. Lampert that restricts the purchase and sale of securities held by Mr. Lampert. Pursuant to the Lock-Up Agreement, Partners may be deemed to have shared dispositive power over, and to indirectly beneficially own,
securities owned by Mr. Lampert. RBS, ESL and Mr. Lampert may also be deemed to have shared dispositive power over, and to indirectly beneficially own, such securities.
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