UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-3
RULE 13e-3 TRANSACTION STATEMENT UNDER SECTION 13(e)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
(Amendment No. 1)
Sears Hometown and Outlet Stores, Inc.
(Name of Issuer)
SEARS HOMETOWN AND OUTLET STORES, INC.
TRANSFORM HOLDCO LLC
TRANSFORM MERGER CORPORATION
ESL PARTNERS, L.P.
ESL INVESTMENTS, INC.
EDWARD S. LAMPERT
RBS PARTNERS, L.P.
(Names of Person(s) Filing Statement)
COMMON STOCK
(Title of Class of Securities)
812362101
(CUSIP Number of Class of Securities)
Luke J. Valentino Transform Holdco LLC 333 Beverly Road Hoffman Estates, IL 60179 (847) 286-2500 |
Charles J. Hansen Sears Hometown and Outlet Stores, Inc. 5500 Trillium Boulevard, Suite 501 Hoffman Estates, Illinois 60192 (847) 286-7000 |
(Name, address and telephone number of person authorized to receive notices and communications on behalf of filing persons)
With Copies to:
Benet J. OReilly Neil R. Markel Cleary Gottlieb Steen & Hamilton LLP One Liberty Plaza New York, New York 10006 |
Creighton OM. Condon Rory B. OHalloran Cody L. Wright Shearman & Sterling LLP 599 Lexington Avenue New York, New York 10022 |
This statement is filed in connection with (check the appropriate box):
☒ |
a. |
The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934. | ||
☐ |
b. |
The filing of a registration statement under the Securities Act of 1933. | ||
☐ |
c. |
A tender offer. | ||
☐ |
d. |
None of the above. |
Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: ☒
Check the following box if the filing is a final amendment reporting the results of the transaction ☐
CALCULATION OF FILING FEE
Transaction Valuation* | Amount of Filing Fee** | |
$35,910,423.25 | $4,352.34 |
* | The transaction valuation is estimated solely for purposes of calculating the filing fee. The transaction valuation was determined based upon 11,049,361 shares of common stock (being 22,702,132 shares of common stock plus 781,618 restricted stock units issued and outstanding minus 12,434,389 shares of common stock beneficially owned in the aggregate by ESL Partners, L.P. and Edward S. Lampert (which excludes 5,820 shares of common stock held by ESL Partners, L.P. in separate accounts on behalf of, and for the benefit of, redeeming limited partners of ESL Partners, L.P.) as of September 4, 2019) multiplied by the estimated maximum per share Merger Consideration of $3.25. |
** | In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, and Rule 0-11(c)(1) promulgated thereunder, the filing fee was determined by multiplying 0.0001212 by the aggregate merger consideration. |
☒ | Check the box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
Amount previously paid: $2,797.13 | Filing Party: Sears Hometown and Outlet Stores, Inc. | |
Form or registration No.: Schedule 14C | Date Filed: July 26, 2019 | |
Amount previously paid: $1,555.21 | Filing Party: Sears Hometown and Outlet Stores, Inc. | |
Form or registration No.: Schedule 14C | Date Filed: September 4, 2019 |
INTRODUCTION
This Amendment No. 1 (this Amendment No. 1) to the Transaction Statement on Schedule 13E-3 (as amended by this Amendment No. 1, this Transaction Statement), together with the exhibits hereto, is being filed by (i) Sears Hometown and Outlet Stores, Inc., a Delaware corporation (the Company), (ii) Transform Holdco LLC, a Delaware limited liability company (Transform), (iii) Transform Merger Corporation, a Delaware corporation (Merger Subsidiary), (iv) ESL Partners, L.P., a Delaware limited partnership (Partners), (v) RBS Partners, L.P., a Delaware limited partnership (RBS), (vi) ESL Investments, Inc., a Delaware corporation (ESL Investments), and (vii) Edward S. Lampert, a United States citizen (each of (i) through (vii), a Filing Person). The Company has filed, concurrently with the filing of this Amendment No. 1, Amendment No. 1 to an information statement on Schedule 14C (as amended, the Information Statement). A copy of the Information Statement is attached hereto as Exhibit (a)(1) and a copy of the Merger Agreement (as defined below) is attached as Annex A to the Information Statement. All references in this Transaction Statement to Items numbered 1001 to 1016 are references to Items contained in Regulation M-A promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act).
This Transaction Statement relates to the Agreement and Plan of Merger, dated as of June 1, 2019 (the Merger Agreement), among the Company, Transform and Merger Subsidiary, pursuant to which Merger Subsidiary will merge with and into the Company (the Merger). Prior to completion of the Merger, the Company has been afforded an opportunity to market and sell the Companys Sears Outlet and Buddys Home Furnishing Stores businesses to a third party (an Outlet Sale). On August 27, 2019, the Company entered into an Equity and Asset Purchase Agreement (the Liberty Purchase Agreement) with Franchise Group Newco S, LLC (the Outlet Purchaser) and, solely for purposes of a performance and payment guarantee on behalf of the Outlet Purchaser, Liberty Tax, Inc., to effect an Outlet Sale to the Outlet Purchaser (the Liberty Sale). A copy of the Liberty Purchase Agreement is attached as Annex B to the Information Statement.
If the Merger is completed, each share of common stock, par value $0.01, of the Company (Company Common Stock) issued and outstanding immediately prior to the effective time of the Merger (except for shares (i) owned by the Company as treasury stock or by any subsidiary of either the Company or Transform, (ii) owned by ESL Investments or its investment affiliates, including Edward S. Lampert (together, ESL), or Transform, or (iii) held by stockholders who are entitled to demand and who properly demand appraisal under Section 262 of the General Corporation Law of the State of Delaware (the DGCL) for such shares) will be cancelled and converted automatically into the right to receive $2.25 in cash, without interest, subject to an upward adjustment (as described in more detail in the Information Statement) in the event that the Liberty Sale is completed prior to the closing of the Merger (the Merger Consideration). If the Liberty Sale is consummated prior to the closing of the Merger, it is currently estimated to result in Merger Consideration of approximately $3.25 per share of Company Common Stock, although such amount could be lower under certain circumstances, as described more fully in the Information Statement. Any payment of the Merger Consideration will be subject to any required withholding taxes.
Under Section 251 of the DGCL and the applicable provisions of the Companys Certificate of Incorporation (as amended) and Amended and Restated Bylaws, the adoption of the Merger Agreement by the Companys stockholders required the affirmative vote or written consent of the holders of a majority of the outstanding shares of Company Common Stock. On June 1, 2019, immediately following execution of the Merger Agreement, Edward S. Lampert and Partners (together, the Principal Stockholders) caused to be delivered to the Company an irrevocable written consent (the Written Consent) adopting and approving the Merger Agreement and the transactions contemplated thereby, including the Merger, and approving any Outlet Sale to the extent such Outlet Sale would constitute a sale of substantially all of the Companys property and assets and be subject to the stockholder approval requirements of Section 271(a) of the DGCL (a Section 271 Sale), in respect of 13,226,598 shares of Company Common Stock, representing approximately 58.3% of the outstanding shares of Company Common Stock entitled to act by written consent with respect to the adoption of the Merger Agreement and any Outlet Sale. Accordingly, the adoption and approval of the Merger Agreement and the transactions contemplated thereby, including the Merger, and any Outlet Sale, became effective on June 1, 2019. No further approval of the stockholders of the Company is required to adopt or approve the Merger Agreement or the transactions contemplated thereby, including the Merger, or any Outlet Sale. A copy of the Written Consent is attached as Annex D to the Information Statement and incorporated by reference hereto as Exhibit (d)(4).
In connection with the Companys entry into the Liberty Purchase Agreement, the Principal Stockholders executed and delivered to the Company an irrevocable written consent (the Liberty Consent) confirming the Principal Stockholders approval of an Outlet Sale consummated in all material respects in accordance with the terms set forth in the Liberty Purchase Agreement, to the extent such sale constitutes a Section 271 Sale, in respect of 12,535,679 shares of Company Common Stock, representing approximately 55.2% of the outstanding shares of Company Common Stock entitled to act by written consent with respect to the adoption of the Liberty Sale. A copy of the Liberty Consent is attached as Annex E to the Information Statement and incorporated by reference hereto as Exhibit (d)(6).
Pursuant to General Instruction F to Schedule 13E-3, the information in the Information Statement, including all annexes thereto, is expressly incorporated herein by reference in its entirety, and responses to each item herein are qualified in their entirety by the information contained in the Information Statement. The cross-references below are being supplied pursuant to General Instruction G to Schedule 13E-3 and show the location in the Information Statement of the information required to be included in response to the items of Schedule 13E-3. As of the date hereof, the Information Statement is in preliminary form and is subject to completion. Terms used but not defined in this Transaction Statement shall have the meanings given to them in the Information Statement.
All information contained in, or incorporated by reference into, this Transaction Statement concerning each Filing Person has been supplied by such Filing Person.
Item 1. Summary Term Sheet
Regulation M-A Item 1001
Summary Term Sheet. The information set forth under the following captions in the Information Statement is incorporated herein by reference:
Summary Term Sheet
Questions and Answers about the Merger and the Liberty Sale
Item 2. Subject Company Information
Regulation M-A Item 1002
(a) | Name and Address. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetParties Involved in the MergerSears Hometown and Outlet Stores, Inc.
Parties Involved in the MergerSears Hometown and Outlet Stores, Inc.
Important Additional Information Regarding the CompanyAbout the Company and its Business
(b) | Securities. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetParties Involved in the MergerSears Hometown and Outlet Stores, Inc.
Parties Involved in the MergerSears Hometown and Outlet Stores, Inc.
Important Additional Information Regarding the CompanySecurity Ownership of Certain Beneficial Owners and Management
(c)-(d) | Trading Market and Price; Dividends. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetMarket Price of Company Common Stock and Dividend Data
2
Important Additional Information Regarding the CompanyMarket Prices and Dividend Data
(e) | Prior Public Offerings. Not applicable. |
(f) | Prior Stock Purchases. On November 8, 2017, Mr. Lampert acquired 219,989 shares of Company Common Stock for an aggregate purchase price of $329,983.50 (excluding commissions) or approximately $1.50 per share on average, using personal funds. On December 8, 2017, Mr. Lampert acquired 95,156 shares of Company Common Stock for an aggregate purchase price of $137,976.20 (excluding commissions) or approximately $1.45 per share on average, using personal funds. |
Item 3. Identity and Background of Filing Persons
Regulation M-A Item 1003
(a)-(b) | Name and Address; Business and Background of Entities. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetParties Involved in the Merger
Parties Involved in the Merger
Important Additional Information Regarding the CompanyAbout the Company and its Business
Important Additional Information Regarding the CompanyDirectors and Executive Officers
Important Additional Information Regarding the ESL Filing PartiesInformation on Entities
Important Additional Information Regarding the ESL Filing PartiesInformation on Natural Persons
(c) | Business and Background of Natural Persons. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Important Additional Information Regarding the CompanyDirectors and Executive Officers
Important Additional Information Regarding the ESL Filing PartiesInformation on Natural Persons
Item 4. Terms of the Transaction
Regulation M-A Item 1004
(a) | Material Terms. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term Sheet
Questions and Answers about the Merger and the Liberty Sale
Special FactorsRecommendation of the Special Committee and Reasons for Recommendation
Special FactorsRecommendation of the Board of Directors and Reasons for Recommendation
Special FactorsPosition of ESL on the Fairness of the Merger
Special FactorsPurposes and Reasons of the Company in Connection With the Merger
Special FactorsPurposes and Reasons of the ESL Filing Parties in Connection With the Merger
Special FactorsCertain Effects of the Merger
3
Special FactorsMaterial U.S. Federal Income Tax Consequences of the Merger
Special FactorsAnticipated Accounting Treatment of the Merger
The Merger Agreement
Annex A: Merger Agreement
Annex F: Liberty Sale Letter Agreement
(c) | Different Terms. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetInterests of Directors and Executive Officers in the Merger
Summary Term SheetMerger Consideration
Summary Term SheetTreatment of the Companys Equity Awards and Other Incentive Compensation
Questions and Answers about the Merger and the Liberty Sale
Special FactorsCertain Effects of the Merger
Special FactorsInterests of Directors and Executive Officers in the Merger
The Merger AgreementThe Merger Consideration
The Merger AgreementTreatment of the Companys Equity Awards and Other Incentive Compensation
The Merger AgreementOther Covenants and Agreements
Annex A: Merger Agreement
Annex F: Liberty Sale Letter Agreement
(d) | Appraisal Rights. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetAppraisal Rights
Questions and Answers about the Merger and the Liberty Sale
The Merger AgreementMerger Consideration
The Merger AgreementEffect of the Merger on Company Common Stock
The Merger AgreementAppraisal Rights
Appraisal Rights
Annex H: Section 262 of the General Corporation Law of the State of Delaware
(e) | Provisions for Unaffiliated Security Holders. None |
(f) | Eligibility for Trading. Not applicable. |
4
Item 5. Past Contacts, Transactions, Negotiations and Agreements.
Regulation M-A Item 1005
(a) | Transactions. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Special FactorsBackground of the Transaction
Important Additional Information Regarding the CompanyRelationships and Transactions with Related Persons
(b)-(c) | Significant Corporate Events; Negotiations or Contacts. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetThe Merger
Summary Term SheetESL Letter Agreement
Summary Term SheetThe Written Consents of Stockholders
Summary Term SheetSource and Amount of Funds
Questions and Answers about the Merger and the Liberty Sale
Special FactorsBackground of the Transaction
Special FactorsRecommendation of the Special Committee and Reasons for Recommendation
Special FactorsRecommendation of the Board of Directors and Reasons for Recommendation
Special FactorsAlternatives to the Merger
The Merger Agreement
Annex A: Merger Agreement
Annex C: ESL Letter Agreement
Annex D: Written Consent
Annex E: Liberty Consent
Annex F: Liberty Sale Letter Agreement
(e) | Agreements Involving the Subject Companys Securities. Mr. Lampert entered into a letter agreement with Partners, dated as of June 2, 2010 (the Lock-Up Agreement), that restricts the purchases and sales by Mr. Lampert of certain securities of the Company. Pursuant to the Lock-Up Agreement, Mr. Lampert generally is required to sell securities of the Company and purchase additional securities of the Company on a pro rata basis with the sales and purchases of securities of the Company made by Partners, and generally must make such sales and purchases on substantially the same terms and conditions as Partners (subject to certain legal, tax, accounting or regulatory considerations). Mr. Lampert is also restricted from certain sales of securities of the Company or purchases of additional securities of the Company except in accordance with the Lock-Up Agreement. The foregoing summary of the Lock-Up Agreement does not purport to be complete and is qualified in its entirety by reference to the Lock-Up Agreement, which is set forth as Exhibit (d)(5) hereto and is incorporated herein by reference. In addition, the information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Special FactorsInterests of Directors and Executive Officers in the Merger
5
The Merger Agreement
Important Additional Information Regarding the CompanySecurity Ownership of Certain Beneficial Owners and Management
Annex A: Merger Agreement
Annex C: ESL Letter Agreement
Annex F: Liberty Sale Letter Agreement
Item 6. Purpose of the Transaction and Plans or Proposals
Regulation M-A Item 1006
(b) | Use of Securities Acquired. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Special FactorsCertain Effects of the Merger
The Merger AgreementMerger Consideration
The Merger AgreementEffect of the Merger on Company Common Stock
Annex A: Merger Agreement
(c)(1)-(8) Plans. | The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term Sheet
Questions and Answers about the Merger and the Liberty Sale
Special FactorsBackground of the Transaction
Special FactorsRecommendation of the Special Committee and Reasons for Recommendation
Special FactorsRecommendation of the Board of Directors and Reasons for Recommendation
Special FactorsPurposes and Reasons of the Company in Connection With the Merger
Special FactorsPurposes and Reasons of the ESL Filing Parties in Connection With the Merger
Special FactorsPlans for the Company in Connection With the Merger
Special FactorsAlternatives to the Merger
Special FactorsCertain Effects of the Merger
Special FactorsSource and Amount of Funds
Special FactorsInterests of Directors and Executive Officers in the Merger
Special FactorsDe-listing and De-registration of Company Common Stock
The Merger Agreement
Important Additional Information Regarding the CompanyMarket Prices and Dividend Data
Annex A: Merger Agreement
6
Item 7. Purposes, Alternatives, Reasons and Effects
Regulation M-A Item 1013
(a) | Purposes. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Special FactorsBackground of the Transaction
Special FactorsPurposes and Reasons of the Company in Connection With the Merger
Special FactorsPurposes and Reasons of the ESL Filing Parties in Connection With the Merger
Special FactorsPlans for the Company in Connection With the Merger
Special FactorsCertain Effects of the Merger
(b) | Alternatives. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Special FactorsBackground of the Transaction
Special FactorsRecommendation of the Special Committee and Reasons for Recommendation
Special FactorsRecommendation of the Board of Directors and Reasons for Recommendation
Special FactorsPosition of the Company on the Fairness of the Merger
Special FactorsPosition of ESL on the Fairness of the Merger
Special FactorsPurposes and Reasons of the Company in Connection With the Merger
Special FactorsPurposes and Reasons of the ESL Filing Parties in Connection With the Merger
Special FactorsAlternatives to the Merger
(c) | Reasons. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetThe Merger
Summary Term SheetRecommendation of the Special Committee
Summary Term SheetRecommendation of the Board of Directors
Special FactorsBackground of the Transaction
Special FactorsRecommendation of the Special Committee and Reasons for Recommendation
Special FactorsRecommendation of the Board of Directors and Reasons for Recommendation
Special FactorsPosition of the Company on the Fairness of the Merger
Special FactorsPosition of ESL on the Fairness of the Merger
Special FactorsPurposes and Reasons of the Company in Connection With the Merger
Special FactorsPurposes and Reasons of the ESL Filing Parties in Connection With the Merger
Special FactorsAlternatives to the Merger
7
(d) | Effects. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetThe Merger
Summary Term SheetMerger Consideration
Summary Term SheetInterests of Directors and Executive Officers in the Merger
Summary Term SheetTreatment of the Companys Equity Awards and Other Incentive Compensation
Summary Term SheetMaterial U.S. Federal Income Tax Consequences of the Merger
Summary Term SheetDe-listing and De-registration of Company Common Stock
Questions and Answers about the Merger and the Liberty Sale
Special FactorsBackground of the Transaction
Special FactorsPurposes and Reasons of the ESL Filing Parties in Connection With the Merger
Special FactorsPlans for the Company in Connection With the Merger
Special FactorsCertain Effects of the Merger
Special FactorsInterests of Directors and Executive Officers in the Merger
Special FactorsMaterial U.S. Federal Income Tax Consequences of the Merger
The Merger AgreementThe Merger
The Merger AgreementMerger Consideration
The Merger AgreementCertificate of Incorporation; Bylaws; Directors and Officers
The Merger AgreementEffect of the Merger on Company Common Stock
The Merger AgreementPayment Procedures
The Merger AgreementTreatment of the Companys Equity Awards and Other Incentive Compensation
The Merger AgreementConduct of Business Pending the Merger
The Merger AgreementOther Covenants and Agreements
Annex A: Merger Agreement
Item 8. Fairness of the Transaction
Regulation M-A Item 1014
(a)-(b) | Fairness; Factors Considered in Determining Fairness. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetRecommendation of the Special Committee
Summary Term SheetRecommendation of the Board of Directors
Summary Term SheetOpinion of PJ Solomon
8
Special FactorsBackground of the Transaction
Special FactorsRecommendation of the Special Committee and Reasons for Recommendation
Special FactorsRecommendation of the Board of Directors and Reasons for Recommendation
Special FactorsOpinion of PJ Solomon
Special FactorsPosition of the Company on the Fairness of the Merger
Special FactorsPosition of ESL on the Fairness of the Merger
Special FactorsPurposes and Reasons of the Company in Connection With the Merger
Special FactorsPurposes and Reasons of the ESL Filing Parties in Connection With the Merger
Special FactorsInterests of Directors and Executive Officers in the Merger
Annex G: PJ Solomon Opinion
(c) | Approval of Security Holders. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetThe Written Consents of Stockholders
Questions and Answers about the Merger and the Liberty Sale
Special FactorsBackground of the Transaction
Special FactorsPosition of the Company on the Fairness of the Merger
(d) | Unaffiliated Representative. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetRecommendation of the Special Committee
Summary Term SheetOpinion of PJ Solomon
Special FactorsBackground of the Transaction
Special FactorsRecommendation of the Special Committee and Reasons for Recommendation
Special FactorsOpinion of PJ Solomon
Special FactorsPosition of the Company on the Fairness of the Merger
Annex G: PJ Solomon Opinion
(e) | Approval of Directors. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetRecommendation of the Special Committee
Summary Term SheetRecommendation of the Board of Directors
Special FactorsBackground of the Transaction
Special FactorsRecommendation of the Special Committee and Reasons for Recommendation
Special FactorsRecommendation of the Board of Directors and Reasons for Recommendation
9
(f) | Other Offers. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Special FactorsBackground of the Transaction
Special FactorsRecommendation of the Special Committee and Reasons for Recommendation
Special FactorsRecommendation of the Board of Directors and Reasons for Recommendation
Special FactorsPosition of the Company on the Fairness of the Merger
Special FactorsPosition of ESL on the Fairness of the Merger
Special FactorsPurposes and Reasons of the ESL Filing Parties in Connection With the Merger
Special FactorsAlternatives to the Merger
Item 9. Reports, Opinions, Appraisals and Certain Negotiations
Regulation M-A Item 1015
(a)-(b) | Report, Opinion or Appraisal; Preparer and Summary of the Report, Opinion or Appraisal. The opinion prepared by PJ Solomon and provided to the Special Committee and the Board of Directors, dated May 31, 2019, is attached as Annex G to the Information Statement and incorporated herein by reference. The discussion and/or presentation materials prepared by PJ Solomon and provided to the Special Committee and, in certain instances, the Board of Directors, dated February 5, 2019, April 6, 2019, April 8, 2019, April 23, 2019, April 24, 2019, May 1, 2019, May 2, 2019, May 9, 2019, May 10, 2019, May 26, 2019, May 27, 2019, May 31, 2019, May 31, 2019 and August 25, 2019 are set forth as Exhibits (c)(2) (c)(15), respectively, hereto and are incorporated herein by reference. In addition, the information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetOpinion of PJ Solomon
Special FactorsBackground of the Transaction
Special FactorsRecommendation of the Special Committee and Reasons for Recommendation
Special FactorsRecommendation of the Board of Directors and Reasons for Recommendation
Special FactorsUnaudited Projected Financial Information of the Company
Special FactorsOpinion of PJ Solomon
Special FactorsPosition of the Company on the Fairness of the Merger
Special FactorsPosition of ESL on the Fairness of the Merger
Special FactorsFees and Expenses
Annex G: PJ Solomon Opinion
(c) | Availability of Documents. The reports, opinions or appraisals referenced in this Item 9 are filed herewith or incorporated by reference herein and will be made available for inspection and copying at the principal executive offices of the Company during its regular business hours by any interested holder of Company Common Stock or representative who has been so designated in writing. |
10
Item 10. Source and Amount of Funds or Other Consideration
Regulation M-A Item 1007
(a)-(b) | Source of Funds; Conditions. Concurrently with the execution of the Merger Agreement, ESL Investments Inc. executed a commitment letter (the Equity Commitment Letter) with Transform pursuant to which it committed to contribute, or cause to be contributed, approximately $21,000,000 to Transform (subject to the terms and conditions set forth in the Equity Commitment Letter) to be used by Transform to pay the Merger Consideration. A copy of the Equity Commitment Letter is set forth as Exhibit (d)(2) hereto and is incorporated herein by reference. In addition, the information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetSource and Amount of Funds
Special FactorsBackground of the Transaction
Special FactorsSource and Amount of Funds
(c) | Expenses. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetExpenses
Special FactorsFees and Expenses
The Merger AgreementExpenses
(d) | Borrowed Funds. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Special FactorsSource and Amount of Funds
Item 11. Interest in Securities of the Subject Company
Regulation M-A Item 1008
(a) | Securities Ownership. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetInterests of Directors and Executive Officers in the Merger
Special FactorsInterests of Directors and Executive Officers in the Merger
Important Additional Information Regarding the CompanySecurity Ownership of Certain Beneficial Owners and Management
(b) Securities Transactions. The information set forth under the following captions in the Information Statement is incorporated herein by reference:
Important Additional Information Regarding the CompanySecurities Transactions
Item 12. The Solicitation or Recommendation
Regulation M-A Item 1012
(d)-(e) | Intent to Tender or Vote in a Going-Private Transaction; Recommendations of Others. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetThe Written Consents of Stockholders
Special FactorsBackground of the Transaction
Special FactorsRecommendation of the Special Committee and Reasons for Recommendation
Special FactorsRecommendation of the Board of Directors and Reasons for Recommendation
Special FactorsInterests of Directors and Executive Officers in the Merger
Annex D: Written Consent
Annex E: Liberty Consent
Item 13. Financial Statements
Regulation M-A Item 1010
(a) | Financial Information. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Special FactorsUnaudited Projected Financial Information of the Company
Important Additional Information Regarding the CompanyHistorical Consolidated Financial Information
Where You Can Find Additional Information
12
The Companys audited consolidated financial statements for the fiscal years ended February 2, 2019 and February 3, 2018, and the notes thereto, contained in the Companys Annual Report on Form 10-K for the fiscal year ended February 2, 2019, and the Companys unaudited financial statements for the three-month period ended May 4, 2019, and the notes thereto, contained in the Companys Quarterly Report on Form 10-Q for the three months ended May 4, 2019, are incorporated herein by reference.
(b) | Pro Forma Information. Not applicable. |
Item 14. Persons/Assets, Retained, Employed, Compensated or Used
Regulation M-A Item 1009
(a)-(b) | Solicitations or Recommendations; Employees and Corporate Assets. The information set forth under the following captions in the Information Statement is incorporated herein by reference: |
Summary Term SheetRecommendation of the Special Committee
Summary Term SheetRecommendation of the Board of Directors
Questions and Answers about the Merger and the Liberty Sale
Special FactorsBackground of the Transaction
Special FactorsRecommendation of the Special Committee and Reasons for Recommendation
Special FactorsRecommendation of the Board of Directors and Reasons for Recommendation
Special FactorsPosition of the Company on the Fairness of the Merger
Special FactorsInterests of Directors and Executive Officers in the Merger
Special FactorsFees and Expenses
Item 15. Additional Information
Regulation M-A Item 1011
(b) | Golden Parachute Compensation. The information set forth under the following caption in the Information Statement is incorporated herein by reference: |
Special FactorsInterests of Directors and Executive Officers in the Merger
(c) | Other Material Information. The information set forth in the Information Statement, including all annexes thereto, is incorporated herein by reference. |
Item 16. Exhibits
Regulation M-A Item 1016
Exhibit No. |
Description | |
(a)(1) | Amendment No. 1 to the Information Statement on Schedule 14C filed by Sears Hometown and Outlet Stores, Inc. with the SEC on September 4, 2019 and incorporated herein by reference to such filing. |
13
Exhibit No. |
Description | |
(a)(2) | Press release issued by Sears Hometown and Outlet Stores, Inc., dated June 3, 2019 (incorporated by reference to Exhibit 99.2 to the Current Report on Form 8-K filed by Sears Hometown and Outlet Stores, Inc. on June 3, 2019). | |
(b) | Not applicable. | |
(c)(1) | Opinion of PJ Solomon to the Special Committee and the Board of Directors of Sears Hometown and Outlet Stores Inc., dated May 31, 2019 (included as Annex G to the Information Statement and incorporated by reference herein as Exhibit (c)(1)). | |
(c)(2) | Valuation discussion materials prepared by PJ Solomon, dated February 5, 2019, for the Special Committee of Sears Hometown and Outlet Stores, Inc. | |
(c)(3) | Discussion materials prepared by PJ Solomon, dated April 6, 2019, for the Special Committee of Sears Hometown and Outlet Stores, Inc. | |
(c)(4) | Transaction analysis prepared by PJ Solomon, dated April 8, 2019, for the Special Committee of Sears Hometown and Outlet Stores, Inc. | |
(c)(5) | Valuation summary prepared by PJ Solomon, dated April 23, 2019, for the Special Committee of Sears Hometown and Outlet Stores, Inc. | |
(c)(6) | Share price analysis prepared by PJ Solomon, dated April 24, 2019, for the Special Committee of Sears Hometown and Outlet Stores, Inc. | |
(c)(7) | Preliminary valuation materials prepared by PJ Solomon, dated May 1, 2019, for the Special Committee of Sears Hometown and Outlet Stores, Inc. | |
(c)(8) | Discussion materials prepared by PJ Solomon, dated May 2, 2019, for the Special Committee of Sears Hometown and Outlet Stores, Inc. | |
(c)(9) | Preliminary valuation materials prepared by PJ Solomon, dated May 9, 2019, for the Special Committee of Sears Hometown and Outlet Stores, Inc. | |
(c)(10) | Preliminary valuation materials prepared by PJ Solomon, dated May 10, 2019, for the Special Committee of Sears Hometown and Outlet Stores, Inc. | |
(c)(11) | Preliminary valuation materials prepared by PJ Solomon, dated May 26, 2019, for the Special Committee and the Board of Directors of Sears Hometown and Outlet Stores, Inc. | |
(c)(12) | Discussion materials prepared by PJ Solomon, dated May 27, 2019, for the Special Committee and the Board of Directors of Sears Hometown and Outlet Stores, Inc. | |
(c)(13) | Valuation materials prepared by PJ Solomon, dated May 31, 2019, for the Special Committee and the Board of Directors of Sears Hometown and Outlet Stores, Inc. | |
(c)(14) | Discussion materials prepared by PJ Solomon, dated May 31, 2019, for the Special Committee and the Board of Directors of Sears Hometown and Outlet Stores, Inc. |
14
Exhibit No. |
Description | |
(c)(15) | Discussion materials prepared by PJ Solomon, dated August 25, 2019, for the Special Committee and the Board of Directors of Sears Hometown and Outlet Stores, Inc. | |
(d)(1) | Agreement and Plan of Merger, dated as of June 1, 2019, among Sears Hometown and Outlet Stores, Inc., Transform Holdco LLC and Transform Merger Corporation (included as Annex A to the Information Statement and incorporated by reference herein as Exhibit (d)(1)). | |
(d)(2) | Equity Commitment Letter, dated as of June 1, 2019, entered into by ESL Investments, Inc. in favor of Transform Holdco LLC. | |
(d)(3) | Letter Agreement, dated June 1, 2019, by and between Edward S. Lampert and Sears Hometown and Outlet Stores, Inc. (included as Annex C to the Information Statement and incorporated by reference herein as Exhibit (d)(3)). | |
(d)(4) | Action by Written Consent of ESL Partners, L.P. and Edward S. Lampert, dated June 1, 2019 (included as Annex D to the Information Statement and incorporated by reference herein as Exhibit (d)(4)). | |
(d)(5) | Lock-Up Agreement, dated June 2, 2010, by and between ESL Partners, L.P. and Edward S. Lampert (incorporated by reference to Exhibit 99.2 to the Statement on Schedule 13D with respect to the common stock of the Company filed by ESL Partners, L.P., ESL Investors, L.L.C., SPE I Partners, LP, SPE Master I, LP, RBS Partners, L.P., ESL Institutional Partners, L.P., RBS Investment Management, L.L.C., CRK Partners, L.L.C., ESL Investments, Inc. and Edward S. Lampert with the SEC on September 12, 2012). | |
(d)(6) | Action by Written Consent of ESL Partners, L.P. and Edward S. Lampert, dated August 27, 2019 (included as Annex E to the Information Statement and incorporated by reference herein as Exhibit (d)(6)). | |
(d)(7) | Letter Agreement, dated August 27, 2019, among Sears Hometown and Outlet Stores, Inc., Transform Holdco LLC and Transform Merger Corporation (included as Annex F to the Information Statement and incorporated by reference herein as Exhibit (d)(7)). | |
(f)(1) | Rights of Appraisal, incorporated herein by reference to the section titled Appraisal Rights in the Information Statement. | |
(f)(2) | Delaware Code Title 8 § 262 (included as Annex H to the Information Statement and incorporated by reference herein as Exhibit (f)(2)). |
15
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.
Dated: September 4, 2019 | SEARS HOMETOWN AND OUTLET STORES, INC. | |||||
By: | /s/ Charles J. Hansen | |||||
Name: | Charles J. Hansen | |||||
Title: | Vice President, General Counsel, and Secretary | |||||
Dated: September 4, 2019 | TRANSFORM HOLDCO LLC | |||||
By: | /s/ Edward S. Lampert | |||||
Name: | Edward S. Lampert | |||||
Title: | Chief Executive Officer | |||||
Dated: September 4, 2019 | TRANSFORM MERGER CORPORATION | |||||
By: | /s/ Kunal S. Kamlani | |||||
Name: | Kunal S. Kamlani | |||||
Title: | President | |||||
Dated: September 4, 2019 | ESL PARTNERS, L.P. | |||||
By: | RBS Partners, L.P., as its general partner | |||||
By: | ESL Investments, Inc., as its general partner | |||||
By: | /s/ Edward S. Lampert | |||||
Name: | Edward S. Lampert | |||||
Title: | Chief Executive Officer | |||||
Dated: September 4, 2019 | RBS PARTNERS, L.P. | |||||
By: | ESL Investments, Inc., as its general partner | |||||
By: | /s/ Edward S. Lampert | |||||
Name: | Edward S. Lampert | |||||
Title: | Chief Executive Officer | |||||
Dated: September 4, 2019 | ESL INVESTMENTS, INC. | |||||
By: | /s/ Edward S. Lampert | |||||
Name: | Edward S. Lampert | |||||
Title: | Chief Executive Officer | |||||
Dated: September 4, 2019 | EDWARD S. LAMPERT | |||||
/s/ Edward S. Lampert |
16
February 2019 Valuation Discussion Materials Prepared for the Independent Committee of the Board DRAFT Subject to change Exhibit (c)(2)
Summary Historical and Projected Financial Performance 2 Summary Stock Price Performance 8 Summary Valuation Analysis 12 Material Relationship with SHC 20 Appendix 23 TABLE OF CONTENTS
SUMMARY HISTORICAL AND PROJECTED FINANCIAL PERFORMANCE
Adjusted to exclude unusual and extraordinary items. Source: November 2018 Management Projections. Assumes 8.0x rent methodology. Shares outstanding as of December 7, 2018. Source: Company's Form 10-Q for the period ended December 7, 2018. Assumes the treasury stock method with no in-the-money options outstanding. Includes exercisable options held by directors and executive officers. Source: Company's Proxy Statement dated April 19, 2018 and Bloomberg. SUMMARY FINANCIAL INFORMATION
Source: January 2019 Management Plan. Adjusted to exclude unusual and extraordinary items. Internal management numbers that are used as basis for projections. HISTORICAL FINANCIAL PERFORMANCE (c)
The company developed several different go-forward scenarios, including one that assumes a liquidation of SHC PROJECTIONS OVERVIEW AND ASSUMPTIONS Scenario 1 Scenario 2 Scenario 3 Rationale Continuation of current strategy with a focus on optimizing the Dealer network coupled with modest growth in the Outlet segment Despite store closures, this scenario is closest to “status quo” Moderately transformative over an extended period of time Entails the closure of the Dealer network through 2021 to focus on the more profitable Outlet and Buddy’s segments Shows potential of meaningful deleveraging through 2021 Considered to be the most near-term transformative action Entails the closure of the Dealer network throughout 2019 to focus on the more profitable Outlet and Buddy’s segments Shows potential of substantial deleveraging through 2020 Key Takeaways Valuation ranging from $0.48 to $1.81 per share Main valuation drivers are the relatively small decline in revenue supported by the largest store fleet of all three scenarios and a 2% gross margin improvement between FY2018-2020 Valuation ranging from $1.93 to $2.96 per share Main valuation drivers are the closure of negative EBITDA Hometown stores and debt reduction over several years Corp. expenses drag on EBITDA given the slower wind-down Valuation ranging from $7.36 to $8.85 per share Main valuation drivers are the closure of negative EBITDA Hometown stores and swift debt reduction Description Keep 394 high value and 87 low / no-profit stores; close remaining stores Open 30 stores by 2020 Hometown High Value + Bubble Footprint Hometown Slow Exit Hometown Rapid Exit Outlet Dealership HAS / Hardware Buddy’s 10 new stores through 2020 Close all company-operated negative EBITDA stores with leases up prior to 08/2020 (17 stores) Close all stores over a 3-year period to gradually wind-down the business (full exit in 2021) Close 18 company operated locations until 2021 as leases expire Close all stores in 2019 All negative EBITDA stores close if lease ends prior to 08/2020 (25 stores) Open 1 new store in 2019; no additional new openings in 2020/2021 Assumes SHC Liquidation Open 30 stores by 2020
Source: Management projections as of January 2019. MANAGEMENT PROJECTIONS EBITDA across all three scenarios is affected in different ways by the closure of Hometown stores and there are substantial differences in revenue and debt; Liquidation proceeds from store closures drive reduced debt levels.
Source: Management plan as of January 2019. MANAGEMENT PROJECTIONS BY MAJOR SEGMENT
SUMMARY STOCK PRICE PERFORMANCE
Stock Price Performance – Last Twelve Months Stock Price Performance – Since October 12, 2012 SHO Spinout Source: Capital IQ as of February 4, 2019. SUMMARY HISTORICAL STOCK PRICE PERFORMANCE $2.16 $2.16
Key events, news and SHC activity Key Events Source: Capital IQ as of February 4, 2019. SUMMARY HISTORICAL STOCK PRICE PERFORMANCE $2.16 Median: $2.85 (12/5/2016) Overtures by ESL for SHO to participate in SHC Home Services acquisition (2/11/16) Edward Lampert announces that he controls over 50% of SHO’s outstanding shares (08/30/2018) Upbeat preliminary Q2 results (07/12/2018) Q3 results announced with SSS Q decline of (0.2%) (12/01/2017) Q3 results impacted by Hurricanes SSS Q (9.1%) (9/6/17) SHO Q2 Results announced (2.1%) SSS (3/14/17) SHC announces sale of Craftsman brand to Stanley Black & Decker (03/10/17) SHO Q4 Results announced (4.1%) SSS (6/2/17) SHO Q1 Results announced (7.3%) SSS (06/08/2018) Q1 results Announcement that 90-100 stores will be closed (02/20/2018) Announcement of $40M TL (04/19/2018) Annual results, SSS decline of (12.4%) (01/17/2019) SHC announces that ESL won the bankruptcy court auction
Indexed Stock Price Performance – Last Twelve Months Indexed Stock Price Performance – Since October 12, 2012 SHO Spinout Source: Capital IQ as of February 4, 2019. INDEXED STOCK PRICE PERFORMANCE 96.0% 26.7% 112.2% 102.9% 7.0% 1.0% 328.2% 190.7%
SUMMARY VALUATION ANALYSIS
Note: Valuation ranges are calculated as equal weighted averages of the positive minimum and maximum values for each scenario of precedent transactions, the average trading peer EV/EBITDA multiple across LTM, 2019P and 2020P and DCF analysis as shown in the Appendix. Equity value based on projected FY 2019 net debt. SUMMARY VALUATION ANALYSIS 2/4/2019 Trading Price: $2.16
Source: Company filings, Capital IQ and other publicly available sources. Note: CAGRs (Compound Annual Growth Rates) and Averages are for the last three completed fiscal years for each company. All operating data has been adjusted to exclude unusual and extraordinary items. (a) Source of projected EPS, EBITDA and growth rate estimates: Thomson Reuters median estimate of Wall Street analysts as of 2/4/19. (b) Enterprise value represents equity value plus book values of total debt, preferred stock and minority interest less cash. SELECTED PUBLIC COMPANIES
Note: Excluding Pier1 due to negative historical multiple. Source: Capital IQ as of February 4, 2019. SELECTED PUBLIC COMPANIES Comparable Hardware Stores Other Hardlines 13.4x 12.2x 5.3x 2.9x Comparable Company LTM EV / EBITDA 3.7x 5.8x 12.7x 12.6x
Source: SEC filings and other publicly available data. (a) EBITDA multiple assumes 50% of corporate overhead and D&A attributed to retail segment. (b) Investor Presentation dated October 16, 2013. (c) Based on sales of $315mm for the FY ended Jan. 28, 2012 per Moody's Investors Service. PRECEDENT HARDLINES TRANSACTIONS
Implied valuation based on selected public companies and precedent transactions Note: Equity value based on projected net debt as of FY2019 for Scenarios 1, 2 and 3. Precedent transaction net debt as of FY2018. COMPARABLE COMPANIES AND TRANSACTIONS
Scenario 1 (Hometown High Value + Bubble Footprint) Scenario 2 (Hometown Slow Exit) Note: Equity value based on projected net debt as of FY2019. DISCOUNTED CASH FLOW ANALYSIS SUMMARY Scenario 3 (Hometown Rapid Exit)
VALUATION METHODOLOGY REMARKS Scenario 1 Scenario 2 Scenario 3 Trading Multiples Precedent Transactions Discounted Cash Flow Calculated median multiple of selected US Home Centers / Hardware stores for FY2018, FY 2019 and FY2020 Applied 2019F Total Debt of $108.5M as Net Debt as of management plans presented in November 2018 Same parameters as for scenarios 1 and 2 Applied 2019F Net Debt of $5.8M as of management plans presented in January 2019 Precedent transactions multiple calculated as the median EV/EBITDA multiple of previous US hardlines transactions that is then applied to SHO’s FY2018 EBITDA serving as a proxy for the company’s LTM EBITDA Calculated annual cash flow through 2022, based on 3-year management plan and extrapolation for years 4 and 5 Terminal year adjustment to normalize cash flows from net working capital Assumed a perpetuity growth rate range of 0-2% WACC of 12.50% based on the median beta and debt/equity ratio of comparable companies Same parameters as for scenario 1 Same parameters as for scenario 1 Applied 2019F Total Debt of $102.1M as Net Debt as of management plans presented in January 2019 Same parameters as for scenario 1, except for using the January 2019 management plan including 2021 projections, requiring only 1 year of extrapolation
MATERIAL RELATIONSHIP WITH SHC
In Fall 2012, SHO was spun off from SHC when various negotiations were finalized, including agreements regarding merchandising, logistics / distribution, separation, license and e-commerce among others As a result of these agreements, SHC provided SHO with sourcing and the majority of distribution and warehousing in addition to financial reporting systems. SHC also allowed SHO to receive / sell items from SHC’s proprietary brands (i.e., Kenmore, Craftsman (a) and DieHard, collectively “KCD”) and to leverage the various e-commerce sites associated with SHC’s store segments The service agreements between the two entities, prior to being amended (discussed below), were in effect until April 2018 – at the end of this period, SHO had the option to renew these agreements for an additional three years, but SHC also had the option to terminate these agreements. In May 2016, the two parties agreed to various amendments, primarily an extension of two main agreements (i.e., the services and merchandising agreements) through February 2020 SHO also received rights to operate transactional web-sites for the Hometown segment, increased commissions on protection agreement sales and supply chain services for SHO purchased products. SHO stores also became available as customer pick-up locations from Sears.com SHO still relies on SHC to provide substantially all of its Hometown segment inventory and approximately 30% of its Outlet inventory SHC and its subsidiaries are relied upon for key administrative functions, processing services and other general infrastructure However, as of February 1, 2019 the Outlet segment essentially functions free of any meaningful stand-alone support from SHC Much of the critical functions and services provided by SHC relate to the Hometown segment Sources: Public filings, Tiger Appraisal Report dated April 15, 2016. Sears Holdings announced the sale of its Craftsman brand for $900 million on 1/5/2017. SHO MATERIAL RELATIONSHIPS WITH SHC
APPENDIX
Note: Equity value based on projected FY2019 net debt. DETAILED VALUATION ANALYSIS 2/4/2019 Trading Price: $2.16
(a) Source: Bloomberg 5-year adjusted weekly beta as reported on February 4, 2019. (b) Assumes book value of debt approximates market value. (c) Unlevered Beta = Levered Beta / {1+(Net Debt/Market Equity)*(1-Tax Rate)}. (d) 10-year Treasury Note yield as of February 4, 2019. (e) Source: Duff & Phelps 2018 Valuation Handbook. (f) Size premium of 3.48% for companies with market capitalizations between 2.5mm and 656.8mm (g) Marginal tax rate based on PJ Solomon assumption (h) WACC = (Net Debt/Capital) * After-Tax Cost of Debt + (Equity/Capital) * Cost of Equity. (i) Relevered Beta = Unlevered Beta * {1+(Net Debt/Equity)*(1-Tax Rate)}. (j) Cost of Equity = Risk Free Rate + (Relevered Beta * Market Risk Premium) + Size Premium. (k) Median Unlevered Beta of Comps. WEIGHTED AVERAGE COST OF CAPITAL
Note: Years 2021 and 2022 are based on extrapolations, holding 2020 revenue growth, adj. EBITDA margin, D&A as a % of sales, Capital Expenditures as a % of sales and Net Working Capital as a % of sales constant. SCENARIO 1: DISCOUNTED CASH FLOW ANALYSIS
Note: Year 2022 is based on extrapolations, holding 2021 revenue growth, adj. EBITDA margin, D&A as a % of sales, Capital Expenditures as a % of sales and Net Working Capital as a % of sales constant for businesses excluding dealership. SCENARIO 2: DISCOUNTED CASH FLOW ANALYSIS
Note: Years 2021 and 2022 are based on extrapolations, holding 2020 revenue growth, adj. EBITDA margin, D&A as a % of sales, Capital Expenditures as a % of sales and Net Working Capital as a % of sales constant for businesses excluding dealership. SCENARIO 3: DISCOUNTED CASH FLOW ANALYSIS
This document is a marketing presentation. It has been prepared by personnel of PJ SOLOMON or its affiliates and not by Natixis’ research department. It is not investment research or a research recommendation and is not intended to constitute a sufficient basis upon which to make an investment decision. This material is provided for information purposes, is intended for your use only and does not constitute an invitation or offer to subscribe for or purchase any of the products or services mentioned. Any pricing information provided is indicative only and does not represent a level at which an actual trade could be executed. Natixis may trade as principal or have proprietary positions in securities or other financial instruments that are the subject of this material. It is intended only to provide observations and views of the said personnel, which may be different from, or inconsistent with, the observations and views of Natixis analysts or other Natixis sales and/or trading personnel, or the proprietary positions of Natixis. Observations and views of the writer may change at any time without notice. This presentation may contain forward-looking statements and comments relating to the objectives and strategy of PJ SOLOMON. Any such projections inherently depend on assumptions, project considerations, objectives and expectations linked to future events, transactions, products and services as well as on suppositions regarding future performance and synergies. Certain information in this presentation relating to parties other than PJ SOLOMON or taken from external sources has not been subject to independent verification, and PJ SOLOMON makes no warranty as to the accuracy, fairness or completeness of the information or opinions in this presentation. Neither PJ SOLOMON nor its representatives shall be liable for any errors or omissions or for any harm resulting from the use of this presentation, the content of this presentation, or any document or information referred to in this presentation. Nothing in this presentation constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances. Each individual or entity who receives this document or participates in any future transaction shall be responsible for obtaining all such advice as it thinks appropriate on such matters and shall be responsible for making its own independent investigation and appraisal of the risks, benefits and suitability of the transactions as to itself. Any discussions of past performance should not be taken as an indication of future results, and no representation, expressed or implied, is made regarding future results. No person shall have any liability whatsoever (in negligence or otherwise) for any loss arising from any use of this document or its contents or otherwise arising in connection with this document or any other written or oral communications transmitted to the recipient in relation hereto. PJ SOLOMON and/or its affiliates, officers, directors and employees, including persons involved in the preparation or issuance of this material, may, from time to time, have long or short positions in, and buy or sell, the securities or derivatives mentioned in this material. The information contained herein may be based in part on hypothetical assumptions and for certain models, past performance. These assumptions have certain inherent limitations, and will be affected by any changes in the structure or assets for this transaction. This material is confidential and any redistribution is prohibited. PJ SOLOMON is not responsible for any unauthorized redistribution. DISCLAIMER
Exhibit (c)(3) PROJECT BOOTS Special Committee Materials April 2019 DRAFT Subject to changeExhibit (c)(3) PROJECT BOOTS Special Committee Materials April 2019 DRAFT Subject to change
TABLE OF CONTENTS Executive Summary 2 SHO Market Data 4 SHO Financial Projections 9 Summary Valuation Analysis 12 Additional Analyses 19 1TABLE OF CONTENTS Executive Summary 2 SHO Market Data 4 SHO Financial Projections 9 Summary Valuation Analysis 12 Additional Analyses 19 1
SELECTED PROPOSED TRANSACTION TERMS Acquiror Transform HoldCo LLC Per Share Consideration $2.25 in cash Dates Period VWAP Premium (%) Current $1.90 18.4% 4/1/19 - 4/5/19 1 Week $1.82 23.6% Offer Premium 3/7/19 - 4/5/19 30 Days $2.04 10.6% 2/4/19 - 4/5/19 60 Days $2.15 4.7% 1/4/19 - 4/5/19 90 Days $2.12 6.4% Implied Equity Value (a) $51.1M Implied Enterprise Value (b) $168.0M Financing Financing through cash or loans from ESL or other members ▪ Only intend to go ahead with proposal if approved by the full Board of Directors of the Other Company upon the recommendation of the special committee of independent directors ▪ ESL intends to promptly file an amendment to its Schedule 13D with the SEC (a) Based on 22.7M of Common Shares Outstanding. (b) Based on net debt of $115.9M as of end of March 2019, accounting for the liquidation of Hometown. 2SELECTED PROPOSED TRANSACTION TERMS Acquiror Transform HoldCo LLC Per Share Consideration $2.25 in cash Dates Period VWAP Premium (%) Current $1.90 18.4% 4/1/19 - 4/5/19 1 Week $1.82 23.6% Offer Premium 3/7/19 - 4/5/19 30 Days $2.04 10.6% 2/4/19 - 4/5/19 60 Days $2.15 4.7% 1/4/19 - 4/5/19 90 Days $2.12 6.4% Implied Equity Value (a) $51.1M Implied Enterprise Value (b) $168.0M Financing Financing through cash or loans from ESL or other members ▪ Only intend to go ahead with proposal if approved by the full Board of Directors of the Other Company upon the recommendation of the special committee of independent directors ▪ ESL intends to promptly file an amendment to its Schedule 13D with the SEC (a) Based on 22.7M of Common Shares Outstanding. (b) Based on net debt of $115.9M as of end of March 2019, accounting for the liquidation of Hometown. 2
OFFER SUMMARY (In $M, except per share data) Current 4/5/2019 Offer Stock Price $1.90 $2.25 Shares Outstanding 22.7 22.7 Option Equivalent Shares -- -- Restricted & Performance Stock Units -- -- Diluted Shares Outstanding 22.7 22.7 Total Equity Value $43.1 $51.1 Plus: Net Debt 116.9 116.9 Total Enterprise Value $160.1 $168.0 Premium / (Discount) to: Current Price (4/5/2019) $1.90 -- % 0.2 % 52-Week High (4/16/2018) 3.55 (46.5) (36.6) 52-Week Low (12/27/2018) 1.58 20.3 42.4 30 Calendar Days VWAP 2.04 (6.6) 10.6 60 Calendar Days VWAP 2.15 (11.6) 4.7 90 Calendar Days VWAP 2.12 (10.2) 6.4 Current Enterprise Value $160.1 -- 5.0 Enterprise Value as a Multiple of: EBITDA LTM Adjusted $16.0 10.0 x 10.5 x 2019 Pro Forma 29.3 5.5 5.7 2020 Pro Forma 26.3 6.1 6.4 3OFFER SUMMARY (In $M, except per share data) Current 4/5/2019 Offer Stock Price $1.90 $2.25 Shares Outstanding 22.7 22.7 Option Equivalent Shares -- -- Restricted & Performance Stock Units -- -- Diluted Shares Outstanding 22.7 22.7 Total Equity Value $43.1 $51.1 Plus: Net Debt 116.9 116.9 Total Enterprise Value $160.1 $168.0 Premium / (Discount) to: Current Price (4/5/2019) $1.90 -- % 0.2 % 52-Week High (4/16/2018) 3.55 (46.5) (36.6) 52-Week Low (12/27/2018) 1.58 20.3 42.4 30 Calendar Days VWAP 2.04 (6.6) 10.6 60 Calendar Days VWAP 2.15 (11.6) 4.7 90 Calendar Days VWAP 2.12 (10.2) 6.4 Current Enterprise Value $160.1 -- 5.0 Enterprise Value as a Multiple of: EBITDA LTM Adjusted $16.0 10.0 x 10.5 x 2019 Pro Forma 29.3 5.5 5.7 2020 Pro Forma 26.3 6.1 6.4 3
SHO MARKET DATA 4SHO MARKET DATA 4
SUMMARY CAPITALIZATION AND VALUATION (Amounts in Millions, Except Per Share Data) Stock Information Financial Information Credit Statistics Ticker Symbol SHOS Fiscal Year End Feb-19 As of Stock Exchange NasdaqCM Feb-19 Stock Price as of 4/5/19 $1.90 Adjusted Debt / EBITDAR (c) 8.0 x FY 2018A Sales (a) (b) $1,449.9 Total Debt / EBITDA 8.2 x 52-Week Stock Price FY 2018A Adj. EBITDA (a) (b) 16.0 Net Debt / EBITDA 7.3 x High 4/16/18 $3.55 EBITDA / Interest, Net 1.1 x FY 2019P Sales (a) (b) $716.3 Low 12/27/18 1.58 Since IPO Stock Price FY 2019P Adj. EBITDA (a) (b) 29.3 Total Debt / Total Capitalization 53.6% High 6/3/16 $56.65 Net Debt / Net Capitalization 50.6% Low 12/27/18 1.58 FY 2019 EPS estimate (a) (b) -- FY 2020 EPS estimate (a) (b) ($2.88) Credit Rating S&P NA Average Daily Volume (3 Mo.) 0.2 FY 2021 EPS estimate (a) (b) $0.87 Moody's NA Shares Sold Short 3.0 Long-Term EPS Growth NA Short Int. as % of Shares Out. 13.2% Market Capitalization and Firm Value Valuation Beneficial Ownership by Category (f) Stock Price as of 4/5/19 $1.90 Enterprise Value as a Multiple of: Beneficial Percent of Shares Outstanding (d) 22.7 Ownership Total Option Equivalent Shares (e) -- FY2018A Sales (a) (b) 0.1 x Edward Lampert 13.3 58.8% Equity Value $43.1 FY2018A EBITDA (a) (b) 10.0 x Insiders 0.1 0.6% Plus: Total Debt 132.1 Top 10 Institutions 5.4 23.6% Plus: Minority Interest -- FY 2019P Sales (a) (b) 0.2 x Public and Other 3.9 17.0% Plus: Preferred Stock -- FY 2019P Adj. EBITDA (a) (b) 5.5 x Total 22.7 100.0% Less: Cash & Cash Equivalents (15.1) Enterprise Value $160.1 P/E Ratios: FY 2019 EPS estimate (a) (b) NM FY 2020 EPS estimate (a) (b) NM FY 2021 EPS estimate (a) (b) 2.2 x (a) Adjusted to exclude unusual and extraordinary items. (b) Source: March 2019 Management Projections. (c) Assumes 8.0x rent methodology. (d) Shares outstanding as of December 7, 2018. Source: Company's Form 10-Q for the period ended December 7, 2018. (e) Assumes the treasury stock method with no in-the-money options outstanding. (f) Includes exercisable options held by directors and executive officers. Source: Company's Proxy Statement dated April 19, 2018 and Bloomberg. 5SUMMARY CAPITALIZATION AND VALUATION (Amounts in Millions, Except Per Share Data) Stock Information Financial Information Credit Statistics Ticker Symbol SHOS Fiscal Year End Feb-19 As of Stock Exchange NasdaqCM Feb-19 Stock Price as of 4/5/19 $1.90 Adjusted Debt / EBITDAR (c) 8.0 x FY 2018A Sales (a) (b) $1,449.9 Total Debt / EBITDA 8.2 x 52-Week Stock Price FY 2018A Adj. EBITDA (a) (b) 16.0 Net Debt / EBITDA 7.3 x High 4/16/18 $3.55 EBITDA / Interest, Net 1.1 x FY 2019P Sales (a) (b) $716.3 Low 12/27/18 1.58 Since IPO Stock Price FY 2019P Adj. EBITDA (a) (b) 29.3 Total Debt / Total Capitalization 53.6% High 6/3/16 $56.65 Net Debt / Net Capitalization 50.6% Low 12/27/18 1.58 FY 2019 EPS estimate (a) (b) -- FY 2020 EPS estimate (a) (b) ($2.88) Credit Rating S&P NA Average Daily Volume (3 Mo.) 0.2 FY 2021 EPS estimate (a) (b) $0.87 Moody's NA Shares Sold Short 3.0 Long-Term EPS Growth NA Short Int. as % of Shares Out. 13.2% Market Capitalization and Firm Value Valuation Beneficial Ownership by Category (f) Stock Price as of 4/5/19 $1.90 Enterprise Value as a Multiple of: Beneficial Percent of Shares Outstanding (d) 22.7 Ownership Total Option Equivalent Shares (e) -- FY2018A Sales (a) (b) 0.1 x Edward Lampert 13.3 58.8% Equity Value $43.1 FY2018A EBITDA (a) (b) 10.0 x Insiders 0.1 0.6% Plus: Total Debt 132.1 Top 10 Institutions 5.4 23.6% Plus: Minority Interest -- FY 2019P Sales (a) (b) 0.2 x Public and Other 3.9 17.0% Plus: Preferred Stock -- FY 2019P Adj. EBITDA (a) (b) 5.5 x Total 22.7 100.0% Less: Cash & Cash Equivalents (15.1) Enterprise Value $160.1 P/E Ratios: FY 2019 EPS estimate (a) (b) NM FY 2020 EPS estimate (a) (b) NM FY 2021 EPS estimate (a) (b) 2.2 x (a) Adjusted to exclude unusual and extraordinary items. (b) Source: March 2019 Management Projections. (c) Assumes 8.0x rent methodology. (d) Shares outstanding as of December 7, 2018. Source: Company's Form 10-Q for the period ended December 7, 2018. (e) Assumes the treasury stock method with no in-the-money options outstanding. (f) Includes exercisable options held by directors and executive officers. Source: Company's Proxy Statement dated April 19, 2018 and Bloomberg. 5
Volume (000s) Volume (000s) SUMMARY HISTORICAL STOCK PRICE PERFORMANCE STOCK PRICE PERFORMANCE – LAST TWELVE MONTHS 5.00 1.0 4.50 4.00 0.8 3.50 3.00 0.6 2.50 2.00 0.4 $1.90 1.50 1.00 0.2 0.50 0.00 0.0 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 STOCK PRICE PERFORMANCE – SINCE OCTOBER 12, 2012 SHO SPINOUT $60.00 2.0 50.00 1.6 40.00 1.2 30.00 0.8 20.00 0.4 10.00 $1.90 0.00 0.0 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Source: Capital IQ as of April 5, 2019. 6 Closing Stock Price Closing Stock PriceVolume (000s) Volume (000s) SUMMARY HISTORICAL STOCK PRICE PERFORMANCE STOCK PRICE PERFORMANCE – LAST TWELVE MONTHS 5.00 1.0 4.50 4.00 0.8 3.50 3.00 0.6 2.50 2.00 0.4 $1.90 1.50 1.00 0.2 0.50 0.00 0.0 Apr-18 Jun-18 Aug-18 Oct-18 Dec-18 Feb-19 Apr-19 STOCK PRICE PERFORMANCE – SINCE OCTOBER 12, 2012 SHO SPINOUT $60.00 2.0 50.00 1.6 40.00 1.2 30.00 0.8 20.00 0.4 10.00 $1.90 0.00 0.0 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Source: Capital IQ as of April 5, 2019. 6 Closing Stock Price Closing Stock Price
Volume (000s) SUMMARY HISTORICAL STOCK PRICE PERFORMANCE Key events, news and SHC activity KEY EVENTS 10.00 2.0 (01/17/2019) SHC announces that (2/11/16) Edward (3/14/17) SHC (02/20/2018) ESL won the Lampert announces (03/10/17) SHO Q4 announces sale of Announcement of bankruptcy court that he controls over Results announced Craftsman brand to $40M TL auction 50% of SHO’s (4.1%) SSS Stanley Black & outstanding shares Decker (07/12/2018) Q3 (12/5/2016) results announced 8.00 Overtures by ESL for 1.6 with SSS Q decline SHO to participate in of (0.2%) SHC Home Services (9/6/17) SHO Q2 acquisition Results announced (2.1%) SSS (03/29/2019) Q4 (08/30/2018) results announced Upbeat preliminary with SSS Q decline Q2 results of (8.5%) 6.00 1.2 (6/2/17) SHO Q1 Results announced (7.3%) SSS (04/19/2018) (10/15/2018) SHC Annual results, files for Chapter 11 SSS decline of with the intention to (12.4%) sell the business as a going concern (06/08/2018) Q1 results (12/01/2017) Q3 Announcement that 4.00 0.8 results impacted by 90-100 stores will be Hurricanes SSS Q closed (9.1%) 2.00 0.4 Median: $2.60 $1.90 0.00 0.0 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Source: Capital IQ as of April 5, 2019. 7 Closing Stock PriceVolume (000s) SUMMARY HISTORICAL STOCK PRICE PERFORMANCE Key events, news and SHC activity KEY EVENTS 10.00 2.0 (01/17/2019) SHC announces that (2/11/16) Edward (3/14/17) SHC (02/20/2018) ESL won the Lampert announces (03/10/17) SHO Q4 announces sale of Announcement of bankruptcy court that he controls over Results announced Craftsman brand to $40M TL auction 50% of SHO’s (4.1%) SSS Stanley Black & outstanding shares Decker (07/12/2018) Q3 (12/5/2016) results announced 8.00 Overtures by ESL for 1.6 with SSS Q decline SHO to participate in of (0.2%) SHC Home Services (9/6/17) SHO Q2 acquisition Results announced (2.1%) SSS (03/29/2019) Q4 (08/30/2018) results announced Upbeat preliminary with SSS Q decline Q2 results of (8.5%) 6.00 1.2 (6/2/17) SHO Q1 Results announced (7.3%) SSS (04/19/2018) (10/15/2018) SHC Annual results, files for Chapter 11 SSS decline of with the intention to (12.4%) sell the business as a going concern (06/08/2018) Q1 results (12/01/2017) Q3 Announcement that 4.00 0.8 results impacted by 90-100 stores will be Hurricanes SSS Q closed (9.1%) 2.00 0.4 Median: $2.60 $1.90 0.00 0.0 Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Source: Capital IQ as of April 5, 2019. 7 Closing Stock Price
VOLUME WEIGHTED AVERAGE PRICE BY RANGE VOLUME PER PRICE RANGE – LAST TWELVE MONTHS Number of trading days with Average LTM Daily Volume: daily VWAP in ranges below 67,295 85 68 34 23 17 15 7 3 1 $1.50 - $1.75 $1.76 - $2.00 $2.01 - $2.25 $2.26 - $2.50 $2.51 - $2.75 $2.76 - $3.00 $3.01 - $3.25 $3.26 - $3.50 $3.51 - $3.75 VWAP Range Volume Distribution (%) 1.8% 18.3% 28.4% 27.8% 5.6% 6.8% 7.1% 2.0% 2.2% Source: Capital IQ as of April 5, 2019. 8VOLUME WEIGHTED AVERAGE PRICE BY RANGE VOLUME PER PRICE RANGE – LAST TWELVE MONTHS Number of trading days with Average LTM Daily Volume: daily VWAP in ranges below 67,295 85 68 34 23 17 15 7 3 1 $1.50 - $1.75 $1.76 - $2.00 $2.01 - $2.25 $2.26 - $2.50 $2.51 - $2.75 $2.76 - $3.00 $3.01 - $3.25 $3.26 - $3.50 $3.51 - $3.75 VWAP Range Volume Distribution (%) 1.8% 18.3% 28.4% 27.8% 5.6% 6.8% 7.1% 2.0% 2.2% Source: Capital IQ as of April 5, 2019. 8
SHO FINANCIAL PROJECTIONS 9SHO FINANCIAL PROJECTIONS 9
PROJECTED FINANCIAL PERFORMANCE (Amounts in Millions, Except Per Share Data) Pro-Forma Pro-Forma Hometown Outlet Liquidation Only Income Statement Data 2018A 2019P 2020P 2021P Net Sales $1,449.9 $716.3 $476.6 $478.8 Gross Profit 323.2 221.9 209.5 210.8 EBITDA (24.5) (37.3) 26.3 27.1 EBIT (24.9) (56.4) 21.8 22.3 Net Income (53.5) (65.4) 19.7 21.2 Diluted EPS ($2.36) ($2.88) $0.87 $0.94 Pro Forma EBITDA (a) 16.0 $29.3 $26.3 $27.1 Number of Stores 677 139 141 142 Margins Gross Margin 22.3% 31.0% 44.0% 44.0% EBITDA (1.7%) (5.2%) 5.5% 5.7% EBIT (1.7%) (7.9%) 4.6% 4.7% Pro Forma EBITDA (a) 1.1% 4.1% 5.5% 5.7% Growth Rates Net Sales (15.7%) NM NM 0.5% Pro Forma EBITDA (a) NM NM (10.5%) 3.1% Balance Sheet and Cash Flow Data Cash $15.1 $4.3 $4.4 $16.3 Total Debt 132.1 18.7 6.2 -- Depreciation and Amortization 12.4 19.1 4.5 4.8 Capital Expenditures (8.4) (1.5) (5.6) (5.6) Asset Sale Proceeds 2.8 3.7 -- -- Change in Net Working Capital (52.1) (148.5) 6.0 2.3 (a) Adjusted EBITDA for 2018A. Source: March 2019 Management Plan. The management plan contemplates the liquidation of the Hometown segment during the second quarter of fiscal 2019. 10PROJECTED FINANCIAL PERFORMANCE (Amounts in Millions, Except Per Share Data) Pro-Forma Pro-Forma Hometown Outlet Liquidation Only Income Statement Data 2018A 2019P 2020P 2021P Net Sales $1,449.9 $716.3 $476.6 $478.8 Gross Profit 323.2 221.9 209.5 210.8 EBITDA (24.5) (37.3) 26.3 27.1 EBIT (24.9) (56.4) 21.8 22.3 Net Income (53.5) (65.4) 19.7 21.2 Diluted EPS ($2.36) ($2.88) $0.87 $0.94 Pro Forma EBITDA (a) 16.0 $29.3 $26.3 $27.1 Number of Stores 677 139 141 142 Margins Gross Margin 22.3% 31.0% 44.0% 44.0% EBITDA (1.7%) (5.2%) 5.5% 5.7% EBIT (1.7%) (7.9%) 4.6% 4.7% Pro Forma EBITDA (a) 1.1% 4.1% 5.5% 5.7% Growth Rates Net Sales (15.7%) NM NM 0.5% Pro Forma EBITDA (a) NM NM (10.5%) 3.1% Balance Sheet and Cash Flow Data Cash $15.1 $4.3 $4.4 $16.3 Total Debt 132.1 18.7 6.2 -- Depreciation and Amortization 12.4 19.1 4.5 4.8 Capital Expenditures (8.4) (1.5) (5.6) (5.6) Asset Sale Proceeds 2.8 3.7 -- -- Change in Net Working Capital (52.1) (148.5) 6.0 2.3 (a) Adjusted EBITDA for 2018A. Source: March 2019 Management Plan. The management plan contemplates the liquidation of the Hometown segment during the second quarter of fiscal 2019. 10
HISTORICAL SEGMENT FINANCIALS ($ in Millions) Hometown Outlet 2016 2017 2018 2016 2017 2018 Net Sales $1,439.6 $1,177.2 $958.5 $630.5 $542.7 $491.6 Growth (11.7%) (18.2%) (18.6%) (4.1%) (13.9%) (9.4%) Comp Sales Growth (4.2%) (8.1%) (6.0%) (5.1%) (9.1%) (1.8%) Gross Profit $293.9 $246.1 $189.9 $114.9 $102.4 $133.3 Margin 20.4% 20.9% 19.8% 18.2% 18.9% 27.1% Adjusted EBITDA $0.5 ($7.5) ($19.7) ($19.0) ($7.0) $35.7 Margin 0.0% (0.6%) (2.1%) (3.0%) (1.3%) 7.3% Source: Public filings. 11HISTORICAL SEGMENT FINANCIALS ($ in Millions) Hometown Outlet 2016 2017 2018 2016 2017 2018 Net Sales $1,439.6 $1,177.2 $958.5 $630.5 $542.7 $491.6 Growth (11.7%) (18.2%) (18.6%) (4.1%) (13.9%) (9.4%) Comp Sales Growth (4.2%) (8.1%) (6.0%) (5.1%) (9.1%) (1.8%) Gross Profit $293.9 $246.1 $189.9 $114.9 $102.4 $133.3 Margin 20.4% 20.9% 19.8% 18.2% 18.9% 27.1% Adjusted EBITDA $0.5 ($7.5) ($19.7) ($19.0) ($7.0) $35.7 Margin 0.0% (0.6%) (2.1%) (3.0%) (1.3%) 7.3% Source: Public filings. 11
SUMMARY VALUATION ANALYSIS 12SUMMARY VALUATION ANALYSIS 12
SUMMARY VALUATION OVERVIEW Transform HoldCo Offer: $2.25 52-Week Trading Range $1.58 $3.55 Selected Precedent Transactions (a) $0.19 $3.36 Selected Public Companies (a) -- $0.40 Selected Public Companies (assumes Management Liquidation $5.96 $9.58 Plan) (b) Discounted Cash Flow (assumes Management Liquidation $6.04 $8.05 Plan) (c) -- $2.00 $4.00 $6.00 $8.00 $10.00 (a) Based on LTM EBITDA and net debt of $115.9M as of end of March 2019. (b) Based on management projections for FY 2019 and FY 2020 EBITDA and net debt of $14.4M as of end of FY2019, accounting for the effect of liquidating Hometown. (c) Impacted by liquidation of Hometown segment. 13SUMMARY VALUATION OVERVIEW Transform HoldCo Offer: $2.25 52-Week Trading Range $1.58 $3.55 Selected Precedent Transactions (a) $0.19 $3.36 Selected Public Companies (a) -- $0.40 Selected Public Companies (assumes Management Liquidation $5.96 $9.58 Plan) (b) Discounted Cash Flow (assumes Management Liquidation $6.04 $8.05 Plan) (c) -- $2.00 $4.00 $6.00 $8.00 $10.00 (a) Based on LTM EBITDA and net debt of $115.9M as of end of March 2019. (b) Based on management projections for FY 2019 and FY 2020 EBITDA and net debt of $14.4M as of end of FY2019, accounting for the effect of liquidating Hometown. (c) Impacted by liquidation of Hometown segment. 13
SELECTED PUBLIC COMPANIES AND PRECEDENT TRANSACTIONS Implied valuation based on selected public companies and precedent transactions ($ in Millions) Selected EBITDA Multiples Implied TEV Implied Equity Value (a) Implied Per Share Value Year EBITDA Low High Low High Low High Low High Selected Public Companies Current 2018A Adjusted $16.0 5.8 x 7.8 x $92.9 $125.0 ($23.0) $9.1 -- $0.40 Precedent Transactions Current 2018A Adjusted $16.0 7.5 x 12.0 x $120.2 $192.3 $4.3 $76.4 $0.19 $3.36 (a) Equity value based on projected net debt of $115.9M as of end of March 2019. 14SELECTED PUBLIC COMPANIES AND PRECEDENT TRANSACTIONS Implied valuation based on selected public companies and precedent transactions ($ in Millions) Selected EBITDA Multiples Implied TEV Implied Equity Value (a) Implied Per Share Value Year EBITDA Low High Low High Low High Low High Selected Public Companies Current 2018A Adjusted $16.0 5.8 x 7.8 x $92.9 $125.0 ($23.0) $9.1 -- $0.40 Precedent Transactions Current 2018A Adjusted $16.0 7.5 x 12.0 x $120.2 $192.3 $4.3 $76.4 $0.19 $3.36 (a) Equity value based on projected net debt of $115.9M as of end of March 2019. 14
SELECTED PUBLIC COMPANIES Implied valuation based on selected public companies and management projections ($ in Millions) Selected EBITDA Multiples Implied TEV Implied Equity Value (a) Implied Per Share Value Year EBITDA Low High Low High Low High Low High Selected Public Companies 2019 Pro Forma 29.3 5.9 x 7.9 x 173.1 231.8 158.7 217.4 6.99 9.58 Management Plan 2020 Pro Forma 26.3 5.7 x 7.7 x 149.7 202.3 135.4 187.9 5.96 8.28 (a) Equity value based on projected net debt of $14.4mm as of year-end FY2019, accounting for the effect of liquidating Hometown. 15SELECTED PUBLIC COMPANIES Implied valuation based on selected public companies and management projections ($ in Millions) Selected EBITDA Multiples Implied TEV Implied Equity Value (a) Implied Per Share Value Year EBITDA Low High Low High Low High Low High Selected Public Companies 2019 Pro Forma 29.3 5.9 x 7.9 x 173.1 231.8 158.7 217.4 6.99 9.58 Management Plan 2020 Pro Forma 26.3 5.7 x 7.7 x 149.7 202.3 135.4 187.9 5.96 8.28 (a) Equity value based on projected net debt of $14.4mm as of year-end FY2019, accounting for the effect of liquidating Hometown. 15
SELECTED PUBLIC COMPANIES (Amounts in Millions, Except for Per Share Amounts) Market Data Closing Enterprise Value as a Multiple of: 5-Year Selected Price on Equity Enterprise LTM CY2019 CY2020 Price / EPS Growth PE / Growth Companies 4/5/2019 Value Value (b) Net Sales EBITDA EBITDA EBITDA CY2019 CY2020 Rate CY2019 CY2020 The Home Depot, Inc. $202.06 $223,758 $251,185 232.1 % 14.0 x 13.7 x 13.0 x 20.0 % 18.4 x 10.0 x 2.0 x 1.8 x Lowe's Companies, Inc. 114.98 91,634 107,128 150.2 13.9 12.8 12.0 19.0 16.4 14.7 1.3 1.1 Best Buy Co., Inc. 74.77 20,121 19,536 45.6 7.1 7.0 6.8 13.3 12.5 8.0 1.7 1.6 Bed Bath & Beyond Inc. 18.34 2,521 3,020 24.3 3.6 4.2 4.5 10.0 10.5 (15.5) (0.6) (0.7) Haverty Furniture Companies, Inc. 23.99 494 473 57.9 6.6 6.9 6.6 16.4 15.5 10.0 1.6 1.5 Kirkland's 6.78 97 39 6.1 1.1 1.2 1.2 37.7 24.2 16.0 2.4 1.5 Median 51.7 % 6.8 x 6.9 x 6.7 x 17.7 % 16.0 x 10.0 x 1.7 x 1.5 x Mean 86.0 7.7 7.6 7.3 19.4 16.2 7.2 1.4 1.1 Operating Data Margins Leverage and Coverate Ratios Selected Net Sales EBITDA EBIT EBITDA / Sales EBIT / Sales Total Debt/ Net Debt/ EBITDA/ Companies LTM CAGR LTM CAGR LTM CAGR LTM Average LTM Average EBITDA EBITDA Net Interest The Home Depot, Inc. $108,203 7.0 % $17,929 7.9 % $15,777 8.4 % 16.6 % 16.5 % 14.6 % 14.5 % 1.6 x 1.5 x 18.7 x Lowe's Companies, Inc. 71,309 4.7 7,712 0.4 6,105 1.6 10.8 11.3 8.6 9.1 2.1 2.0 12.4 Best Buy Co., Inc. 42,879 4.3 2,758 3.2 1,988 1.4 6.4 6.4 4.6 4.7 0.5 (0.2) NM Bed Bath & Beyond Inc. 12,437 1.0 849 (19.6) 517 (25.8) 6.8 11.5 4.2 9.1 1.8 0.6 12.1 Haverty Furniture Companies, Inc. 818 (0.2) 72 (1.0) 42 (2.6) 8.8 8.8 5.1 5.2 0.7 (0.3) NM Kirkland's 647 4.3 34 (9.9) 5 (46.4) 5.3 6.1 0.8 1.7 NM (1.7) NM Median 4.3 % (0.3) % (0.6) % 7.8 % 10.1 % 4.9 % 7.1 % 1.6 x 0.2 x 12.4 x Mean 3.5 (3.2) (10.6) 9.1 10.1 6.3 7.4 1.3 0.3 14.4 Source: Company filings, Capital IQ and other publicly available sources. Note: CAGRs (Compound Annual Growth Rates) and Averages are for the last three completed fiscal years for each company. All operating data has been adjusted to exclude unusual and extraordinary items. (a) Source of projected EPS, EBITDA and growth rate estimates: Thomson Reuters median estimate of Wall Street analysts as of April 5, 2019. (b) Enterprise value represents equity value plus book values of total debt, preferred stock and minority interest less cash. 16SELECTED PUBLIC COMPANIES (Amounts in Millions, Except for Per Share Amounts) Market Data Closing Enterprise Value as a Multiple of: 5-Year Selected Price on Equity Enterprise LTM CY2019 CY2020 Price / EPS Growth PE / Growth Companies 4/5/2019 Value Value (b) Net Sales EBITDA EBITDA EBITDA CY2019 CY2020 Rate CY2019 CY2020 The Home Depot, Inc. $202.06 $223,758 $251,185 232.1 % 14.0 x 13.7 x 13.0 x 20.0 % 18.4 x 10.0 x 2.0 x 1.8 x Lowe's Companies, Inc. 114.98 91,634 107,128 150.2 13.9 12.8 12.0 19.0 16.4 14.7 1.3 1.1 Best Buy Co., Inc. 74.77 20,121 19,536 45.6 7.1 7.0 6.8 13.3 12.5 8.0 1.7 1.6 Bed Bath & Beyond Inc. 18.34 2,521 3,020 24.3 3.6 4.2 4.5 10.0 10.5 (15.5) (0.6) (0.7) Haverty Furniture Companies, Inc. 23.99 494 473 57.9 6.6 6.9 6.6 16.4 15.5 10.0 1.6 1.5 Kirkland's 6.78 97 39 6.1 1.1 1.2 1.2 37.7 24.2 16.0 2.4 1.5 Median 51.7 % 6.8 x 6.9 x 6.7 x 17.7 % 16.0 x 10.0 x 1.7 x 1.5 x Mean 86.0 7.7 7.6 7.3 19.4 16.2 7.2 1.4 1.1 Operating Data Margins Leverage and Coverate Ratios Selected Net Sales EBITDA EBIT EBITDA / Sales EBIT / Sales Total Debt/ Net Debt/ EBITDA/ Companies LTM CAGR LTM CAGR LTM CAGR LTM Average LTM Average EBITDA EBITDA Net Interest The Home Depot, Inc. $108,203 7.0 % $17,929 7.9 % $15,777 8.4 % 16.6 % 16.5 % 14.6 % 14.5 % 1.6 x 1.5 x 18.7 x Lowe's Companies, Inc. 71,309 4.7 7,712 0.4 6,105 1.6 10.8 11.3 8.6 9.1 2.1 2.0 12.4 Best Buy Co., Inc. 42,879 4.3 2,758 3.2 1,988 1.4 6.4 6.4 4.6 4.7 0.5 (0.2) NM Bed Bath & Beyond Inc. 12,437 1.0 849 (19.6) 517 (25.8) 6.8 11.5 4.2 9.1 1.8 0.6 12.1 Haverty Furniture Companies, Inc. 818 (0.2) 72 (1.0) 42 (2.6) 8.8 8.8 5.1 5.2 0.7 (0.3) NM Kirkland's 647 4.3 34 (9.9) 5 (46.4) 5.3 6.1 0.8 1.7 NM (1.7) NM Median 4.3 % (0.3) % (0.6) % 7.8 % 10.1 % 4.9 % 7.1 % 1.6 x 0.2 x 12.4 x Mean 3.5 (3.2) (10.6) 9.1 10.1 6.3 7.4 1.3 0.3 14.4 Source: Company filings, Capital IQ and other publicly available sources. Note: CAGRs (Compound Annual Growth Rates) and Averages are for the last three completed fiscal years for each company. All operating data has been adjusted to exclude unusual and extraordinary items. (a) Source of projected EPS, EBITDA and growth rate estimates: Thomson Reuters median estimate of Wall Street analysts as of April 5, 2019. (b) Enterprise value represents equity value plus book values of total debt, preferred stock and minority interest less cash. 16
PRECEDENT HARDLINES TRANSACTIONS (Amounts in Millions) Date Enterprise Enterprise Value / LTM Announced Acquiror Target Value Sales EBITDA Jun-18 Vintage Capital Rent-A-Center 1,360 0.5 x 22.0 x Jun-17 Monomoy Capital West Marine $286 ND 7.6 Sycamore Staples Oct-16 6,555 ND 4.7 Nov-16 Cerberus Capital Management Staples Inc. (European Operations) ND ND ND Oct-16 Bass Pro Shops Cabela's 4,684 (a) 1.3 10.6 Aug-16 Steinhoff Mattress Firm 3,897 1.4 15.6 Jul-16 Freeman Spogli Batteries Plus Bulbs ND ND ND Jun-16 Bed Bath & Beyond One Kings Lane ND ND ND Apr-16 Restoration Hardware Waterworks 117 ND ND Feb-16 Lowe's Rona 3,049 CAD 0.7 12.1 Jan-16 KKR Mills Fleet Farms $1,200 ND 10.0 Dec-15 Icahn Industries Pep Boys 1,160 0.6 14.0 Nov-15 Mattress Firm Sleepy's 780 0.7 11.1 Jun-15 GameStop Geeknet 106 0.8 NM Oct-14 Brentwood Z Gallerie ND ND ND Jun-14 Shanghai International and Sanpower Brookstone 283 0.6 NM Feb-14 Signet Jewelers Limited Zale Corporation 1,174 0.6 14.8 Jan-14 Home Depot Blinds.com (GCC) ND ND ND Jan-14 Freeman Spogli Arhaus ND ND ND Dec-13 Bain Capital Bob's Discount Furniture 405 0.5 8.1 Oct-13 Advance Auto Parts General Parts International 2,040 (b) 0.7 9.3 Sep-13 Jarden Yankee Candle Investments 1,805 2.1 8.9 Feb-13 OfficeMax Office Depot 1,148 0.2 5.7 Nov-12 Northern Tool + Equipment (NTE) The Sportsman's Guide 215 0.5 ND Aug-12 CCMP Capital Advisors Ollie's Bargain Outlet 700 1.6 12.7 Jun-12 Thomas H. Lee Partners Party City 2,690 ND ND May-12 Bed Bath & Beyond Cost Plus 683 0.7 12.8 May-12 Madison Dearborn Partners Things Remembered 295 0.9 (c) ND May-12 Golf Town USA Golfsmith International 150 0.4 7.7 Sep-11 Investcorp Bank Sur La Table ND ND ND Jul-11 AEA Investors Garden Ridge 714 2.1 8.2 May-11 Canadian Tire Corp. The Forzani Group 797 CAD 0.6 8.0 Nov-10 Ares Management / Freeman Spogli Floor and Décor Outlets of America ND ND 10.0 Source: SEC filings and other publicly available data. (a) EBITDA multiple assumes 50% of corporate overhead and D&A attributed to retail segment. (b) Investor Presentation dated October 16, 2013. (c) Based on sales of $315mm for the FY ended Jan. 28, 2012 per Moody's Investors Service. 17PRECEDENT HARDLINES TRANSACTIONS (Amounts in Millions) Date Enterprise Enterprise Value / LTM Announced Acquiror Target Value Sales EBITDA Jun-18 Vintage Capital Rent-A-Center 1,360 0.5 x 22.0 x Jun-17 Monomoy Capital West Marine $286 ND 7.6 Sycamore Staples Oct-16 6,555 ND 4.7 Nov-16 Cerberus Capital Management Staples Inc. (European Operations) ND ND ND Oct-16 Bass Pro Shops Cabela's 4,684 (a) 1.3 10.6 Aug-16 Steinhoff Mattress Firm 3,897 1.4 15.6 Jul-16 Freeman Spogli Batteries Plus Bulbs ND ND ND Jun-16 Bed Bath & Beyond One Kings Lane ND ND ND Apr-16 Restoration Hardware Waterworks 117 ND ND Feb-16 Lowe's Rona 3,049 CAD 0.7 12.1 Jan-16 KKR Mills Fleet Farms $1,200 ND 10.0 Dec-15 Icahn Industries Pep Boys 1,160 0.6 14.0 Nov-15 Mattress Firm Sleepy's 780 0.7 11.1 Jun-15 GameStop Geeknet 106 0.8 NM Oct-14 Brentwood Z Gallerie ND ND ND Jun-14 Shanghai International and Sanpower Brookstone 283 0.6 NM Feb-14 Signet Jewelers Limited Zale Corporation 1,174 0.6 14.8 Jan-14 Home Depot Blinds.com (GCC) ND ND ND Jan-14 Freeman Spogli Arhaus ND ND ND Dec-13 Bain Capital Bob's Discount Furniture 405 0.5 8.1 Oct-13 Advance Auto Parts General Parts International 2,040 (b) 0.7 9.3 Sep-13 Jarden Yankee Candle Investments 1,805 2.1 8.9 Feb-13 OfficeMax Office Depot 1,148 0.2 5.7 Nov-12 Northern Tool + Equipment (NTE) The Sportsman's Guide 215 0.5 ND Aug-12 CCMP Capital Advisors Ollie's Bargain Outlet 700 1.6 12.7 Jun-12 Thomas H. Lee Partners Party City 2,690 ND ND May-12 Bed Bath & Beyond Cost Plus 683 0.7 12.8 May-12 Madison Dearborn Partners Things Remembered 295 0.9 (c) ND May-12 Golf Town USA Golfsmith International 150 0.4 7.7 Sep-11 Investcorp Bank Sur La Table ND ND ND Jul-11 AEA Investors Garden Ridge 714 2.1 8.2 May-11 Canadian Tire Corp. The Forzani Group 797 CAD 0.6 8.0 Nov-10 Ares Management / Freeman Spogli Floor and Décor Outlets of America ND ND 10.0 Source: SEC filings and other publicly available data. (a) EBITDA multiple assumes 50% of corporate overhead and D&A attributed to retail segment. (b) Investor Presentation dated October 16, 2013. (c) Based on sales of $315mm for the FY ended Jan. 28, 2012 per Moody's Investors Service. 17
DISCOUNTED CASH FLOW ANALYSIS DISCOUNTED CASH FLOW ANALYSIS ($ in Millions, Except Per Share Data) Fiscal Period Apr - Jan 2019 2020 2021 2022 Revenue $532.7 $476.6 $478.8 $481.1 EBITDA ($33.2) $26.3 $27.1 $27.2 Depreciation & Amortization (17.9) (4.5) (4.8) (4.5) EBIT ($51.1) $21.8 $22.3 $22.7 Taxes (0.7) (0.3) (0.3) (0.3) Depreciation & Amortization $17.9 $4.5 $4.8 $4.5 Other-Non Cash Charges to EBITDA (a) 17.4 -- -- -- Net Capital Expenditures (b) (1.6) (5.6) (5.6) (5.6) Decrease / (Increase) in NWC (c) 142.1 (6.0) (2.3) (0.3) Unlevered Free Cash Flow $123.9 $14.4 $18.9 $21.0 Terminal Value / EBITDA Multiple 5.5 x 5.5 x 5.5 x 6.5 x 6.5 x 6.5 x 7.5 x 7.5 x 7.5 x Discount Rate 11.0% 12.0% 13.0% 11.0% 12.0% 13.0% 11.0% 12.0% 13.0% Present Value of Free Cash Flow $161.9 $160.6 $159.4 $161.9 $160.6 $159.4 $161.9 $160.6 $159.4 Present Value of Terminal Value 100.3 96.9 93.7 118.5 114.5 110.7 136.8 132.1 127.7 Total Enterprise Value $262.1 $257.5 $253.0 $280.4 $275.1 $270.1 $298.6 $292.7 $287.1 Net Debt 115.9 115.9 115.9 115.9 115.9 115.9 115.9 115.9 115.9 Total Equity Value $146.2 $141.6 $137.1 $164.5 $159.2 $154.2 $182.7 $176.8 $171.2 Total Equity Value Per Share $6.44 $6.24 $6.04 $7.25 $7.01 $6.79 $8.05 $7.79 $7.54 Terminal Value as a % of Total Value 38.3% 37.6% 37.0% 42.3% 41.6% 41.0% 45.8% 45.1% 44.5% Note: Reflects plan to liquidate Hometown segment beginning in April 2019. Note: Values for 2022 are based on extrapolations, holding 2021 revenue growth, adj. EBITDA margin, D&A as a % of sales, Capital Expenditures as a % of sales and Net Working Capital as a % of sales constant. Net debt is as of end of March 2019. (a) Includes inventory write-offs and revaluation charges on inventory transferred during the Hometown liquidation. (b) Net of cash proceeds from planned asset sales. (c) 2019 working capital cash flow impacted by liquidation of Hometown segment. 18DISCOUNTED CASH FLOW ANALYSIS DISCOUNTED CASH FLOW ANALYSIS ($ in Millions, Except Per Share Data) Fiscal Period Apr - Jan 2019 2020 2021 2022 Revenue $532.7 $476.6 $478.8 $481.1 EBITDA ($33.2) $26.3 $27.1 $27.2 Depreciation & Amortization (17.9) (4.5) (4.8) (4.5) EBIT ($51.1) $21.8 $22.3 $22.7 Taxes (0.7) (0.3) (0.3) (0.3) Depreciation & Amortization $17.9 $4.5 $4.8 $4.5 Other-Non Cash Charges to EBITDA (a) 17.4 -- -- -- Net Capital Expenditures (b) (1.6) (5.6) (5.6) (5.6) Decrease / (Increase) in NWC (c) 142.1 (6.0) (2.3) (0.3) Unlevered Free Cash Flow $123.9 $14.4 $18.9 $21.0 Terminal Value / EBITDA Multiple 5.5 x 5.5 x 5.5 x 6.5 x 6.5 x 6.5 x 7.5 x 7.5 x 7.5 x Discount Rate 11.0% 12.0% 13.0% 11.0% 12.0% 13.0% 11.0% 12.0% 13.0% Present Value of Free Cash Flow $161.9 $160.6 $159.4 $161.9 $160.6 $159.4 $161.9 $160.6 $159.4 Present Value of Terminal Value 100.3 96.9 93.7 118.5 114.5 110.7 136.8 132.1 127.7 Total Enterprise Value $262.1 $257.5 $253.0 $280.4 $275.1 $270.1 $298.6 $292.7 $287.1 Net Debt 115.9 115.9 115.9 115.9 115.9 115.9 115.9 115.9 115.9 Total Equity Value $146.2 $141.6 $137.1 $164.5 $159.2 $154.2 $182.7 $176.8 $171.2 Total Equity Value Per Share $6.44 $6.24 $6.04 $7.25 $7.01 $6.79 $8.05 $7.79 $7.54 Terminal Value as a % of Total Value 38.3% 37.6% 37.0% 42.3% 41.6% 41.0% 45.8% 45.1% 44.5% Note: Reflects plan to liquidate Hometown segment beginning in April 2019. Note: Values for 2022 are based on extrapolations, holding 2021 revenue growth, adj. EBITDA margin, D&A as a % of sales, Capital Expenditures as a % of sales and Net Working Capital as a % of sales constant. Net debt is as of end of March 2019. (a) Includes inventory write-offs and revaluation charges on inventory transferred during the Hometown liquidation. (b) Net of cash proceeds from planned asset sales. (c) 2019 working capital cash flow impacted by liquidation of Hometown segment. 18
ADDITIONAL ANALYSES 19ADDITIONAL ANALYSES 19
HOMETOWN WINDDOWN ANALYSIS LIQUIDATION EXPENSE SENSITIVITY ANALYSIS Book Inventory $176.4 Management Projection Book Inventory $176.4 $176.4 $176.4 $176.4 $176.4 Transfers to Outlet (34.8) Transfers to Outlet (34.8) (34.8) (34.8) (34.8) (34.8) Inventory avl. for Liquidation $141.6 Inventory avl. for Liquidation $141.6 $141.6 $141.6 $141.6 $141.6 Est. Inventory Writeoffs / Revaluation (17.4) Liquidation Expenses ($52.2) ($46.5) (42.3) ($38.0) ($32.4) Realization Above (Below) Cost 0.0 Net Realization of Liquidation $89.4 $95.1 $99.3 $103.6 $109.2 Liquidation Expenses (24.9) Net Realization % 63.1% 67.1% 70.1% 73.1% 77.1% Net Realization on Transf. Inv. 35.8 35.8 35.8 35.8 35.8 Net Realization of Liquidation $99.3 Net Proceeds Subtotal $125.2 $130.9 $135.1 $139.4 $145.0 Net Realization on Transferred Inventory 35.8 Additional Liquidation Expense (16.3) (15.3) ($14.3) (13.3) (12.3) Net Proceeds Subtotal $135.1 Minimum proceeds balance (5.6) (5.6) (5.6) (5.6) (5.6) Additional Liquidation Expense (14.3) Balance Sheet Clearing (103.4) (110.0) (115.3) (120.5) (127.2) Balance Sheet Clearing (115.3) Incremental Impact on Equity Value (Sensitivity) ($11.9) ($5.2) -- $5.2 $11.9 Net Proceeds $5.6 Funded Debt left as of Jan 2020 $30.6 $24.0 $18.7 $13.5 $6.8 % Realization 3.2% Per Share $0.25 Additional Liquidation Expense Lease settlements (through expiration) $4.9 GTT Early Termination Fees 1.0 Outside Legal Expense 4.7 Field overhead, severance and retention 3.7 Additional Expense $14.3 Note: Treatment of protection agreement to be confirmed with management. Source: Management Liquidation Plan. 20HOMETOWN WINDDOWN ANALYSIS LIQUIDATION EXPENSE SENSITIVITY ANALYSIS Book Inventory $176.4 Management Projection Book Inventory $176.4 $176.4 $176.4 $176.4 $176.4 Transfers to Outlet (34.8) Transfers to Outlet (34.8) (34.8) (34.8) (34.8) (34.8) Inventory avl. for Liquidation $141.6 Inventory avl. for Liquidation $141.6 $141.6 $141.6 $141.6 $141.6 Est. Inventory Writeoffs / Revaluation (17.4) Liquidation Expenses ($52.2) ($46.5) (42.3) ($38.0) ($32.4) Realization Above (Below) Cost 0.0 Net Realization of Liquidation $89.4 $95.1 $99.3 $103.6 $109.2 Liquidation Expenses (24.9) Net Realization % 63.1% 67.1% 70.1% 73.1% 77.1% Net Realization on Transf. Inv. 35.8 35.8 35.8 35.8 35.8 Net Realization of Liquidation $99.3 Net Proceeds Subtotal $125.2 $130.9 $135.1 $139.4 $145.0 Net Realization on Transferred Inventory 35.8 Additional Liquidation Expense (16.3) (15.3) ($14.3) (13.3) (12.3) Net Proceeds Subtotal $135.1 Minimum proceeds balance (5.6) (5.6) (5.6) (5.6) (5.6) Additional Liquidation Expense (14.3) Balance Sheet Clearing (103.4) (110.0) (115.3) (120.5) (127.2) Balance Sheet Clearing (115.3) Incremental Impact on Equity Value (Sensitivity) ($11.9) ($5.2) -- $5.2 $11.9 Net Proceeds $5.6 Funded Debt left as of Jan 2020 $30.6 $24.0 $18.7 $13.5 $6.8 % Realization 3.2% Per Share $0.25 Additional Liquidation Expense Lease settlements (through expiration) $4.9 GTT Early Termination Fees 1.0 Outside Legal Expense 4.7 Field overhead, severance and retention 3.7 Additional Expense $14.3 Note: Treatment of protection agreement to be confirmed with management. Source: Management Liquidation Plan. 20
PREMIUMS PAID ANALYSIS Enterprise One Day 30 Days Enterprise One Day 30 Days Announced Target Acquirer Announced Target Acquirer Value (MM) Premium (%) Premium (%) Value (MM) Premium (%) Premium (%) Aug-17 MaxPoint Interactive MacAndrews & Forbes Holdings; Harland Clarke Holdings 101.5 152.00 93.98 Feb-19 Maxwell Technologies Tesla $231.5 54.72 % 163.89 % Jan-19 RhythmOne Taptica International 125.6 -24.65 -20.21 Aug-17 YuMe RhythmOne 109.1 2.36 10.91 Aug-17 FirstAtlantic Financial Holdings National Commerce (Alabama) 116.3 25.70 29.69 Jan-19 Blue Valley Bancorp Heartland Financial USA 173.6 30.87 21.21 Aug-17 Sunshine Bancorp CenterState Bank, NA (Winter Haven); CenterState Banks 195.5 -6.09 -0.06 Jan-19 HopFed Bancorp First Financial (Indiana) 193.3 40.79 37.08 Aug-17 Tesco Nabors Industries 141.0 18.56 3.91 Dec-18 Sparton Cerberus Capital Management 253.9 41.01 47.76 Aug-17 Plaza Bancorp (California) Pacific Premier Bancorp 106.7 12.15 20.90 Dec-18 Synergy Pharmaceuticals Bausch Health Cos. 259.5 137.86 66.94 Aug-17 Numerex Sierra Wireless 115.5 11.19 12.36 Nov-18 Avenue Therapeutics InvaGen Pharmaceuticals; Cipla (EU) 265.1 305.61 574.93 Aug-17 TerraVia Holdings Corbion NV 154.6 -3.82 -34.52 Nov-18 Reliance Bancshares (Missouri) Simmons First National 153.8 6.92 10.93 Jul-17 CDI AE Industrial Partners 151.7 33.06 42.24 Nov-18 Datawatch Altair Engineering 162.6 35.19 13.91 Jul-17 Guidance Software Open Text 223.7 2.90 3.05 Nov-18 Trinity Capital (New Mexico) Enterprise Financial Services 237.4 18.95 15.65 Jul-17 Puget Sound Bancorp (Bellevue, Wash Heritag ington e Fi ) nancial (Washington) 104.9 44.15 45.64 Oct-18 Intersections General Catalyst ; Wndrco Holdings ; WC SACD One 102.6 107.32 111.49 Jul-17 Rocket Fuel Vector Capital Management ; Sizmek 142.7 -3.35 -16.40 Oct-18 Full House Resorts Z Capital Group (Private Equity); Affinity Gaming 211.9 79.55 67.34 Jul-17 Sevcon BorgWarner 140.4 60.76 33.50 Oct-18 JetPay NCR 157.6 146.34 192.75 Jul-17 NCI H.I.G. Capital (Private Equity) 268.1 -5.21 8.40 Oct-18 Idaho Independent Bank First Interstate BancSystem (Montana) 202.7 56.56 50.00 Jun-17 West Marine Monomoy Capital Partners 280.9 33.71 31.01 Oct-18 MBT Financial First Merchants (Indiana) 286.5 9.31 14.80 Jun-17 EnerNOC Enel Green Power North America; Enel Green Power SpA 282.3 42.04 40.73 Oct-18 Lime Energy Willdan Group 120.0 363.59 321.16 Jun-17 ARI Network Services True Wind Capital Management 133.4 2.01 37.60 Sep-18 CAB Financial Park National ; The Park National Bank (Investment Management) 163.6 54.34 53.08 Jun-17 Rightside Group Donuts 121.5 8.72 6.00 Sep-18 Invuity Stryker 188.7 28.70 87.34 Jun-17 Wolverine Bancorp Horizon Bancorp (Indiana); Horizon Bank (Michigan City, Indiana) 130.9 31.20 35.02 Aug-18 Reis Moody's Analytics Maryland 251.1 32.18 2.68 May-17 ASB Bancorp First Bancorp (North Carolina); First Bank (Southern Pines, North Ca 17 rol 3.3 ina) 23.08 16.70 Aug-18 Highlands Bancorp Lakeland Bancorp; Lakeland Bank (Newfoundland, New Jersey) 106.9 22.93 29.79 Apr-17 MOCON AMETEK 167.1 38.57 50.38 Aug-18 Zoe's Kitchen The Invus Group ; Revolution Capital; Swan & Legend Venture Partne 29r5.3 s; Cava Group 33.37 27.88 Apr-17 Broadview Networks Holdings Windstream Holdings 200.3 458.40 458.40 Aug-18 Jamba Roark Capital Group; FOCUS Brands 194.5 16.28 20.82 Apr-17 UCP Century Communities 216.1 22.01 4.58 Jul-18 Greater Hudson Bank (New York) ConnectOne Bank 122.4 10.92 19.65 Mar-17 Empire Resources Ta Chen Stainless Pipe , 180.1 11.82 19.25 Jul-18 Juniper Pharmaceuticals Catalent 110.3 32.18 33.72 Feb-17 Delta Natural Gas Peoples Natural Gas; SteelRiver Infrastructure Partners 259.2 16.63 7.85 Jun-18 Energy XXI Gulf Coast Cox Oil ; Cox Operating 249.4 21.50 38.51 Feb-17 GigPeak Integrated Device Technology 185.3 22.22 21.74 Jun-18 Northern States Financial First Midwest Bancorp (Illinois) 124.8 23.38 28.91 Feb-17 First Community Financial Partners First Busey 283.2 10.38 15.24 Jan-17 Royal Bancshares of Pennsylvania Bryn Mawr Bank ; The Bryn Mawr Trust 241.4 7.31 26.89 Jun-18 Central Steel & Wire Ryerson Holding 126.9 46.44 49.73 May-18 First Security (Kentucky) German American Bancorp 146.6 48.12 48.91 Jan-17 Centrue Financial Midland States Bancorp 259.8 15.55 32.76 Jan-17 Derma Sciences Integra LifeSciences Holdings 157.4 40.00 50.54 May-18 Universal Power Group UPGI Holdings 132.5 118.54 106.45 Dec-16 Tangoe US Marlin Management ; Asentinel 209.9 -21.02 -23.98 Apr-18 Mattersight NICE Systems 105.0 25.58 17.39 Dec-16 FCB Bancorp (Kentucky) MainSource Financial Group 153.0 91.50 96.15 Apr-18 ELXSI SPX 152.6 30.35 29.94 Dec-16 Eastern Virginia Bankshares Southern National Bancorp of Virginia; SONABANK 295.9 2.76 16.76 Apr-18 First American International (New York RB) B Bancorp; Royal Business Bank 182.3 67.29 63.76 Nov-16 Datalink Insight Enterprises 216.9 19.30 9.01 Mar-18 Willbros Group Primoris Services 137.7 287.10 -40.00 Oct-16 International Shipholding SEACOR Ocean Transport 156.8 1,292.34 992.45 Mar-18 NeuLion William Morris Endeavor Entertainment; Silver Lake Management 203.0 116.49 103.88 Oct-16 Trans Energy EQT 197.4 254.46 171.21 Mar-18 Cogentix Medical LABORIE Medical Technologies; Patricia Industries AB 207.6 14.24 33.22 Oct-16 Hearthstone Utilities BlackRock Real Assets; Global Energy & Power Infrastructure Group 197.2 70.57 75.60 Mar-18 United Community Bancorp (Indiana) Civista Bancshares 128.0 34.49 30.93 Oct-16 Glacier Water Services Primo Water 222.4 99.37 102.07 Mar-18 Bravo Brio Restaurant Group GP Investimentos 100.1 16.78 35.00 Sep-16 EndoChoice Holdings Boston Scientific 194.5 89.57 102.53 Feb-18 PHH Ocwen Financial 145.4 24.43 7.42 Aug-16 USMD Holdings WellMed Medical Management; Collaborative Care Holdings 283.5 9.30 12.49 Feb-18 Pacific Commerce Bancorp First Choice Bancorp (California) 105.3 20.65 23.49 Aug-16 Providence & Worcester Railroad Genesee & Wyoming 118.1 53.37 52.67 Feb-18 RLJ Entertainment AMC Networks 163.7 61.50 59.44 Aug-16 Silicon Graphics International Hewlett-Packard Enterprise 252.1 40.91 57.84 Jan-18 Key Technology Duravant 172.0 50.62 34.09 Jul-16 Golden Enterprises UTZ Quality Foods 139.9 60.00 109.42 Jan-18 U.S. Geothermal Ormat Technologies 183.7 28.54 53.95 Jun-16 Higher One Holdings Blackboard; Providence Equity Partners 238.1 37.33 36.97 Jan-18 First Priority Financial Mid Penn Bancorp 118.5 45.04 54.48 Jun-16 ReachLocal Gannett 156.2 187.50 169.01 Jan-18 Connecture Francisco Partners Management 108.2 117.39 12.90 Jun-16 Skuandy Mill Road Capital Management 137.1 35.68 79.89 Nov-17 Coastal Banking First Federal Bank (Lake City, Florida); First Federal Bancorp (Lake Ci 22t0.0 y, Florida) 9.41 15.59 Jun-16 Carolina Bank Holdings First Bancorp (North Carolina) 124.0 20.62 21.51 Nov-17 Hardinge Privet Fund Management 205.5 12.12 28.92 Jun-16 American Science & Engineering OSI Systems 175.7 14.41 28.92 Nov-17 Ocera Therapeutics Mallinckrodt 102.0 310.00 236.07 Jun-16 Aegerion Pharmaceuticals QLT 235.2 10.27 -43.59 Oct-17 Inventure Foods UTZ Quality Foods 137.8 -10.31 -8.88 Jun-16 Ridgestone Financial Services (Old) Byline Bancorp; Byline Bank 105.0 32.62 38.52 Oct-17 Planet Payment Eurazeo Capital; Fintrax Group Holdings 211.1 18.11 11.94 May-16 Symmetry Surgical Roundtable Healthcare Management 129.5 26.08 23.94 Oct-17 Lapolla Industries FFL Partners ; Icynene 136.4 35.35 90.74 Apr-16 First Clover Leaf Financial First Mid-Illinois Bancshares 113.5 33.22 38.11 Aug-17 MaxPoint Interactive MacAndrews & Forbes Holdings; Harland Clarke Holdings 101.5 152.00 93.98 Apr-16 Alliance Fiber Optic Products Corning 266.2 23.99 41.33 Median $163.7 31.2 33.2 Note: North American majority stake deals since April 2016 with an Enterprise Value between $100M and $300M, excluding biotechnology, real estate development, rental and leasing, securities, commodity contracts and other financial investments, and financial conglomerates. 21 Source: Factset as of April 5, 2019.PREMIUMS PAID ANALYSIS Enterprise One Day 30 Days Enterprise One Day 30 Days Announced Target Acquirer Announced Target Acquirer Value (MM) Premium (%) Premium (%) Value (MM) Premium (%) Premium (%) Aug-17 MaxPoint Interactive MacAndrews & Forbes Holdings; Harland Clarke Holdings 101.5 152.00 93.98 Feb-19 Maxwell Technologies Tesla $231.5 54.72 % 163.89 % Jan-19 RhythmOne Taptica International 125.6 -24.65 -20.21 Aug-17 YuMe RhythmOne 109.1 2.36 10.91 Aug-17 FirstAtlantic Financial Holdings National Commerce (Alabama) 116.3 25.70 29.69 Jan-19 Blue Valley Bancorp Heartland Financial USA 173.6 30.87 21.21 Aug-17 Sunshine Bancorp CenterState Bank, NA (Winter Haven); CenterState Banks 195.5 -6.09 -0.06 Jan-19 HopFed Bancorp First Financial (Indiana) 193.3 40.79 37.08 Aug-17 Tesco Nabors Industries 141.0 18.56 3.91 Dec-18 Sparton Cerberus Capital Management 253.9 41.01 47.76 Aug-17 Plaza Bancorp (California) Pacific Premier Bancorp 106.7 12.15 20.90 Dec-18 Synergy Pharmaceuticals Bausch Health Cos. 259.5 137.86 66.94 Aug-17 Numerex Sierra Wireless 115.5 11.19 12.36 Nov-18 Avenue Therapeutics InvaGen Pharmaceuticals; Cipla (EU) 265.1 305.61 574.93 Aug-17 TerraVia Holdings Corbion NV 154.6 -3.82 -34.52 Nov-18 Reliance Bancshares (Missouri) Simmons First National 153.8 6.92 10.93 Jul-17 CDI AE Industrial Partners 151.7 33.06 42.24 Nov-18 Datawatch Altair Engineering 162.6 35.19 13.91 Jul-17 Guidance Software Open Text 223.7 2.90 3.05 Nov-18 Trinity Capital (New Mexico) Enterprise Financial Services 237.4 18.95 15.65 Jul-17 Puget Sound Bancorp (Bellevue, Wash Heritag ington e Fi ) nancial (Washington) 104.9 44.15 45.64 Oct-18 Intersections General Catalyst ; Wndrco Holdings ; WC SACD One 102.6 107.32 111.49 Jul-17 Rocket Fuel Vector Capital Management ; Sizmek 142.7 -3.35 -16.40 Oct-18 Full House Resorts Z Capital Group (Private Equity); Affinity Gaming 211.9 79.55 67.34 Jul-17 Sevcon BorgWarner 140.4 60.76 33.50 Oct-18 JetPay NCR 157.6 146.34 192.75 Jul-17 NCI H.I.G. Capital (Private Equity) 268.1 -5.21 8.40 Oct-18 Idaho Independent Bank First Interstate BancSystem (Montana) 202.7 56.56 50.00 Jun-17 West Marine Monomoy Capital Partners 280.9 33.71 31.01 Oct-18 MBT Financial First Merchants (Indiana) 286.5 9.31 14.80 Jun-17 EnerNOC Enel Green Power North America; Enel Green Power SpA 282.3 42.04 40.73 Oct-18 Lime Energy Willdan Group 120.0 363.59 321.16 Jun-17 ARI Network Services True Wind Capital Management 133.4 2.01 37.60 Sep-18 CAB Financial Park National ; The Park National Bank (Investment Management) 163.6 54.34 53.08 Jun-17 Rightside Group Donuts 121.5 8.72 6.00 Sep-18 Invuity Stryker 188.7 28.70 87.34 Jun-17 Wolverine Bancorp Horizon Bancorp (Indiana); Horizon Bank (Michigan City, Indiana) 130.9 31.20 35.02 Aug-18 Reis Moody's Analytics Maryland 251.1 32.18 2.68 May-17 ASB Bancorp First Bancorp (North Carolina); First Bank (Southern Pines, North Ca 17 rol 3.3 ina) 23.08 16.70 Aug-18 Highlands Bancorp Lakeland Bancorp; Lakeland Bank (Newfoundland, New Jersey) 106.9 22.93 29.79 Apr-17 MOCON AMETEK 167.1 38.57 50.38 Aug-18 Zoe's Kitchen The Invus Group ; Revolution Capital; Swan & Legend Venture Partne 29r5.3 s; Cava Group 33.37 27.88 Apr-17 Broadview Networks Holdings Windstream Holdings 200.3 458.40 458.40 Aug-18 Jamba Roark Capital Group; FOCUS Brands 194.5 16.28 20.82 Apr-17 UCP Century Communities 216.1 22.01 4.58 Jul-18 Greater Hudson Bank (New York) ConnectOne Bank 122.4 10.92 19.65 Mar-17 Empire Resources Ta Chen Stainless Pipe , 180.1 11.82 19.25 Jul-18 Juniper Pharmaceuticals Catalent 110.3 32.18 33.72 Feb-17 Delta Natural Gas Peoples Natural Gas; SteelRiver Infrastructure Partners 259.2 16.63 7.85 Jun-18 Energy XXI Gulf Coast Cox Oil ; Cox Operating 249.4 21.50 38.51 Feb-17 GigPeak Integrated Device Technology 185.3 22.22 21.74 Jun-18 Northern States Financial First Midwest Bancorp (Illinois) 124.8 23.38 28.91 Feb-17 First Community Financial Partners First Busey 283.2 10.38 15.24 Jan-17 Royal Bancshares of Pennsylvania Bryn Mawr Bank ; The Bryn Mawr Trust 241.4 7.31 26.89 Jun-18 Central Steel & Wire Ryerson Holding 126.9 46.44 49.73 May-18 First Security (Kentucky) German American Bancorp 146.6 48.12 48.91 Jan-17 Centrue Financial Midland States Bancorp 259.8 15.55 32.76 Jan-17 Derma Sciences Integra LifeSciences Holdings 157.4 40.00 50.54 May-18 Universal Power Group UPGI Holdings 132.5 118.54 106.45 Dec-16 Tangoe US Marlin Management ; Asentinel 209.9 -21.02 -23.98 Apr-18 Mattersight NICE Systems 105.0 25.58 17.39 Dec-16 FCB Bancorp (Kentucky) MainSource Financial Group 153.0 91.50 96.15 Apr-18 ELXSI SPX 152.6 30.35 29.94 Dec-16 Eastern Virginia Bankshares Southern National Bancorp of Virginia; SONABANK 295.9 2.76 16.76 Apr-18 First American International (New York RB) B Bancorp; Royal Business Bank 182.3 67.29 63.76 Nov-16 Datalink Insight Enterprises 216.9 19.30 9.01 Mar-18 Willbros Group Primoris Services 137.7 287.10 -40.00 Oct-16 International Shipholding SEACOR Ocean Transport 156.8 1,292.34 992.45 Mar-18 NeuLion William Morris Endeavor Entertainment; Silver Lake Management 203.0 116.49 103.88 Oct-16 Trans Energy EQT 197.4 254.46 171.21 Mar-18 Cogentix Medical LABORIE Medical Technologies; Patricia Industries AB 207.6 14.24 33.22 Oct-16 Hearthstone Utilities BlackRock Real Assets; Global Energy & Power Infrastructure Group 197.2 70.57 75.60 Mar-18 United Community Bancorp (Indiana) Civista Bancshares 128.0 34.49 30.93 Oct-16 Glacier Water Services Primo Water 222.4 99.37 102.07 Mar-18 Bravo Brio Restaurant Group GP Investimentos 100.1 16.78 35.00 Sep-16 EndoChoice Holdings Boston Scientific 194.5 89.57 102.53 Feb-18 PHH Ocwen Financial 145.4 24.43 7.42 Aug-16 USMD Holdings WellMed Medical Management; Collaborative Care Holdings 283.5 9.30 12.49 Feb-18 Pacific Commerce Bancorp First Choice Bancorp (California) 105.3 20.65 23.49 Aug-16 Providence & Worcester Railroad Genesee & Wyoming 118.1 53.37 52.67 Feb-18 RLJ Entertainment AMC Networks 163.7 61.50 59.44 Aug-16 Silicon Graphics International Hewlett-Packard Enterprise 252.1 40.91 57.84 Jan-18 Key Technology Duravant 172.0 50.62 34.09 Jul-16 Golden Enterprises UTZ Quality Foods 139.9 60.00 109.42 Jan-18 U.S. Geothermal Ormat Technologies 183.7 28.54 53.95 Jun-16 Higher One Holdings Blackboard; Providence Equity Partners 238.1 37.33 36.97 Jan-18 First Priority Financial Mid Penn Bancorp 118.5 45.04 54.48 Jun-16 ReachLocal Gannett 156.2 187.50 169.01 Jan-18 Connecture Francisco Partners Management 108.2 117.39 12.90 Jun-16 Skuandy Mill Road Capital Management 137.1 35.68 79.89 Nov-17 Coastal Banking First Federal Bank (Lake City, Florida); First Federal Bancorp (Lake Ci 22t0.0 y, Florida) 9.41 15.59 Jun-16 Carolina Bank Holdings First Bancorp (North Carolina) 124.0 20.62 21.51 Nov-17 Hardinge Privet Fund Management 205.5 12.12 28.92 Jun-16 American Science & Engineering OSI Systems 175.7 14.41 28.92 Nov-17 Ocera Therapeutics Mallinckrodt 102.0 310.00 236.07 Jun-16 Aegerion Pharmaceuticals QLT 235.2 10.27 -43.59 Oct-17 Inventure Foods UTZ Quality Foods 137.8 -10.31 -8.88 Jun-16 Ridgestone Financial Services (Old) Byline Bancorp; Byline Bank 105.0 32.62 38.52 Oct-17 Planet Payment Eurazeo Capital; Fintrax Group Holdings 211.1 18.11 11.94 May-16 Symmetry Surgical Roundtable Healthcare Management 129.5 26.08 23.94 Oct-17 Lapolla Industries FFL Partners ; Icynene 136.4 35.35 90.74 Apr-16 First Clover Leaf Financial First Mid-Illinois Bancshares 113.5 33.22 38.11 Aug-17 MaxPoint Interactive MacAndrews & Forbes Holdings; Harland Clarke Holdings 101.5 152.00 93.98 Apr-16 Alliance Fiber Optic Products Corning 266.2 23.99 41.33 Median $163.7 31.2 33.2 Note: North American majority stake deals since April 2016 with an Enterprise Value between $100M and $300M, excluding biotechnology, real estate development, rental and leasing, securities, commodity contracts and other financial investments, and financial conglomerates. 21 Source: Factset as of April 5, 2019.
WEIGHTED AVERAGE COST OF CAPITAL Comparable Companies LTM Interest Total Implied Market Levered Debt / Unlevered Name Expense Debt (a) Cost of Debt Cap. Beta (b) Equity Beta (c) Sears Hometown and Outlet Stores, Inc. (15) 132 8.0% 43 0.88 304.6% 0.27 The Home Depot, Inc. (1,051) 29,205 3.6% 223,758 1.01 13.1% 0.92 Lowe's Companies, Inc. (652) 16,223 4.0% 91,634 1.02 17.7% 0.90 Best Buy Co., Inc. (73) 1,395 5.2% 20,121 1.05 6.9% 1.00 Bed Bath & Beyond Inc. (79) 1,500 5.3% 2,521 0.95 59.5% 0.66 Haverty Furniture Companies, Inc. (2) 51 4.8% 494 0.89 10.3% 0.83 Mean 4.6% 1.00 17.9% 0.90 Median 4.8% 1.01 11.7% 0.91 WACC Calculation (Assuming Median Beta of Comps and D/E of Comps) Assumptions Cost of Equity Calculation Risk Free Rate of Return (d) 2.5% Risk Free Rate of Return (d) 2.5% Historical Market Risk Premium (e) 6.9% Historical Market Risk Premium (e) 6.9% Size Premium (e) (f) 3.4% Levered Beta (b) 0.99 Marginal Tax Rate (g) 25.0% Size Premium (e) (f) 3.4% Cost of Equity 12.7% Other Inputs WACC Calculation Before Tax Cost of Debt 8.0% Cost of Equity 12.7% After-Tax Cost of Debt 6.0% Equity / Total Capitalization 89.5% Debt / Equity (g) 11.7% After-Tax Cost of Debt 6.0% Debt / Total Capitalization 10.5% Debt / Total Capitalization 10.5% Levered Beta (b) 0.99 WACC 12.0% Unlevered Beta (c) 0.91 Sensitivity (Assuming Median Beta of Comps) Debt / Debt / Equity / Unlevered Levered Size Cost of BT Cost AT Cost Total Cap. Equity Total Cap. Beta (j) Beta (b) Premium (f) Equity (i) of Debt of Debt WACC 10% 11% 90% 0.91 0.98 3.4% 12.7% 8.0% 6.0% 12.0% 15% 18% 85% 0.91 1.03 3.4% 9.4% 8.0% 6.0% 8.9% 20% 25% 80% 0.91 1.08 3.4% 32.9% 8.0% 6.0% 27.5% 25% 33% 75% 0.91 1.14 3.4% 5.9% 8.0% 6.0% 5.9% 30% 43% 70% 0.91 1.20 3.4% 5.9% 8.0% 6.0% 5.9% 35% 54% 65% 0.91 1.28 3.4% 5.9% 8.0% 6.0% 5.9% 40% 67% 60% 0.91 1.36 3.4% 16.8% 8.0% 6.0% 12.5% (a) Assumes book value of debt approximates market value. (g) Marginal tax rate based on PJ Solomon assumption. (b) Source: Bloomberg 5-year adjusted weekly beta as reported on April 5, 2019. (h) Relevered Beta = Unlevered Beta * {1+(Debt/Equity)*(1-Tax Rate)}. (c) Unlevered Beta = Levered Beta / {1+(Debt/Market Equity)*(1-Tax Rate)}. (i) Cost of Equity = Risk Free Rate + (Relevered Beta * Market Risk Premium) + Size (d) 10-year Treasury Note yield as of April 1, 2019. Premium. (e) Source: Duff & Phelps 2018 Valuation Handbook. (j) Median Unlevered Beta of Comps. (f) Size premium of 3.39% for companies with market capitalizations between 2.5mm . and 727.8mm 22WEIGHTED AVERAGE COST OF CAPITAL Comparable Companies LTM Interest Total Implied Market Levered Debt / Unlevered Name Expense Debt (a) Cost of Debt Cap. Beta (b) Equity Beta (c) Sears Hometown and Outlet Stores, Inc. (15) 132 8.0% 43 0.88 304.6% 0.27 The Home Depot, Inc. (1,051) 29,205 3.6% 223,758 1.01 13.1% 0.92 Lowe's Companies, Inc. (652) 16,223 4.0% 91,634 1.02 17.7% 0.90 Best Buy Co., Inc. (73) 1,395 5.2% 20,121 1.05 6.9% 1.00 Bed Bath & Beyond Inc. (79) 1,500 5.3% 2,521 0.95 59.5% 0.66 Haverty Furniture Companies, Inc. (2) 51 4.8% 494 0.89 10.3% 0.83 Mean 4.6% 1.00 17.9% 0.90 Median 4.8% 1.01 11.7% 0.91 WACC Calculation (Assuming Median Beta of Comps and D/E of Comps) Assumptions Cost of Equity Calculation Risk Free Rate of Return (d) 2.5% Risk Free Rate of Return (d) 2.5% Historical Market Risk Premium (e) 6.9% Historical Market Risk Premium (e) 6.9% Size Premium (e) (f) 3.4% Levered Beta (b) 0.99 Marginal Tax Rate (g) 25.0% Size Premium (e) (f) 3.4% Cost of Equity 12.7% Other Inputs WACC Calculation Before Tax Cost of Debt 8.0% Cost of Equity 12.7% After-Tax Cost of Debt 6.0% Equity / Total Capitalization 89.5% Debt / Equity (g) 11.7% After-Tax Cost of Debt 6.0% Debt / Total Capitalization 10.5% Debt / Total Capitalization 10.5% Levered Beta (b) 0.99 WACC 12.0% Unlevered Beta (c) 0.91 Sensitivity (Assuming Median Beta of Comps) Debt / Debt / Equity / Unlevered Levered Size Cost of BT Cost AT Cost Total Cap. Equity Total Cap. Beta (j) Beta (b) Premium (f) Equity (i) of Debt of Debt WACC 10% 11% 90% 0.91 0.98 3.4% 12.7% 8.0% 6.0% 12.0% 15% 18% 85% 0.91 1.03 3.4% 9.4% 8.0% 6.0% 8.9% 20% 25% 80% 0.91 1.08 3.4% 32.9% 8.0% 6.0% 27.5% 25% 33% 75% 0.91 1.14 3.4% 5.9% 8.0% 6.0% 5.9% 30% 43% 70% 0.91 1.20 3.4% 5.9% 8.0% 6.0% 5.9% 35% 54% 65% 0.91 1.28 3.4% 5.9% 8.0% 6.0% 5.9% 40% 67% 60% 0.91 1.36 3.4% 16.8% 8.0% 6.0% 12.5% (a) Assumes book value of debt approximates market value. (g) Marginal tax rate based on PJ Solomon assumption. (b) Source: Bloomberg 5-year adjusted weekly beta as reported on April 5, 2019. (h) Relevered Beta = Unlevered Beta * {1+(Debt/Equity)*(1-Tax Rate)}. (c) Unlevered Beta = Levered Beta / {1+(Debt/Market Equity)*(1-Tax Rate)}. (i) Cost of Equity = Risk Free Rate + (Relevered Beta * Market Risk Premium) + Size (d) 10-year Treasury Note yield as of April 1, 2019. Premium. (e) Source: Duff & Phelps 2018 Valuation Handbook. (j) Median Unlevered Beta of Comps. (f) Size premium of 3.39% for companies with market capitalizations between 2.5mm . and 727.8mm 22
DISCLAIMER This presentation has been prepared by PJ Solomon Securities, LLC (together with its affiliates, “SOLOMON”), in its capacity as financial advisor to the special committee (the “Committee”) of the board of directors of Sears Hometown & Outlet Stores, Inc. (the “Company”), for the exclusive use of the Committee and the board of directors of the Company (the “Board”), each in their respective capacities as such, solely in connection with the Committee’s and Board’s consideration of the potential transaction referenced herein. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by SOLOMON. This presentation is based on materials and information available from publicly available sources or supplied (whether orally or in writing) by or at the request of the Company or its representatives. SOLOMON has assumed and relied upon the accuracy and completeness of such information and does not assume any responsibility for independent verification of such information. This presentation includes certain statements, estimates and projections provided by the Company and selected public sources with respect to the historical and anticipated future performance of the Company. Such statements, estimates and projections contain or are based on significant assumptions and subjective judgments made by management of the Company and such public sources. For the purposes of this presentation and the opinion being issued by SOLOMON, SOLOMON has assumed the reasonableness, accuracy and completeness of all such information, including, with respect to any Company projections, that such projections have been reasonably prepared on bases reflecting the best currently available estimates and judgments of management of the Company as to the future financial performance of the Company. SOLOMON assumes no responsibility for, and expresses no view as to, any such forecasts or the assumptions on which they are based. These assumptions and judgments may or may not be correct, and there can be no assurance that any projected results are attainable or will be realized. SOLOMON has not attempted to verify any such statements, estimates and projections, and as such SOLOMON makes no representation or warranty as to, and assumes no responsibility for, their accuracy or completeness and for the effect which any such inaccuracy or incompleteness may have on the results or judgments contained in this presentation. This presentation is not intended to provide the sole basis for any decision on a transaction and does not represent a fairness opinion, recommendation, valuation or opinion of any kind with respect to any transaction. The financial analysis in this presentation is complex and not susceptible to partial analysis or summary descriptions. SOLOMON has viewed the results of the analysis as a whole, and has not necessarily attributed any particular weight to any specific portion of the analysis considered. Viewing any individual portion or portions of the analysis without considering the analysis as a whole would create an incomplete view of SOLOMON’s financial analysis. Except where otherwise indicated, this analysis speaks as of the date hereof. Under no circumstances should the delivery of this document imply that the analysis would be the same if made as of any other date. This presentation and the information contained herein do not constitute an offer to sell or the solicitation of an offer to buy any security, commodity or instrument or related derivative, nor do they constitute an offer or commitment to lend, syndicate or arrange a financing, underwrite or purchase or act as an agent or advisor or in any other capacity with respect to any transaction, or commit capital, or to participate in any trading strategies. SOLOMON does not provide legal, regulatory, accounting or tax advice. We recommend that the recipient seek independent third party legal, regulatory, accounting and tax advice regarding the contents of this presentation. This presentation is not a research report and was not prepared by the research department of SOLOMON or any of its affiliates. SOLOMON expresses no view or opinion as to the price or range of prices at which the shares of common stock or other securities of the Company may trade at any time, including, without limitation, subsequent to the announcement or consummation of any transaction with Buyer. SOLOMON provides mergers and acquisitions, restructuring and other advisory services to clients. At any given time, SOLOMON or its affiliates may be engaged by one or more entities that may be competitors with, or otherwise adverse to, the Company in connection with matters unrelated to any transaction. As a result, it is possible that SOLOMON or its affiliates may from time to time be involved in one or more capacities that, directly or indirectly, may be or may be perceived as being adverse to the Company’s interests. Moreover, SOLOMON or its affiliates may, in the course of other client relationships, have or in the future acquire information material to the Company’s interests which, by virtue of such other client relationships, SOLOMON or its affiliates are or will not be at liberty to disclose to the Company. SOLOMON is an affiliate of Natixis, which engages globally in a wide variety of financing, commodities, derivatives, commercial banking, investment banking, securities trading and brokerage activities, asset management and financial advisory services. In the ordinary course of its activities Natixis may at any time (i) be in possession of non-public information that it does not disclose to the Company and (ii) hold long or short positions, or trade or otherwise effect transactions, for its own account or customer accounts, in the debt or equity of (or other financial instruments relating to) persons or entities that may be involved or otherwise have interests in a transaction involving the Company or may provide investment banking and other services or financing to such persons or entities. The Company further understands and agrees that Natixis may exercise voting power or other types of discretion over loans or securities of (or other financial instruments relating to) persons or entities that may be involved in a transaction involving the Company and that Natixis may exercise such powers or discretion and otherwise perform its functions in connection with any fiduciary and other relationships without regard to its relationship to the Company. THIS PRESENTATION IS FOR THE INFORMATION AND ASSISTANCE OF THE COMMITTEE AND THE BOARD, EACH IN THEIR RESPECTIVE CAPACITIES AS SUCH. IT IS NOT INTENDED TO BE USED OR RELIED UPON, AND SHOULD NOT AND CANNOT BE USED OR RELIED UPON, BY ANY OTHER PERSON. THIS PRESENTATION IS CONFIDENTIAL AND SHOULD NOT, WITHOUT PRIOR WRITTEN CONSENT OF SOLOMON, BE COPIED OR MADE AVAILABLE TO ANY PERSONOTHER THAN THE COMMITTEE AND THE BOARD. NOTWITHSTANDING ANYTHING THAT MAY APPEAR HEREIN OR IN OTHER MATERIALS TO THE CONTRARY, THE COMPANY SHALL BE PERMITTEDTO DISCLOSE THE TAX TREATMENT AND TAX STRUCTURE OF A TRANSACTION (INCLUDING ANY MATERIALS, OPINIONS OR ANALYSES RELATING TO SUCH TAX TREATMENT OR TAX STRUCTURE, BUT WITHOUT DISCLOSURE OF IDENTIFYING INFORMATION OR, EXCEPT TO THE EXTENT RELATING TO SUCH TAX STRUCTURE OR TAX TREATMENT, ANY NONPUBLIC COMMERCIAL OR FINANCIAL INFORMATION) ON AND AFTER THE EARLIEST TO OCCUR OF THE DATE OF (I) PUBLIC ANNOUNCEMENT OF DISCUSSIONS RELATING TO SUCH TRANSACTION, (II) PUBLIC ANNOUNCEMENT OF SUCH TRANSACTION OR (III) EXECUTION OF A DEFINITIVE AGREEMENT (WITH OR WITHOUT CONDITIONS) TO ENTER INTO SUCH TRANSACTION; PROVIDED, HOWEVER, THAT IF SUCH TRANSACTION IS NOT CONSUMMATED FOR ANY REASON, THE PROVISIONS OF THIS SENTENCE SHALL CEASE TO APPLY. NOTHING CONTAINED IN THIS PRESENTATION IS, OR SHALL BE RELIED UPON AS, A REPRESENTATION OR WARRANTY, WHETHER AS TO THE PAST, THE PRESENTOR THE FUTURE.DISCLAIMER This presentation has been prepared by PJ Solomon Securities, LLC (together with its affiliates, “SOLOMON”), in its capacity as financial advisor to the special committee (the “Committee”) of the board of directors of Sears Hometown & Outlet Stores, Inc. (the “Company”), for the exclusive use of the Committee and the board of directors of the Company (the “Board”), each in their respective capacities as such, solely in connection with the Committee’s and Board’s consideration of the potential transaction referenced herein. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by SOLOMON. This presentation is based on materials and information available from publicly available sources or supplied (whether orally or in writing) by or at the request of the Company or its representatives. SOLOMON has assumed and relied upon the accuracy and completeness of such information and does not assume any responsibility for independent verification of such information. This presentation includes certain statements, estimates and projections provided by the Company and selected public sources with respect to the historical and anticipated future performance of the Company. Such statements, estimates and projections contain or are based on significant assumptions and subjective judgments made by management of the Company and such public sources. For the purposes of this presentation and the opinion being issued by SOLOMON, SOLOMON has assumed the reasonableness, accuracy and completeness of all such information, including, with respect to any Company projections, that such projections have been reasonably prepared on bases reflecting the best currently available estimates and judgments of management of the Company as to the future financial performance of the Company. SOLOMON assumes no responsibility for, and expresses no view as to, any such forecasts or the assumptions on which they are based. These assumptions and judgments may or may not be correct, and there can be no assurance that any projected results are attainable or will be realized. SOLOMON has not attempted to verify any such statements, estimates and projections, and as such SOLOMON makes no representation or warranty as to, and assumes no responsibility for, their accuracy or completeness and for the effect which any such inaccuracy or incompleteness may have on the results or judgments contained in this presentation. This presentation is not intended to provide the sole basis for any decision on a transaction and does not represent a fairness opinion, recommendation, valuation or opinion of any kind with respect to any transaction. The financial analysis in this presentation is complex and not susceptible to partial analysis or summary descriptions. SOLOMON has viewed the results of the analysis as a whole, and has not necessarily attributed any particular weight to any specific portion of the analysis considered. Viewing any individual portion or portions of the analysis without considering the analysis as a whole would create an incomplete view of SOLOMON’s financial analysis. Except where otherwise indicated, this analysis speaks as of the date hereof. Under no circumstances should the delivery of this document imply that the analysis would be the same if made as of any other date. This presentation and the information contained herein do not constitute an offer to sell or the solicitation of an offer to buy any security, commodity or instrument or related derivative, nor do they constitute an offer or commitment to lend, syndicate or arrange a financing, underwrite or purchase or act as an agent or advisor or in any other capacity with respect to any transaction, or commit capital, or to participate in any trading strategies. SOLOMON does not provide legal, regulatory, accounting or tax advice. We recommend that the recipient seek independent third party legal, regulatory, accounting and tax advice regarding the contents of this presentation. This presentation is not a research report and was not prepared by the research department of SOLOMON or any of its affiliates. SOLOMON expresses no view or opinion as to the price or range of prices at which the shares of common stock or other securities of the Company may trade at any time, including, without limitation, subsequent to the announcement or consummation of any transaction with Buyer. SOLOMON provides mergers and acquisitions, restructuring and other advisory services to clients. At any given time, SOLOMON or its affiliates may be engaged by one or more entities that may be competitors with, or otherwise adverse to, the Company in connection with matters unrelated to any transaction. As a result, it is possible that SOLOMON or its affiliates may from time to time be involved in one or more capacities that, directly or indirectly, may be or may be perceived as being adverse to the Company’s interests. Moreover, SOLOMON or its affiliates may, in the course of other client relationships, have or in the future acquire information material to the Company’s interests which, by virtue of such other client relationships, SOLOMON or its affiliates are or will not be at liberty to disclose to the Company. SOLOMON is an affiliate of Natixis, which engages globally in a wide variety of financing, commodities, derivatives, commercial banking, investment banking, securities trading and brokerage activities, asset management and financial advisory services. In the ordinary course of its activities Natixis may at any time (i) be in possession of non-public information that it does not disclose to the Company and (ii) hold long or short positions, or trade or otherwise effect transactions, for its own account or customer accounts, in the debt or equity of (or other financial instruments relating to) persons or entities that may be involved or otherwise have interests in a transaction involving the Company or may provide investment banking and other services or financing to such persons or entities. The Company further understands and agrees that Natixis may exercise voting power or other types of discretion over loans or securities of (or other financial instruments relating to) persons or entities that may be involved in a transaction involving the Company and that Natixis may exercise such powers or discretion and otherwise perform its functions in connection with any fiduciary and other relationships without regard to its relationship to the Company. THIS PRESENTATION IS FOR THE INFORMATION AND ASSISTANCE OF THE COMMITTEE AND THE BOARD, EACH IN THEIR RESPECTIVE CAPACITIES AS SUCH. IT IS NOT INTENDED TO BE USED OR RELIED UPON, AND SHOULD NOT AND CANNOT BE USED OR RELIED UPON, BY ANY OTHER PERSON. THIS PRESENTATION IS CONFIDENTIAL AND SHOULD NOT, WITHOUT PRIOR WRITTEN CONSENT OF SOLOMON, BE COPIED OR MADE AVAILABLE TO ANY PERSONOTHER THAN THE COMMITTEE AND THE BOARD. NOTWITHSTANDING ANYTHING THAT MAY APPEAR HEREIN OR IN OTHER MATERIALS TO THE CONTRARY, THE COMPANY SHALL BE PERMITTEDTO DISCLOSE THE TAX TREATMENT AND TAX STRUCTURE OF A TRANSACTION (INCLUDING ANY MATERIALS, OPINIONS OR ANALYSES RELATING TO SUCH TAX TREATMENT OR TAX STRUCTURE, BUT WITHOUT DISCLOSURE OF IDENTIFYING INFORMATION OR, EXCEPT TO THE EXTENT RELATING TO SUCH TAX STRUCTURE OR TAX TREATMENT, ANY NONPUBLIC COMMERCIAL OR FINANCIAL INFORMATION) ON AND AFTER THE EARLIEST TO OCCUR OF THE DATE OF (I) PUBLIC ANNOUNCEMENT OF DISCUSSIONS RELATING TO SUCH TRANSACTION, (II) PUBLIC ANNOUNCEMENT OF SUCH TRANSACTION OR (III) EXECUTION OF A DEFINITIVE AGREEMENT (WITH OR WITHOUT CONDITIONS) TO ENTER INTO SUCH TRANSACTION; PROVIDED, HOWEVER, THAT IF SUCH TRANSACTION IS NOT CONSUMMATED FOR ANY REASON, THE PROVISIONS OF THIS SENTENCE SHALL CEASE TO APPLY. NOTHING CONTAINED IN THIS PRESENTATION IS, OR SHALL BE RELIED UPON AS, A REPRESENTATION OR WARRANTY, WHETHER AS TO THE PAST, THE PRESENTOR THE FUTURE.
LIQUIDATION OVERVIEW Source: Management Liquidation Plan. Selling Hometown assets to Transform Holdco for similar net proceeds that the Company is expected to realize upon a liquidation of the assets potentially allows for an additional ~$14M debt reduction Source: Management Business Plan. HOMETOWN TRANSACTION ANALYSIS Illustrative For Discussion Purposes Only Exhibit (c)(4)
Source: Management Liquidation Plan. TRANSFORM HOLDCO HOMETOWN ACQUISITION (a) There are likely additional costs that Transform Holdco would incur that are not reflected here. Source: Management Business Plan. HOMETOWN TRANSACTION ANALYSIS Transform Holdco to acquire Hometown inventory for $135.1M Acquired inventory expected to be sold within 4 months with a full repayment of Transform Holdco expenses, including debt financing and equity check Illustrative For Discussion Purposes Only
Note: All methodologies assume a net debt of $119.5M as of March 2019. The SOTP analysis assumes a valuation of Hometown at 70% NOLV of its inventory. VALUATION SUMMARY DRAFT Preliminary; Subject to Change Exhibit (c)(5)
APRIL 2019 SHOS SHARE PRICE ANALYSIS Exhibit (c)(6)
STOCK PRICE PERFORMANCE – LAST TWELVE MONTHS STOCK PRICE PERFORMANCE – SINCE OCTOBER 12, 2012 SHO SPINOUT Source: Capital IQ as of April 24, 2019. SUMMARY HISTORICAL STOCK PRICE PERFORMANCE $2.34 $2.34
Key events, news and SHC activity RECENT KEY EVENTS Source: Capital IQ as of April 24, 2019. SUMMARY HISTORICAL STOCK PRICE PERFORMANCE $2.34 Median: $2.55 (12/5/2016) Overtures by ESL for SHO to participate in SHC Home Services acquisition (2/11/16) Edward Lampert announces that he controls over 50% of SHO’s outstanding shares (08/30/2018) Upbeat preliminary Q2 results (07/12/2018) Q3 results announced with SSS Q decline of (0.2%) (12/01/2017) Q3 results impacted by Hurricanes SSS Q (9.1%) (9/6/17) SHO Q2 Results announced (2.1%) SSS (3/14/17) SHC announces sale of Craftsman brand to Stanley Black & Decker (03/10/17) SHO Q4 Results announced (4.1%) SSS (6/2/17) SHO Q1 Results announced (7.3%) SSS (02/20/2018) Announcement of $40M TL (04/19/2018) Annual results, SSS decline of (12.4%) (01/17/2019) SHC announces that ESL won the bankruptcy court auction (03/29/2019) Q4 results announced with SSS Q decline of (8.5%) (10/15/2018) SHC files for Chapter 11 with the intention to sell the business as a going concern (06/08/2018) Q1 results Announcement that 90-100 stores will be closed (04/08/2019) ESL launches a bid for all SHO shares not already owned for $2.25 per share 2
VOLUME PER PRICE RANGE – LAST TWELVE MONTHS Source: Capital IQ as of April 24, 2019. VOLUME WEIGHTED AVERAGE PRICE BY RANGE Average LTM Daily Volume: 62,736 Number of trading days with daily VWAP in ranges below VWAP Range
Q1 2018 Q2 2018 Source: Capital IQ as of April 24, 2019. ILLUSTRATIVE PREMIUM ANALYSIS Illustrative $3.50-4.00 price range ESL offer in $3.50-4.00 price range
Q3 2018 Q4 2018 Source: Capital IQ as of April 24, 2019. ILLUSTRATIVE PREMIUM ANALYSIS (CONT’D) Illustrative $3.50-4.00 price range ESL offer in $3.50-4.00 price range SHC Chapter 11 Bankruptcy Period
Q1 2019 Q2 2019 Source: Capital IQ as of April 24, 2019. ILLUSTRATIVE PREMIUM ANALYSIS (CONT’D) Illustrative $3.50-4.00 price range SHC Chapter 11 Bankruptcy Period Post-SHC Bankruptcy Period
A. Adjusts price as if higher sale value was obtained upfront from ESL (a) 62.5% of Inventory Book Value (est. at $176.4M). (b) Implied going-concern value based on ESL’s $2.25 bid. (c) Does not include the potential impact of RSUs outstanding. Contingent Value Mechanism [ DRAFT – Subject to Change] ESL/Transform Bid Implied Value Illustrative Valuation Range and Adjusted Value to Shareholders TotCo Bid Adjustment Adjusted Value to Shareholders Exhibit (c)(7)
B. Adjusts price using an adjustment factor pro-rata across set valuation ranges (a) 62.5% of Inventory Book Value (est. at $176.4M). (b) Implied going-concern value based on ESL’s $2.25 bid. (c) Does not include the potential impact of RSUs outstanding. Contingent Value Mechanism [ DRAFT – Subject to Change] TotCo Bid Adjustment Adjusted Value to Shareholders ESL/Transform Bid Implied Value Illustrative Valuation Range and Adjusted Value to Shareholders Price differential of $0.74 per share ($0.05 per band over 14 bands)
May 2019 DISCUSSION MATERIALS SHOS “Go-Shop” Transaction Concept [ DRAFT – Subject to Change] Exhibit (c)(8)
ESL, through Transform Holdco LLC (“Transform”), would agree to acquire Sears Hometown and Outlet (“SHO” or the “Company”) for [$TBD] per share and allow the company to market and sell the Outlet business (including the Buddy’s store operated by SHO) over a 120 to 150 day period Net proceeds from the sale would be distributed to current shareholders with the original price per share adjusted accordingly (optimal mechanics to be confirmed based on tax and other structuring considerations) The mechanics of such a transaction are contemplated as follows: As soon as can be negotiated, Transform enters into an agreement with the Company to acquire all outstanding shares of SHO for [$TBD] per share Immediately upon signing, the Company will launch a broad marketing process for Outlet to strategic and financial buyers (“Outlet Go-Shop”) Included herein is a discussion of certain selected buyers but intent would be to run a broad process Concurrent with the Outlet Go-Shop, there will be mechanisms put in place that effectively allow Transform to begin exercising certain controls over, and providing certain support to, the Hometown business Important to bring stability to the Hometown business as soon as practicable Mechanisms can include the further sharing of resources, reimbursement of operating expenses, approval of certain business decisions, access to management, etc. The Outlet Go-Shop and sale of the business will not be subject to any consents or approvals from ESL/Transform once the initial agreement to purchase the whole company is executed If the value of Outlet reaches a certain threshold price the business can be sold without any right of first refusal or topping bid opportunity from ESL/Transform In the event that Outlet is acquired by a third party during the go-shop period, Transform’s [$TBD] price per share will be reduced by a pre-determined threshold value of the Outlet business and Transform would close on the acquisition of essentially just the Hometown business In the event that Outlet is not acquired by a third party during the go-shop period, SHO will continue to own the Outlet business when it is acquired by Transform An acquisition of the entire company with a go-shop provision for the sale of the Outlet business to a third party will provide an avenue to maximize value for all parties SHOS “GO-SHOP” TRANSACTION [ DRAFT – Subject to Change] Scope of Transaction Implementation Mechanics
Favorable valuation opportunity given recent financial performance of Outlet with incremental value opportunity for both ESL and SHO’s other shareholders ESL/Transform’s strategic focus is set upon Hometown but not Outlet and a sale provides Transform the ability to focus purely on Hometown post-acquisition Ability for Transform to enhance relationships with Hometown during the go-shop period Both strategic buyers and financial sponsors will be interested due to Outlet’s financial profile, its unique positioning as the only national “scratch & dent” retailer of scale, and its margin enhancing predictive pricing tool Market dynamics are “right time / right place” for the sale of the Outlet business given market trends and investor focus on deep value segments of the economy given the late stage of the business cycle The sale process will be carefully managed to ensure proprietary data is withheld until necessary for final group of qualified bidders ESL/Transform and SHO need to agree on share price and mechanism to adjust the price based on Outlet offers Market must have a clear understanding that the Outlet business is definitely for sale above a certain threshold price so there are no concerns over the business getting bid back by ESL/Transform Explore different options on how Transform can begin to have an input on Hometown operations and provide support in parallel with an Outlet go-shop period Transaction structure will protect Transform and SHO from post-closing recourse Cost of process will be borne by SHO, affecting all stockholders A sale of Outlet enables Transform to focus on the operational integration of Hometown while maximizing the value of Outlet for all of SHO’s shareholders, including ESL Key Benefits Key Considerations TRANSACTION BENEFITS AND CONSIDERATIONS [ DRAFT – Subject to Change]
A sale of Outlet to a third party offers substantial incremental value to shareholders INVESTMENT CONSIDERATIONS Investment Considerations Defensible niche as the only national appliance outlet retailer Increasingly price-conscious customers with a growing tendency to shop at outlets Diversified supply base – serving a critical need for suppliers to move “scratch and dent” products In-place operations, logistics network and repair facilities that are difficult to replicate Online sales 10% of revenues and growing Opportunity to expand into the “rent-to-own” industry if desired 1 2 3 4 5 6 Potential Value Considerations Current pro-forma annual EBITDA estimate for a standalone Outlet business as a public company is $26.6M Pro-forma Outlet EBITDA can flex depending on operating performance as well as the future corporate structure post-carveout for a particular buyer: Could save public company costs and increase EBITDA if standalone private company There could be added benefits related to cost savings if added to an existing platform Carveout discussion will primarily need to address corporate overhead as field operations, sourcing and distribution for Outlet are currently separate from the Hometown business Outlet Gross Proceeds in $M [ DRAFT – Subject to Change]
ILLUSTRATIVE PROCESS TIMETABLE PJ SOLOMON due diligence Build financial forecast / model Develop marketing strategy and materials Prepare Confidential Information Memorandum Prepare and finalize buyers list Contact list of potential buyers Negotiate NDAs Prepare 1st round bid instruction letter Select limited number of parties based on value, financing, timing, contingencies, due diligence requirements and other factors Open data room Organize due diligence visits with selected buyers (including Management Presentation) Distribute purchase agreement and final bid instructions Distribute Confidential Information Memorandum and respond to inquiries from buyers Arrange in-person meetings with key potential buyers to discuss the opportunity Bidders submit initial indications of interest, including proposed value, terms and financing Prepare Management Presentation and data room Receive and analyze final bids Negotiate with top bidders Negotiate definitive agreement Execute definitive agreement with selected buyer Announce transaction Stage One: Preparation & Pre-Marketing Stage Three: Diligence Stage Four: Negotiation, Sign / Announce Stage Two: Marketing Stage One PJ SOLOMON Diligence Draft CIM Initiate Contacts / Negotiate NDAs Stage Two Finalize Mgmt Presentation / Data Room Initial Bids Receive and Evaluate Initial Bids Stage Three Data Room Access Management Presentation Draft Contract Buyer Diligence Final Bids Receive Final Bids Stage Four Negotiation, Signing and Announcement 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Week: 3 weeks 6 weeks 2 weeks 4 weeks Initial Nonbinding Indications of Interest Final Bids 3 weeks 3 weeks 3 weeks 5 weeks 3 weeks Sale Process would commence upon signing / announcement of agreement to acquire SHOS [ DRAFT – Subject to Change]
Process is intended to be broad, however, there could be parties that might have higher levels of interest for various reasons Strategic Buyers Financial Sponsors SELECTED BUYER SUMMARY [ DRAFT – Subject to Change]
Strategic Buyers Source: Capital IQ as of April 29, 2019. SELECTED BUYER SUMMARY (CONT’D) Potential Buyer Key Figures Transaction Rationale Sales: $3.9B EBITDA: $593M Market Cap: $3.9B Debt: $815M Cash: $124M 1,689 stores Attractive opportunity to monetize returned inventory volumes Significant overlap of value-focused customers segment Diversification from more regulated rent-to-own business model Strategic fit with existing Buddy’s stores Sales: $241.6B EBITDA: $29.1B Market Cap: $960.4B Debt: $69.0B Cash: $37.0B Opportunity to monetize inflow of returned / damaged inventory volumes, including in adjacent categories like consumer electronics Leverage existing Amazon fulfilment infrastructure for synergies and growth in online channel Sales: $42.9B EBITDA: $2.7B Market Cap: $19.5B Debt: $1.4B Cash: $2.2B 1,238 stores Already a significant presence in appliance retail Opportunity for Outlet to expand offering to electronics from Best Buy open box inventory Sales: $5.2B EBITDA: $336M Market Cap: $1.5B Debt: $519M Cash: $46M 1,401 stores Expand from furniture and homeware towards the highly complementary appliances segment Likely significant customer overlap Sales: $147.2B EBITDA: $6.1B Market Cap: $107.3B Debt: $6.5B Cash: $7.1B 762 stores Proven interest to venture into liquidation inventory sales Strategic fit with Costco’s liquidations marketplace platform Caters to value-focused customers [ DRAFT – Subject to Change]
Strategic Buyers (continued) Source: Capital IQ as of April 29, 2019. SELECTED BUYER SUMMARY (CONT’D) Potential Buyer Key Figures Transaction Rationale Sales: $108.2B EBITDA: $17.9B Market Cap: $224.5B Debt: $29.2B Cash: $1.8B 2,287 stores Large player in appliances segment Investment in Outlet would provide access to incremental inventory Opportunity to monetize scratched and dented inventory Sales: $71.3B EBITDA: $7.5B Market Cap: $89.5B Debt: $16.2B Cash: $729M 2,015 stores Large player in appliances segment Investment in Outlet would provide access to incremental inventory Opportunity to monetize scratched and dented inventory Sales: $2.7B EBITDA: $184M Market Cap: $1.3B Debt: $540M Cash: $155M 2,158 stores Attractive opportunity to monetize returned inventory volumes Significant overlap of value-focused customers segment Diversification from more regulated rent-to-own business model Sales: $1.2B EBITDA: $176M Market Cap: $6.0B Debt: $1M Cash: $52M 315 stores Consolidation of closeout merchandise and excess inventory retail segment Expand existing appliance offering Gain access to Outlet’s pricing algorithms Sales: $39.0B EBITDA: $5.0B Market Cap: $66.9B Debt: $2.5B Cash: $3.0B 4,300 stores Complementary to HomeGoods and HomeSense home-oriented offering, which is a strategic category for TJX Experience in building capabilities via acquisitions [ DRAFT – Subject to Change]
Strategic Buyers (continued) Source: Capital IQ as of April 29, 2019. SELECTED BUYER SUMMARY (CONT’D) Potential Buyer Key Figures Transaction Rationale Sales: $6.8B EBITDA: $(404)M Market Cap: $14.1B Debt: $922M Cash: $964M Expand existing appliance offering Access to significant retail footprint, which could enable omnichannel benefits at scale [ DRAFT – Subject to Change]
Financial Sponsors Source: Publicly available information. SELECTED BUYER SUMMARY (CONT’D) Potential Buyer Est. Relevant Fund Size Transaction Rationale ~$13B Experience in the value retail segment through highly successful investment in “extreme discount” retailer Five Below ~$8B Investment in discount retailer 99 Cents Only Stores Proven ongoing interest in the discount segment with ongoing acquisition of Savers ~$7B Existing presence in the discount segment with Dollarama (UK) ~$4B Proven interest in excess inventory segment through position in Ollie’s Bargain Outlet ~$2B Known to be looking at comparable opportunities ~$9B Previous presence in the value segment with Dollar General Would allow Mills Fleet Farm investment to penetrate further into adjacent appliance category n.a. Current owner of Buddy’s Seeking to grow presence in the furniture and appliances space targeting lower-income customer segments Attractive alternative to failed investment in Rent-A-Center [ DRAFT – Subject to Change]
APPENDIX
Unique business model providing consumers access to high quality appliances and other home-related products at a value-oriented price point Source: Publicly available information. OVERVIEW OF OUTLET SEGMENT Overview Retail Outlet stores sell new, one-of-a-kind, out-of-carton, discontinued, obsolete, used, reconditioned, overstocked, and scratched and dented products at a value-oriented price point 128 stores, including 5 franchised locations, across 33 states Sourcing from retailers or through direct manufacturer purchasing agreements Merchandise categories include Home Appliances (~84%), Mattresses, Furniture, Lawn and Garden Equipment, and Tools In-store and online shop sales channels Key Suppliers Online Shop Share Of Total Purchases (%) Sales Channels [ DRAFT – Subject to Change]
OVERVIEW OF OUTLET SEGMENT (CONT’D) Several efficiency-focused initiatives came to fruition to boost profitability with 11 of 12 months of 2018 Adjusted EBITDA growth over the prior year Profit-enhancing Initiatives Progress / Outcome As-Is Appliance Sourcing Appliance Pricing Strategy Online Shop Reduce initial costs for as-is appliances to improve margins in conjunction with the updated Outlet pricing strategy Reach multi-year sourcing agreements with key vendors to ensure consistent and reliable flow of products and to reduce dependency on SHC Reduce damages of as-is appliances during transportation, increasing vendor accountability for damage expense and fees for excessive non-saleable receipts All new agreements completed in Q1, including reduced product pricing, committed unit flow per vendor, lower non-salable thresholds and vendor charges for non-saleables over threshold Gross Margin benefit of approximately $24 million in 2018 New 1-2 year agreements completed, which replaced all SHC-sourced products Legacy pricing strategy produced inconsistent pricing and did not achieve optimal price / value relationship vis-à-vis aggressive pricing by new-in-box appliances competitors New pricing strategy creates an everyday great value for the Outlet customer by monitoring market pricing via online price scraping Decline in markdown rate of over 1,100bps for fiscal 2018 Gross Margin improvement of approximately 350-400bps in 2018 Conducted third party user experience audits and implemented over 50 enhancements to the website Replaced National Delivery provider Migration to AWS open source technology Added leasing options with weekly leasing price displayed and a dedicated leasing landing page 25% increase in the site rating Improved fulfilment rates by 340bps Returned to topline growth in 2018, based on actions taken SearsOutlet.com sales were up 47% and 9.5% in Q3-2018 and Q4-2018, respectively, after the pricing changes [ DRAFT – Subject to Change]
A proven franchise business model in the rapidly growing rent-to-own industry that develops a new customer base for SHO Retail ONLINE The U.S. Lease-to-Own market is projected to grow 5.5% to $11.5 billion with over 5% annual growth through 2022 Buddy’s is the largest independent rent-to-own dealer in the country with 300 locations in 22 states and Guam 37 company-operated stores and 263 franchisee-owned stores Primary product categories include Furniture, Consumer Electronics, Home Appliances, and Computers IP is owned by Vintage Capital Current SHO Footprint Business Overview SHO is a Buddy’s franchisee Three Buddy’s stores opened in January 2018 Currently, there are 8 Buddy’s locations with one new store planned for fiscal 2019 These stores are expected to achieve monthly positive cash flow in the second year of operation OVERVIEW OF BUDDY’S HOME FURNISHINGS [ DRAFT – Subject to Change]
ILLUSTRATIVE VALUATION RANGE (a) Assumes buyer of Outlet taking on all Outlet-related liabilities. ESL PROPOSAL [ DRAFT – Subject to Change] Exhibit (c)(9)
Calculations based on 22.7M shares outstanding ILLUSTRATIVE VALUATION RANGE Assumes buyer of Outlet taking on all Outlet-related liabilities. Placeholder estimate for transaction fees including advisory, legal, financing and amendment fees. ESL PROPOSAL [ DRAFT – Subject to Change] Exhibit (c)(10)
Calculations based on 23.4M shares outstanding, including 0.7M RSUs ILLUSTRATIVE VALUATION RANGE Assumes buyer of Outlet taking on all Outlet-related liabilities. Placeholder estimate for transaction fees including advisory, legal, financing and amendment fees. ESL PROPOSAL [ DRAFT – Subject to Change]
Calculations based on 22.7M shares outstanding ILLUSTRATIVE VALUATION RANGE Assumes buyer of Outlet taking on all Outlet-related liabilities. Placeholder estimate for transaction fees including advisory, legal, financing and amendment fees. Maximum post-closing liability shall not exceed $5M with the Net Proceeds being reduced by an amount equal to 25% of the maximum post-closing liability. Placeholder estimate for a 50% share of a tail risk insurance premium. Includes RSUs, LTIPs, cash retention and AIP held by staff moving to Outlet that will vest in a transaction. ESL PROPOSAL [ DRAFT – Subject to Change] Exhibit (c)(11)
May 2019 PROJECT BOOTS Board Materials DRAFT Subject to change Exhibit (c)(12)
Summary Transaction Terms 2 SHO Market Data 4 SHO Financial Projections 8 Summary Valuation Analysis 10 Other Analysis 16 TABLE OF CONTENTS
Based on 22.7M of Common Shares Outstanding. Based on net debt of $118.3M as of end of April 2019. Based on ESL’s initial offer. SELECTED PROPOSED TRANSACTION TERMS Acquiror Per Share Consideration Go-Shop Period Implied Equity Value (a) Implied Enterprise Value (b) Financing (c) Other (c) Transform HoldCo LLC $[2.25] in cash, to be increased by the pro rata proceeds from a sale of Outlet (if any) to a third party above the Outlet Sale Minimum Proceeds of $[97.5M] during the Go-Shop Period $[51.1M] + Net Proceeds from Outlet Sale, if applicable $[169.4M] + Net Proceeds from Outlet Sale, if applicable Financing through cash or loans from ESL or other members Only intend to go ahead with proposal if approved by the full Board of Directors of the Company upon the recommendation of the special committee of independent directors ESL intends to promptly file an amendment to its Schedule 13D with the SEC Immediately following entry into the transaction agreement the Company will launch a broad marketing process for a sale to a third party of the Company’s Outlet segment The Company will be permitted for [85] days following the date of the Transaction Agreement to (i) solicit acquisition proposals in respect of the Outlet Segment and (ii) seek to negotiate the terms of an Outlet Sale and enter into definitive transaction documentation with a third party, with a one-time extension by 10 days if the Company is in negotiations with one or more third parties and has a good faith expectation of entering into an Outlet Purchase Agreement within such 10 days The Company must complete any Outlet Sale by [October 16, 2019], with a one-time extension to October 31, 2019 Transform will have an opportunity to match any third-party proposal equal to or exceeding the Outlet Sale Minimum Proceeds but less than an agreed threshold of $[120M] DRAFT Preliminary; Subject to Change
(a) [0.8M] RSUs outstanding. Treatment in transaction TBD. OFFER SUMMARY
SHO MARKET DATA
Adjusted to exclude unusual and extraordinary items. Source: May 2019 Management Projections. Assumes 8.0x rent methodology. Shares outstanding as May 3, 2019. Source: Company's Form 10-K for the period ended February 2, 2019. Assumes the treasury stock method with no in-the-money options outstanding. Includes exercisable options held by directors and executive officers. Source: Company's Proxy Statement dated April 19, 2018 and Bloomberg; ESL 13D filed May 14,2019. SUMMARY CAPITALIZATION AND VALUATION DRAFT Preliminary; Subject to Change [ Update ]
STOCK PRICE PERFORMANCE – LAST TWELVE MONTHS STOCK PRICE PERFORMANCE – SINCE OCTOBER 12, 2012 SHO SPINOUT Source: Capital IQ as of May 24, 2019. SUMMARY HISTORICAL STOCK PRICE PERFORMANCE $2.23 $2.23 DRAFT Preliminary; Subject to Change [ Update ] (04/08/2019) ESL launches a bid for all SHO shares not already owned for $2.25 per share; closing price on 04/08/2019 was $1.90
RECENT KEY EVENTS Source: Capital IQ as of April 24, 2019. Key events, news and SHC activity KEY EVENTS Source: Capital IQ as of May 24, 2019. SUMMARY HISTORICAL STOCK PRICE PERFORMANCE $2.23 Median: $2.55 (12/5/2016) Overtures by ESL for SHO to participate in SHC Home Services acquisition (08/30/2018) Upbeat preliminary Q2 results (12/07/2018) Q3 results announced with SSS Q decline of (0.2%) (9/6/17) SHO Q2 Results announced (2.1%) SSS (12/01/2018) Q3 results impacted by Hurricanes SSS Q (9.1%) (3/14/17) SHC announces sale of Craftsman brand to Stanley Black & Decker (03/10/17) SHO Q4 Results announced (4.1%) SSS (6/2/17) SHO Q1 Results announced (7.3%) SSS (02/20/2018) Announcement of $40M TL (04/19/2018) Annual results, SSS decline of (12.4%) (01/17/2019) SHC announces that ESL won the bankruptcy court auction (03/29/2019) Q4 results announced with SSS Q decline of (8.5%) (10/15/2018) SHC files for Chapter 11 with the intention to sell the business as a going concern (06/08/2018) Q1 results Announcement that 90-100 stores will be closed (04/08/2019) ESL launches a bid for all SHO shares not already owned for $2.25 per share DRAFT Preliminary; Subject to Change [ Update ]
SHO FINANCIAL PROJECTIONS
Note: LTM Sales as per internal management reporting. Source: May 2019 Management Plan. PROJECTED FINANCIAL PERFORMANCE DRAFT Preliminary; Subject to Change Financial Data as of Financial Year End (1/31) [ Add 2022 ]
SUMMARY VALUATION ANALYSIS
Notes: All methodologies assume a net debt of $118.3M as of April 2019. Excludes valuation analysis on a liquidation of Hometown scenario. The Committee (as defined herein) has directed us, and we have assumed for purposes hereof, that the Company is prevented from undertaking any strategic or financial transaction alternative, including, without limitation, any transaction contemplated by the liquidation plan prepared by Company management (the “Management Liquidation Plan”), or any other strategic or financial transaction alternative that is not in accordance with the Company’s organizational documents, including, without limitation, Section 2.10 of the Company’s Bylaws. We express no opinion with respect to the values that might have been obtained for the Company or its assets in any merger or business combination with any other party or in any other strategic or financial transaction, including, without limitation, any transaction contemplated by the Management Liquidation Plan. SUMMARY VALUATION OVERVIEW $2.25/share initial offer from ESL DRAFT Preliminary; Subject to Change [ Update ] (for illustrative purposes only)
Implied valuation based on selected public companies and precedent transactions Equity value based on projected net debt of $118.3M as of end of April 2019. COMPARABLE COMPANIES AND TRANSACTIONS DRAFT Preliminary; Subject to Change [ Update ]
Source: Company filings, Capital IQ and other publicly available sources. Note: CAGRs (Compound Annual Growth Rates) and Averages are for the last three completed fiscal years for each company. All operating data has been adjusted to exclude unusual and extraordinary items. (a) Source of projected EPS, EBITDA and growth rate estimates: Thomson Reuters median estimate of Wall Street analysts as of May 24, 2019. (b) Enterprise value represents equity value plus book values of total debt, preferred stock and minority interest less cash. SELECTED PUBLIC COMPANIES DRAFT Preliminary; Subject to Change [ Update ]
Source: SEC filings and other publicly available data. (a) EBITDA multiple assumes 50% of corporate overhead and D&A attributed to retail segment. (b) Investor Presentation dated October 16, 2013. (c) Based on sales of $315mm for the FY ended Jan. 28, 2012 per Moody's Investors Service. PRECEDENT HARDLINES TRANSACTIONS DRAFT Preliminary; Subject to Change
DISCOUNTED CASH FLOW ANALYSIS Notes: Net debt is as of end of April 2019. Not including the potential impact of NOLs. DISCOUNTED CASH FLOW ANALYSIS DRAFT Preliminary; Subject to Change [ Update for 2022 ]
OTHER ANALYSES
Source: Factset. PREMIUMS PAID ANALYSIS SUMMARY DRAFT Preliminary; Subject to Change
(a) Assumes book value of debt approximates market value. (b) Source: Capital IQ 5-year adjusted weekly beta as reported on May 24, 2019. (c) Unlevered Beta = Levered Beta / {1+(Debt/Market Equity)*(1-Tax Rate)}. (d) 10-year Treasury Note yield as of May 24, 2019. (e) Source: Duff & Phelps 2018 Valuation Handbook. (f) Size premium of 3.39% for companies with market capitalizations between 2.5mm and 727.8mm (g) Marginal tax rate based on PJ Solomon assumption. (h) Relevered Beta = Unlevered Beta * {1+(Debt/Equity)*(1-Tax Rate)}. (i) Cost of Equity = Risk Free Rate + (Relevered Beta * Market Risk Premium) + Size Premium. (j) Median Unlevered Beta of Comps. . WEIGHTED AVERAGE COST OF CAPITAL DRAFT Preliminary; Subject to Change [ Update ]
This presentation has been prepared by PJ Solomon Securities, LLC (together with its affiliates, “SOLOMON”), in its capacity as financial advisor to the special committee (the “Committee”) of the board of directors of Sears Hometown & Outlet Stores, Inc. (the “Company”), for the exclusive use of the Committee and the board of directors of the Company (the “Board”), each in their respective capacities as such, solely in connection with the Committee’s and Board’s consideration of the potential transaction referenced herein. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by SOLOMON. This presentation is based on materials and information available from publicly available sources or supplied (whether orally or in writing) by or at the request of the Company or its representatives. SOLOMON has assumed and relied upon the accuracy and completeness of such information and does not assume any responsibility for independent verification of such information. This presentation includes certain statements, estimates and projections provided by the Company and selected public sources with respect to the historical and anticipated future performance of the Company. Such statements, estimates and projections contain or are based on significant assumptions and subjective judgments made by management of the Company and such public sources. For the purposes of this presentation and the opinion being issued by SOLOMON, SOLOMON has assumed the reasonableness, accuracy and completeness of all such information, including, with respect to any Company projections, that such projections have been reasonably prepared on bases reflecting the best currently available estimates and judgments of management of the Company as to the future financial performance of the Company. SOLOMON assumes no responsibility for, and expresses no view as to, any such forecasts or the assumptions on which they are based. These assumptions and judgments may or may not be correct, and there can be no assurance that any projected results are attainable or will be realized. SOLOMON has not attempted to verify any such statements, estimates and projections, and as such SOLOMON makes no representation or warranty as to, and assumes no responsibility for, their accuracy or completeness and for the effect which any such inaccuracy or incompleteness may have on the results or judgments contained in this presentation. This presentation is not intended to provide the sole basis for any decision on a transaction and does not represent a fairness opinion, recommendation, valuation or opinion of any kind with respect to any transaction. The financial analysis in this presentation is complex and not susceptible to partial analysis or summary descriptions. SOLOMON has viewed the results of the analysis as a whole, and has not necessarily attributed any particular weight to any specific portion of the analysis considered. Viewing any individual portion or portions of the analysis without considering the analysis as a whole would create an incomplete view of SOLOMON’s financial analysis. Except where otherwise indicated, this analysis speaks as of the date hereof. Under no circumstances should the delivery of this document imply that the analysis would be the same if made as of any other date. This presentation and the information contained herein do not constitute an offer to sell or the solicitation of an offer to buy any security, commodity or instrument or related derivative, nor do they constitute an offer or commitment to lend, syndicate or arrange a financing, underwrite or purchase or act as an agent or advisor or in any other capacity with respect to any transaction, or commit capital, or to participate in any trading strategies. SOLOMON does not provide legal, regulatory, accounting or tax advice. We recommend that the recipient seek independent third party legal, regulatory, accounting and tax advice regarding the contents of this presentation. This presentation is not a research report and was not prepared by the research department of SOLOMON or any of its affiliates. SOLOMON expresses no view or opinion as to the price or range of prices at which the shares of common stock or other securities of the Company may trade at any time, including, without limitation, subsequent to the announcement or consummation of any transaction with Buyer. SOLOMON provides mergers and acquisitions, restructuring and other advisory services to clients. At any given time, SOLOMON or its affiliates may be engaged by one or more entities that may be competitors with, or otherwise adverse to, the Company in connection with matters unrelated to any transaction. As a result, it is possible that SOLOMON or its affiliates may from time to time be involved in one or more capacities that, directly or indirectly, may be or may be perceived as being adverse to the Company’s interests. Moreover, SOLOMON or its affiliates may, in the course of other client relationships, have or in the future acquire information material to the Company’s interests which, by virtue of such other client relationships, SOLOMON or its affiliates are or will not be at liberty to disclose to the Company. SOLOMON is an affiliate of Natixis, which engages globally in a wide variety of financing, commodities, derivatives, commercial banking, investment banking, securities trading and brokerage activities, asset management and financial advisory services. In the ordinary course of its activities Natixis may at any time (i) be in possession of non-public information that it does not disclose to the Company and (ii) hold long or short positions, or trade or otherwise effect transactions, for its own account or customer accounts, in the debt or equity of (or other financial instruments relating to) persons or entities that may be involved or otherwise have interests in a transaction involving the Company or may provide investment banking and other services or financing to such persons or entities. The Company further understands and agrees that Natixis may exercise voting power or other types of discretion over loans or securities of (or other financial instruments relating to) persons or entities that may be involved in a transaction involving the Company and that Natixis may exercise such powers or discretion and otherwise perform its functions in connection with any fiduciary and other relationships without regard to its relationship to the Company. THIS PRESENTATION IS FOR THE INFORMATION AND ASSISTANCE OF THE COMMITTEE AND THE BOARD, EACH IN THEIR RESPECTIVE CAPACITIES AS SUCH. IT IS NOT INTENDED TO BE USED OR RELIED UPON, AND SHOULD NOT AND CANNOT BE USED OR RELIED UPON, BY ANY OTHER PERSON. THIS PRESENTATION IS CONFIDENTIAL AND SHOULD NOT, WITHOUT PRIOR WRITTEN CONSENT OF SOLOMON, BE COPIED OR MADE AVAILABLE TO ANY PERSONOTHER THAN THE COMMITTEE AND THE BOARD. NOTWITHSTANDING ANYTHING THAT MAY APPEAR HEREIN OR IN OTHER MATERIALS TO THE CONTRARY, THE COMPANY SHALL BE PERMITTEDTO DISCLOSE THE TAX TREATMENT AND TAX STRUCTURE OF A TRANSACTION (INCLUDING ANY MATERIALS, OPINIONS OR ANALYSES RELATING TO SUCH TAX TREATMENT OR TAX STRUCTURE, BUT WITHOUT DISCLOSURE OF IDENTIFYING INFORMATION OR, EXCEPT TO THE EXTENT RELATING TO SUCH TAX STRUCTURE OR TAX TREATMENT, ANY NONPUBLIC COMMERCIAL OR FINANCIAL INFORMATION) ON AND AFTER THE EARLIEST TO OCCUR OF THE DATE OF (I) PUBLIC ANNOUNCEMENT OF DISCUSSIONS RELATING TO SUCH TRANSACTION, (II) PUBLIC ANNOUNCEMENT OF SUCH TRANSACTION OR (III) EXECUTION OF A DEFINITIVE AGREEMENT (WITH OR WITHOUT CONDITIONS) TO ENTER INTO SUCH TRANSACTION; PROVIDED, HOWEVER, THAT IF SUCH TRANSACTION IS NOT CONSUMMATED FOR ANY REASON, THE PROVISIONS OF THIS SENTENCE SHALL CEASE TO APPLY. NOTHING CONTAINED IN THIS PRESENTATION IS, OR SHALL BE RELIED UPON AS, A REPRESENTATION OR WARRANTY, WHETHER AS TO THE PAST, THE PRESENTOR THE FUTURE. DISCLAIMER
Calculations based on fully-diluted shares outstanding ILLUSTRATIVE VALUATION RANGE Assumes buyer of Outlet taking on all Outlet-related liabilities. Placeholder estimate for transaction fees and expenses, including advisory, legal, financing and amendment fees. Assumes no taxes paid, given SHO basis in Outlet assets and SHO NOLs. Assumes no excess working capital is delivered to Outlet buyer. Assumes fee of $100k or less payable in connection with any Going Concern Waiver, and no fee payable in connection with any Outlet Sale Amendments. Placeholder estimate for a 50% share of a D&O risk insurance premium. Includes RSUs, LTIPs, cash retention and AIP held by staff moving to Outlet that will accelerate in a transaction, including a deduct for 50% of the costs for certain senior executives, whether or not they go with Outlet. ESL PROPOSAL Exhibit (c)(13)
May 2019 PROJECT BOOTS Special Committee and Board Materials Exhibit (c)(14)
Summary Transaction Terms 2 SHO Market Data 4 SHO Financial Projections 8 Summary Valuation Analysis 10 Other Analysis 16 TABLE OF CONTENTS
Based on 22.7M of Common Shares Outstanding. Based on net debt of $118.7M as of end of Q1 2019. SELECTED PROPOSED TRANSACTION TERMS Acquiror Per Share Consideration Go-Shop Period Implied Equity Value (a) Implied Enterprise Value (b) Financing Transform HoldCo LLC Base Merger Consideration of $2.25 in cash, to be increased by the pro rata net proceeds calculated on a fully-diluted basis from a sale of Outlet (if any) to a third party above the Outlet Sale Minimum Proceeds of $97.5M during the Go-Shop Period $51.1M + Net Proceeds from Outlet Sale, if applicable $169.8M + Net Proceeds from Outlet Sale, if applicable Transform to receive an Equity Commitment Letter from ESL Investments in an amount equal to the aggregate Base Merger Consideration to be paid in the merger Immediately following entry into the transaction agreement the Company will launch a broad marketing process for a sale to a third party of the Company’s Outlet Segment The Company will be permitted for 85 days (extendable to 95 days in certain circumstances) following the date of the Transaction Agreement to solicit acquisition proposals in respect of the Outlet Segment and seek to negotiate the terms of an Outlet Sale and enter into definitive transaction documentation with a third party The Company must complete any Outlet Sale with 145 days (extendable to 160 days in specified circumstances) of the date of the Transaction Agreement Transform will have an opportunity to match any third-party proposal equal to or exceeding the Outlet Sale Minimum Proceeds but less than an agreed threshold of $120M
(a) 0.8M RSUs outstanding, which will accelerate and be paid at merger closing if Outlet Sale occurs. If not, they are paid by Transform on normal schedule post-closing at Base Merger Consideration (subject to potential acceleration for RSUs vesting January 2020 for certain employees, per ongoing discussions). OFFER SUMMARY
SHO MARKET DATA
Adjusted to exclude unusual and extraordinary items. LTM figures for the period ended February 2, 2019. Source: May 2019 Management Projections. Assumes 8.0x rent methodology. Shares outstanding as May 3, 2019. Source: Company's Form 10-K for the period ended February 2, 2019. Assumes the treasury stock method with no in-the-money options outstanding. Includes exercisable options held by directors and executive officers. Source: Company's Proxy Statement dated April 19, 2018 and Bloomberg; ESL 13D filed May 14,2019. SUMMARY CAPITALIZATION AND VALUATION [ Update ]
STOCK PRICE PERFORMANCE – LAST TWELVE MONTHS STOCK PRICE PERFORMANCE – SINCE OCTOBER 12, 2012 SHO SPINOUT Source: Capital IQ as of May 30, 2019. SUMMARY HISTORICAL STOCK PRICE PERFORMANCE $2.20 $2.20 [ Update ]
RECENT KEY EVENTS Source: Capital IQ as of April 24, 2019. Key events, news and SHC activity KEY EVENTS Source: Capital IQ as of May 30, 2019. SUMMARY HISTORICAL STOCK PRICE PERFORMANCE $2.20 Median: $2.55 (12/5/2016) Overtures by ESL for SHO to participate in SHC Home Services acquisition (08/30/2018) Upbeat preliminary Q2 results (12/07/2018) Q3 results announced with SSS Q decline of (0.2%) (9/6/17) SHO Q2 Results announced (2.1%) SSS (12/01/2018) Q3 results impacted by Hurricanes SSS Q (9.1%) (3/14/17) SHC announces sale of Craftsman brand to Stanley Black & Decker (03/10/17) SHO Q4 Results announced (4.1%) SSS (6/2/17) SHO Q1 Results announced (7.3%) SSS (02/20/2018) Announcement of $40M TL (04/19/2018) Annual results, SSS decline of (12.4%) (01/17/2019) SHC announces that ESL won the bankruptcy court auction (03/29/2019) Q4 results announced with SSS Q decline of (8.5%) (10/15/2018) SHC files for Chapter 11 with the intention to sell the business as a going concern (06/08/2018) Q1 results Announcement that 90-100 stores will be closed (04/08/2019) ESL launches a bid for all SHO shares not already owned for $2.25 per share [ Update ]
SHO FINANCIAL PROJECTIONS
Source: May 2019 Management Plan. PROJECTED FINANCIAL PERFORMANCE Financial Data as of Financial Year End (1/31) [ Add 2022 ]
SUMMARY VALUATION ANALYSIS
Notes: All methodologies assume an actual net debt of $118.7M as of end of Q1 2019. Excludes valuation analysis on a liquidation of Hometown scenario. The Special Committee (as defined below) has also directed us, and we have assumed for purposes hereof, that the Company is prevented from undertaking any transaction contemplated by the Management Liquidation Plan or any other strategic or financial transaction alternative that is not in accordance with the Company’s organizational documents, including, without limitation, Section 2.10 of the Bylaws. We express no opinion with respect to the values that might have been obtained for the Company or its assets in any merger or business combination with any other party or in any other strategic or financial transaction, including, without limitation, any transaction contemplated by the Management Liquidation Plan. SUMMARY VALUATION OVERVIEW $2.25 Base Merger Consideration from Transform [ Update ] (for illustrative purposes only)
Implied valuation based on selected public companies and precedent transactions Note: LTM EBITDA reflects fiscal 2018 actuals for the period ended February 2, 2019.. Equity value based on actual net debt of $118.7M as of end of Q1 2019. COMPARABLE COMPANIES AND TRANSACTIONS [ Update ]
Source: Company filings, Capital IQ and other publicly available sources. Note: CAGRs (Compound Annual Growth Rates) and Averages are for the last three completed fiscal years for each company. All operating data has been adjusted to exclude unusual and extraordinary items. LTM EBITDA reflects fiscal 2018 actuals for the period ended February 2, 2019. (a) Source of projected EPS, EBITDA and growth rate estimates: Thomson Reuters median estimate of Wall Street analysts as of May 30, 2019. (b) Enterprise value represents equity value plus book values of total debt, preferred stock and minority interest less cash. SELECTED PUBLIC COMPANIES [ Update ]
Source: SEC filings and other publicly available data. (a) EBITDA multiple assumes 50% of corporate overhead and D&A attributed to retail segment. (b) Investor Presentation dated October 16, 2013. (c) Based on sales of $315mm for the FY ended Jan. 28, 2012 per Moody's Investors Service. PRECEDENT HARDLINES TRANSACTIONS
DISCOUNTED CASH FLOW ANALYSIS Notes: Net debt is as of end of Q1 2019. Not including the potential impact of NOLs. DISCOUNTED CASH FLOW ANALYSIS [ Update for 2022 ]
OTHER ANALYSES
Source: Factset. PREMIUMS PAID ANALYSIS SUMMARY
(a) Assumes book value of debt approximates market value. (b) Source: Capital IQ 5-year adjusted weekly beta as reported on May 24, 2019. (c) Unlevered Beta = Levered Beta / {1+(Debt/Market Equity)*(1-Tax Rate)}. (d) 10-year Treasury Note yield as of May 30, 2019. (e) Source: Duff & Phelps 2018 Valuation Handbook. (f) Size premium of 3.39% for companies with market capitalizations between 2.5mm and 727.8mm (g) Marginal tax rate based on PJ Solomon assumption. (h) Relevered Beta = Unlevered Beta * {1+(Debt/Equity)*(1-Tax Rate)}. (i) Cost of Equity = Risk Free Rate + (Relevered Beta * Market Risk Premium) + Size Premium. (j) Median Unlevered Beta of Comps. . WEIGHTED AVERAGE COST OF CAPITAL [ Update ]
This presentation has been prepared by PJ Solomon Securities, LLC (together with its affiliates, “SOLOMON”), in its capacity as financial advisor to the special committee (the “Committee”) of the board of directors of Sears Hometown & Outlet Stores, Inc. (the “Company”), for the exclusive use of the Committee and the board of directors of the Company (the “Board”), each in their respective capacities as such, solely in connection with the Committee’s and Board’s consideration of the potential transaction referenced herein. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by SOLOMON. This presentation is based on materials and information available from publicly available sources or supplied (whether orally or in writing) by or at the request of the Company or its representatives. SOLOMON has assumed and relied upon the accuracy and completeness of such information and does not assume any responsibility for independent verification of such information. This presentation includes certain statements, estimates and projections provided by the Company and selected public sources with respect to the historical and anticipated future performance of the Company. Such statements, estimates and projections contain or are based on significant assumptions and subjective judgments made by management of the Company and such public sources. For the purposes of this presentation and the opinion being issued by SOLOMON, SOLOMON has assumed the reasonableness, accuracy and completeness of all such information, including, with respect to any Company projections, that such projections have been reasonably prepared on bases reflecting the best currently available estimates and judgments of management of the Company as to the future financial performance of the Company. SOLOMON assumes no responsibility for, and expresses no view as to, any such forecasts or the assumptions on which they are based. These assumptions and judgments may or may not be correct, and there can be no assurance that any projected results are attainable or will be realized. SOLOMON has not attempted to verify any such statements, estimates and projections, and as such SOLOMON makes no representation or warranty as to, and assumes no responsibility for, their accuracy or completeness and for the effect which any such inaccuracy or incompleteness may have on the results or judgments contained in this presentation. This presentation is not intended to provide the sole basis for any decision on a transaction and does not represent a fairness opinion, recommendation, valuation or opinion of any kind with respect to any transaction. The financial analysis in this presentation is complex and not susceptible to partial analysis or summary descriptions. SOLOMON has viewed the results of the analysis as a whole, and has not necessarily attributed any particular weight to any specific portion of the analysis considered. Viewing any individual portion or portions of the analysis without considering the analysis as a whole would create an incomplete view of SOLOMON’s financial analysis. Except where otherwise indicated, this analysis speaks as of the date hereof. Under no circumstances should the delivery of this document imply that the analysis would be the same if made as of any other date. This presentation and the information contained herein do not constitute an offer to sell or the solicitation of an offer to buy any security, commodity or instrument or related derivative, nor do they constitute an offer or commitment to lend, syndicate or arrange a financing, underwrite or purchase or act as an agent or advisor or in any other capacity with respect to any transaction, or commit capital, or to participate in any trading strategies. SOLOMON does not provide legal, regulatory, accounting or tax advice. We recommend that the recipient seek independent third party legal, regulatory, accounting and tax advice regarding the contents of this presentation. This presentation is not a research report and was not prepared by the research department of SOLOMON or any of its affiliates. SOLOMON expresses no view or opinion as to the price or range of prices at which the shares of common stock or other securities of the Company may trade at any time, including, without limitation, subsequent to the announcement or consummation of any transaction with Buyer. SOLOMON provides mergers and acquisitions, restructuring and other advisory services to clients. At any given time, SOLOMON or its affiliates may be engaged by one or more entities that may be competitors with, or otherwise adverse to, the Company in connection with matters unrelated to any transaction. As a result, it is possible that SOLOMON or its affiliates may from time to time be involved in one or more capacities that, directly or indirectly, may be or may be perceived as being adverse to the Company’s interests. Moreover, SOLOMON or its affiliates may, in the course of other client relationships, have or in the future acquire information material to the Company’s interests which, by virtue of such other client relationships, SOLOMON or its affiliates are or will not be at liberty to disclose to the Company. SOLOMON is an affiliate of Natixis, which engages globally in a wide variety of financing, commodities, derivatives, commercial banking, investment banking, securities trading and brokerage activities, asset management and financial advisory services. In the ordinary course of its activities Natixis may at any time (i) be in possession of non-public information that it does not disclose to the Company and (ii) hold long or short positions, or trade or otherwise effect transactions, for its own account or customer accounts, in the debt or equity of (or other financial instruments relating to) persons or entities that may be involved or otherwise have interests in a transaction involving the Company or may provide investment banking and other services or financing to such persons or entities. The Company further understands and agrees that Natixis may exercise voting power or other types of discretion over loans or securities of (or other financial instruments relating to) persons or entities that may be involved in a transaction involving the Company and that Natixis may exercise such powers or discretion and otherwise perform its functions in connection with any fiduciary and other relationships without regard to its relationship to the Company. THIS PRESENTATION IS FOR THE INFORMATION AND ASSISTANCE OF THE COMMITTEE AND THE BOARD, EACH IN THEIR RESPECTIVE CAPACITIES AS SUCH. IT IS NOT INTENDED TO BE USED OR RELIED UPON, AND SHOULD NOT AND CANNOT BE USED OR RELIED UPON, BY ANY OTHER PERSON. THIS PRESENTATION IS CONFIDENTIAL AND SHOULD NOT, WITHOUT PRIOR WRITTEN CONSENT OF SOLOMON, BE COPIED OR MADE AVAILABLE TO ANY PERSONOTHER THAN THE COMMITTEE AND THE BOARD. NOTWITHSTANDING ANYTHING THAT MAY APPEAR HEREIN OR IN OTHER MATERIALS TO THE CONTRARY, THE COMPANY SHALL BE PERMITTEDTO DISCLOSE THE TAX TREATMENT AND TAX STRUCTURE OF A TRANSACTION (INCLUDING ANY MATERIALS, OPINIONS OR ANALYSES RELATING TO SUCH TAX TREATMENT OR TAX STRUCTURE, BUT WITHOUT DISCLOSURE OF IDENTIFYING INFORMATION OR, EXCEPT TO THE EXTENT RELATING TO SUCH TAX STRUCTURE OR TAX TREATMENT, ANY NONPUBLIC COMMERCIAL OR FINANCIAL INFORMATION) ON AND AFTER THE EARLIEST TO OCCUR OF THE DATE OF (I) PUBLIC ANNOUNCEMENT OF DISCUSSIONS RELATING TO SUCH TRANSACTION, (II) PUBLIC ANNOUNCEMENT OF SUCH TRANSACTION OR (III) EXECUTION OF A DEFINITIVE AGREEMENT (WITH OR WITHOUT CONDITIONS) TO ENTER INTO SUCH TRANSACTION; PROVIDED, HOWEVER, THAT IF SUCH TRANSACTION IS NOT CONSUMMATED FOR ANY REASON, THE PROVISIONS OF THIS SENTENCE SHALL CEASE TO APPLY. NOTHING CONTAINED IN THIS PRESENTATION IS, OR SHALL BE RELIED UPON AS, A REPRESENTATION OR WARRANTY, WHETHER AS TO THE PAST, THE PRESENTOR THE FUTURE. DISCLAIMER
Exhibit (c)(15) SEARS OUTLET BOARD UPDATE AUGUST 25, 2019 ConfidentialExhibit (c)(15) SEARS OUTLET BOARD UPDATE AUGUST 25, 2019 Confidential
VINTAGE CAPITAL BID – CALCULATION OF NET PROCEEDS Below is the calculation of net proceeds to current SHOS shareholders, which reflect the current bid by Liberty Tax, an affiliate of Vintage Capital § Vintage Capital submitted a preemptive Letter of Intent on June 11, 2019, more than two weeks ahead of the deadline of June 28, 2019 ‒ Initial Indication of Interest was for net proceeds to shareholders of $122 million § Ultimately, after outreach to 135 parties, 17 of whom signed NDAs and received a CIM, Vintage Capital was the only party to submit a Letter of Intent § The Company entered into an exclusivity agreement with Vintage Capital on July 21, 2019, which was extended once ‒ Vintage Capital agreed to increase net proceeds to shareholders to $130 million after an adjustment of expenses capped at $11.9 million, implying an enterprise value of $142 million § After further diligence during exclusivity, Vintage Capital revised its bid to net proceeds of $121 million (also subject to an expenses cap of $11.9 million), implying an enterprise value of $132.9 million § $121 million in net proceeds would result in $1.00 of additional consideration per share to shareholders above the $2.25 base merger consideration payable by Transform Holdco Vintage Capital Bid - Calculation of Net Proceeds Implied TEV $132,900,000 (1) Less: Adjustment Cap (11,900,000) Net Proceeds to Shareholders $121,000,000 Less: Minimum Sale Proceeds 97,500,000 Excess Proceeds $23,500,000 Common Shares 22,702,132 RSUs 781,618 Fully Diluted Shares 23,483,750 (2) Excess Proceeds / Share $1.00 (2) Total Merger Consideration / Share $3.25 (1) Includes transaction expenses, taxes, D&O insurance and incentive payments. (2) Subject to change based on calculation of final Net Proceeds, including as a result of any working capital shortfall. 1VINTAGE CAPITAL BID – CALCULATION OF NET PROCEEDS Below is the calculation of net proceeds to current SHOS shareholders, which reflect the current bid by Liberty Tax, an affiliate of Vintage Capital § Vintage Capital submitted a preemptive Letter of Intent on June 11, 2019, more than two weeks ahead of the deadline of June 28, 2019 ‒ Initial Indication of Interest was for net proceeds to shareholders of $122 million § Ultimately, after outreach to 135 parties, 17 of whom signed NDAs and received a CIM, Vintage Capital was the only party to submit a Letter of Intent § The Company entered into an exclusivity agreement with Vintage Capital on July 21, 2019, which was extended once ‒ Vintage Capital agreed to increase net proceeds to shareholders to $130 million after an adjustment of expenses capped at $11.9 million, implying an enterprise value of $142 million § After further diligence during exclusivity, Vintage Capital revised its bid to net proceeds of $121 million (also subject to an expenses cap of $11.9 million), implying an enterprise value of $132.9 million § $121 million in net proceeds would result in $1.00 of additional consideration per share to shareholders above the $2.25 base merger consideration payable by Transform Holdco Vintage Capital Bid - Calculation of Net Proceeds Implied TEV $132,900,000 (1) Less: Adjustment Cap (11,900,000) Net Proceeds to Shareholders $121,000,000 Less: Minimum Sale Proceeds 97,500,000 Excess Proceeds $23,500,000 Common Shares 22,702,132 RSUs 781,618 Fully Diluted Shares 23,483,750 (2) Excess Proceeds / Share $1.00 (2) Total Merger Consideration / Share $3.25 (1) Includes transaction expenses, taxes, D&O insurance and incentive payments. (2) Subject to change based on calculation of final Net Proceeds, including as a result of any working capital shortfall. 1
PROCESS TIMETABLE Definitive Agreement documentation / negotiations are being finalized; the process is within the parameters laid out in the merger agreement with Transform Holdco 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Week #: 6/8 6/15 6/22 6/29 7/6 7/13 7/20 7/27 8/3 8/10 8/17 8/24 8/31 9/7 9/14 9/21 9/28 10/5 10/12 10/19 10/26 11/2 11/9 11/16 11/23 11/30 End Date: Initial Nonbinding Final Definitive Agreement Close Stage One (completed) IOIs Bids Deadline Deadline 2 weeks Initiate Contacts / Execute NDAs 6/28/19 8/2/19 8/24/19 10/23/19 2 weeks Distribute CIM 4 weeks Facilitate Preliminary Bidder Diligence Stage Two (completed) 3 weeks Finalize Mgmt Presentation / Data Room Initial Bids (completed) Receive and Evaluate Initial Nonbinding IOIs Stage Three (completed) Data Room Access 5 weeks Definitive Agreement Close Deadline Management Presentations 3 weeks (a) (b) Deadline Extension Extension Draft Purchase Agreement 3 weeks 9/3/19 11/7/19 Bidder Diligence 5 weeks Final Bids (completed) Receive and Evaluate Final Bids Stage Four (finalizing) Negotiate Definitive Agreement 3 weeks 8.5 weeks Close Transaction Stage One: Stage Two: Stage Three: Stage Four: Preparation & Pre-Marketing Marketing Diligence Negotiation, Sign / Announce § PJ SOLOMON due diligence§ Facilitate bidder due diligence§ Select limited number of parties based on§ Receive and analyze final bids value, financing, timing, contingencies, due § Build financial forecast / model§ Prepare Management Presentation and data§ Negotiate with top bidder(s) diligence requirements and other factors room § Prepare Confidential Information§ Negotiate definitive agreement § Open data room Memorandum§ Bidders submit initial indications of interest, § Negotiate with Transform if including proposed value, terms and§ Organize due diligence visits with selected § Prepare and finalize buyers list § matching rights are applicable financing bidders (including Management § Contact list of potential bidders § Execute definitive agreement with selected Presentation) § Negotiate NDAs buyer § Distribute purchase agreement and final bid § Prepare 1st round bid instruction letter§ Announce transaction instructions § Distribute Confidential Information § Progress towards closing § Bidders submit final bids Memorandum and respond to inquiries from bidders (a) Extension is permitted under the merger agreement only if SHO is then in negotiations with one or more bidders and reasonably expects to reach definitive agreement within the extension period. (b) Extension is permitted under the merger agreement only if SHO and the buyer have a reasonable expectation that they can consummate the sale within the extension period, and the deadline can only be extended past 10/31/19 if SHO has gotten an extension of its current default waiver under its existing credit agreements. 2PROCESS TIMETABLE Definitive Agreement documentation / negotiations are being finalized; the process is within the parameters laid out in the merger agreement with Transform Holdco 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Week #: 6/8 6/15 6/22 6/29 7/6 7/13 7/20 7/27 8/3 8/10 8/17 8/24 8/31 9/7 9/14 9/21 9/28 10/5 10/12 10/19 10/26 11/2 11/9 11/16 11/23 11/30 End Date: Initial Nonbinding Final Definitive Agreement Close Stage One (completed) IOIs Bids Deadline Deadline 2 weeks Initiate Contacts / Execute NDAs 6/28/19 8/2/19 8/24/19 10/23/19 2 weeks Distribute CIM 4 weeks Facilitate Preliminary Bidder Diligence Stage Two (completed) 3 weeks Finalize Mgmt Presentation / Data Room Initial Bids (completed) Receive and Evaluate Initial Nonbinding IOIs Stage Three (completed) Data Room Access 5 weeks Definitive Agreement Close Deadline Management Presentations 3 weeks (a) (b) Deadline Extension Extension Draft Purchase Agreement 3 weeks 9/3/19 11/7/19 Bidder Diligence 5 weeks Final Bids (completed) Receive and Evaluate Final Bids Stage Four (finalizing) Negotiate Definitive Agreement 3 weeks 8.5 weeks Close Transaction Stage One: Stage Two: Stage Three: Stage Four: Preparation & Pre-Marketing Marketing Diligence Negotiation, Sign / Announce § PJ SOLOMON due diligence§ Facilitate bidder due diligence§ Select limited number of parties based on§ Receive and analyze final bids value, financing, timing, contingencies, due § Build financial forecast / model§ Prepare Management Presentation and data§ Negotiate with top bidder(s) diligence requirements and other factors room § Prepare Confidential Information§ Negotiate definitive agreement § Open data room Memorandum§ Bidders submit initial indications of interest, § Negotiate with Transform if including proposed value, terms and§ Organize due diligence visits with selected § Prepare and finalize buyers list § matching rights are applicable financing bidders (including Management § Contact list of potential bidders § Execute definitive agreement with selected Presentation) § Negotiate NDAs buyer § Distribute purchase agreement and final bid § Prepare 1st round bid instruction letter§ Announce transaction instructions § Distribute Confidential Information § Progress towards closing § Bidders submit final bids Memorandum and respond to inquiries from bidders (a) Extension is permitted under the merger agreement only if SHO is then in negotiations with one or more bidders and reasonably expects to reach definitive agreement within the extension period. (b) Extension is permitted under the merger agreement only if SHO and the buyer have a reasonable expectation that they can consummate the sale within the extension period, and the deadline can only be extended past 10/31/19 if SHO has gotten an extension of its current default waiver under its existing credit agreements. 2
Exhibit (d)(2)
Execution Version
June 1, 2019
Transform Holdco LLC
3333 Beverly Road
Hoffman Estates, IL 60179
Attention: Edward S. Lampert, Chief Executive Officer
Ladies and Gentlemen:
Reference is made to that certain Agreement and Plan of Merger (as amended, restated, supplemented or otherwise modified from time to time, the Merger Agreement), dated as of the date hereof, among Sears Hometown and Outlet Stores, Inc., a Delaware corporation (the Company), Transform Holdco LLC, a Delaware limited liability company (Parent), and Transform Merger Corporation, a Delaware corporation and wholly-owned subsidiary of Parent (Merger Subsidiary). Capitalized terms used and not otherwise defined in this letter agreement (this Agreement) shall have the meanings ascribed to them in the Merger Agreement.
1. Commitment.
(a) ESL Investments, Inc., a Delaware corporation (the Investor), hereby commits, on the terms and subject to the conditions set forth herein, that, at or prior to the Effective Time, it shall contribute, or cause the contribution of, an aggregate amount of cash equal to $21,319,951.50 to Parent (the Commitment), which shall be used to enable Parent and/or the Surviving Corporation to make payments due at the Effective Time under Sections 2.03 and 2.05 of the Merger Agreement; provided, that the Investor shall not, under any circumstances, be obligated to contribute, or cause to be contributed, or otherwise provide funds or other property to Parent or Merger Subsidiary in any amount in excess of the Commitment as specified in this Section 1(a).
(b) The amount of the Commitment to be funded under this Agreement at or prior to the Effective Time may be reduced in an amount specified by Parent (a Commitment Reduction), but only (i) to the extent that Parent and Merger Subsidiary would be able to consummate the transactions contemplated by the Merger Agreement with the Investor contributing, or causing to be contributed, less than the full amount of the Commitment and (ii) Parent has provided the Company with at least two Business Days notice of such proposed reduction, which notice shall certify to the matters set forth in the forth in the preceding clause (i). In the event that, following a Commitment Reduction, Parent and Merger Subsidiary are unable to consummate the transactions contemplated by the Merger Agreement, the Commitment Reduction will, without further action on the part of any party, be deemed to be automatically rescinded and the amount of the Commitment shall be the full amount thereof set forth in Section 1(a).
2. Use of Commitment. The Commitment shall be used by Parent and the Surviving Corporation solely to satisfy their respective obligations under the Merger Agreement.
3. Conditions. The obligations of the Investor to contribute the Commitment shall be subject to (i) the terms and conditions of this Agreement, (ii) the execution and delivery of the Merger Agreement by the Company, (iii) the satisfaction or waiver (provided that, in order for Parent to be able to grant such waiver, such waiver must be approved by the Investor in writing) of each of the conditions to the Closing set forth in Sections 9.01 and 9.02 of the Merger Agreement as of the Closing and (iv) the substantially concurrent occurrence of the Effective Time. Subject to Section 12, the Investor may allocate all or any portion of its Commitment to one or more other Persons and such portion of its Commitment hereunder will be reduced by any amounts actually contributed to Parent by such Persons (and not returned) at or prior to the Effective Time for the purpose of making a portion of the contribution described in Section 1(a).
4. Parties in Interest; Third Party Beneficiaries. The Investor, on the one hand, and Parent, on the other hand, each agrees that its respective agreements and obligations set forth herein are solely for the benefit of Parent, in the case of the Investor, or the Investor, in the case of Parent, and their respective successors and permitted assigns, in accordance with and subject to the terms of this Agreement, and this Agreement is not intended to, and does not, confer upon any Person other than the parties hereto and their respective successors and permitted assigns any benefits, rights or remedies under or by reason of, or any rights to enforce or cause Parent to enforce, the obligations set forth herein; provided, that the Company is an express third-party beneficiary hereof solely for purposes of the enforcement rights provided in Section 5(b)(ii) and no others. The Investor accordingly agrees, if and only if specific performance of Parents obligations to consummate the Merger is available under Section 11.14 of the Merger Agreement and the Company has the right to enforce this Agreement in accordance with Section 5(b)(ii), not to oppose the granting of an order, injunction, specific performance or other equitable relief with respect thereto on the basis that the Company has an adequate remedy at law or an award of specific performance with respect thereto is not an appropriate remedy for any reason at law or equity, in each case subject to the limitations in Section 5(b)(ii). The Investor further agrees that the Company shall not be required to post a bond or undertaking in connection with such order, injunction, specific performance or other equitable relief sought in accordance with Section 11.14 of the Merger Agreement.
5. Limited Recourse; Enforceability.
(a) Notwithstanding anything that may be express or implied in this Agreement or any document or instrument delivered in connection herewith, Parent, by acceptance of the benefits of the Commitment provided herein, covenants and acknowledges that no Person other than the Investor and its successors and permitted assigns hereunder shall have any obligation hereunder or in connection with the transactions contemplated hereby and that, notwithstanding that the Investor or any of its successors or permitted assigns may be a partnership or limited liability company, no Person, including Parent, has any rights of recovery against any past, present or future director, officer, employee, incorporator, member, manager, partner, shareholder, Affiliate, agent, attorney or representative (each a Related Party) of the Investor or Parent, through Parent or otherwise, whether by or through attempted piercing of the corporate veil, by or through a claim (whether at law or equity in tort, contract or otherwise) by or on
behalf of Parent against any Related Party of the Investor or of Parent, by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any applicable law, or otherwise, it being agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any Related Party of the Investor or of Parent for any obligations of the Investor or any of its successors or permitted assigns under this Agreement or any documents or instrument delivered in connection herewith or in respect of any oral representations made or alleged to be made in connection herewith or therewith or for any claim (whether at law or equity or in tort, contract or otherwise) based on, in respect of, or by reason of such obligations or their creation. For the avoidance of doubt, neither the Company nor any of any the Companys Subsidiaries shall constitute a Related Party of the Investor or Parent.
(b) This Agreement may only be enforced by (i) the parties hereto or (ii) solely for purposes of the enforcement of (A) the Investors obligation to contribute the Commitment on the terms and subject to the conditions set forth herein, (B) Parents obligation to use the Commitment in accordance with Section 2, (C) the first, penultimate and final sentences of Section 6, (D) Section 7, (E) Section 12 or (F) Section 13, the Company. Without limiting the foregoing, Parents creditors shall have no right to enforce this Agreement or to cause Parent to enforce this Agreement.
6. No Modification; Entire Agreement. This Agreement may not be amended and no provision of this Agreement may be waived or modified, without the prior written consent of the Investor and Parent; provided, however, that the prior written consent of the Company shall be required for any amendment or modification that adversely affects the rights of the Company hereunder, including any reduction in the Commitment set forth in Section 1(a) (other than a Commitment Reduction effected in accordance with the requirements of Section 1(b)). This Agreement constitutes the sole agreement, and supersedes all prior agreements, understandings and statements, written or oral, between the Investor or any of its Affiliates, on the one hand, and Parent or any of its Affiliates, on the other, with respect to the transactions contemplated hereby. Except as expressly permitted in Section 3 and Section 12, no transfer of any rights or obligations hereunder shall be permitted without the consent of the other party hereto. Any transfer in violation of the preceding sentence shall be null and void.
7. Governing Law; Jurisdiction; Venue; Waiver of Jury Trial.
(a) THIS AGREEMENT AND ALL CLAIMS OR CAUSES OF ACTION (WHETHER IN CONTRACT OR IN TORT, IN LAW OR IN EQUITY OR GRANTED BY STATUTE) THAT MAY BE BASED UPON, ARISE OUT OF OR RELATE TO THIS AGREEMENT (INCLUDING ANY CLAIM OR CAUSE OF ACTION BASED UPON, ARISING OUT OR RELATED TO ANY REPRESENTATION OR WARRANTY MADE IN OR IN CONNECTION WITH THIS AGREEMENT OR AS AN INDUCEMENT TO ENTER INTO THIS AGREEMENT) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE PROCEDURAL AND SUBSTANTIVE LAWS OF THE STATE OF DELAWARE APPLICABLE TO THE CONTRACTS MADE AND TO BE PERFORMED ENTIRELY IN SUCH STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OR CHOICE OF LAWS OR ANY OTHER LAW THAT WOULD MAKE THE LAWS OF ANY OTHER JURISDICTION OTHER THAN THE STATE OF DELAWARE APPLICABLE HERETO.
(b) EACH PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY PROCEEDING DIRECTLY OR INDIRECTLY BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER IN CONTRACT OR IN TORT, IN LAW OR IN EQUITY OR GRANTED BY STATUTE). EACH PARTY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTY HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.
8. Notices. Any notice, request, instruction or other document to be given hereunder by any party hereto to the other shall be given by the means specified in the Merger Agreement:
If to the Investor:
ESL Investments, Inc.
1170 Kane Concourse, Suite 200
Bay Harbor Islands, FL 33154
Attention: Kunal S. Kamlani and Harold Talisman
Facsimile: (305) 864-1370
E-mail: kunal@eslinvest.com; harold@eslinvest.com
with a copy (which shall not constitute notice) to:
Cleary Gottlieb Steen & Hamilton LLP One Liberty Plaza
New York, New York 10006
Attention: Benet J. OReilly, Neil R. Markel
Facsimile: (212) 225-3999
E-mail: boreilly@cgsh.com; nmarkel@cgsh.com
If to Parent:
Transform Holdco LLC
3333 Beverly Road
Hoffman Estates, IL 60179
Attention: Luke Valentino
E-mail: luke.valentino@searshc.com
with a copy (which shall not constitute notice) to: Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York 10006
Attention: Benet J. OReilly, Neil R. Markel
Facsimile: (212) 225-3999
E-mail: boreilly@cgsh.com; nmarkel@cgsh.com
9. Counterparts. This Agreement may be executed in any number of counterparts (including by facsimile or by .pdf delivered via email), each such counterpart when executed being deemed to be an original instrument, and all such counterparts shall together constitute one and the same agreement.
10. Confidentiality. This Agreement shall be treated as confidential and is being provided to Parent solely in connection with the transactions contemplated by the Merger Agreement. This Agreement may not be used, circulated, quoted or otherwise referred to in any document (other than the Merger Agreement as expressly contemplated thereunder) by Parent except with the prior written consent of the Investor in each instance; provided, that no such written consent is required for any disclosure of the existence of this Agreement (a) to the extent required by Applicable Law, including in any filings with the Securities and Exchange Commission made in connection with the transactions contemplated by the Merger Agreement (provided, that Parent will provide the Investor an opportunity to review such required disclosure, and will consider in good faith the Investors comments thereto, in each case in advance of such public disclosure being made), (b) to the Company or its Representatives who need to know of the existence of this Agreement and who have agreed to keep this Agreement confidential on terms identical to the terms contained in the Confidentiality Agreement (provided that, for the avoidance of doubt, the Company may make disclosures required by Applicable Law, including in any filings with the Securities and Exchange Commission made in connection with the transactions contemplated by the Merger Agreement so long as the Company has provided the Investor an opportunity to review such required disclosure, and considers in good faith the Investors comments thereto, in each case in advance of such public disclosure being made) or (c) in connection with any action to enforce rights under this Agreement.
11. Termination. The obligations of the Investor under or in connection with this Agreement will terminate automatically and immediately upon the earliest to occur of (a) the Closing, including the satisfaction of Parent and/or the Surviving Corporations obligations to make the payments referred to in Section 1(a), at which time all obligations under this Agreement will be deemed to be fulfilled, (b) the valid termination of the Merger Agreement in accordance with its terms and (c) without limiting any of any Companys rights against Parent under the Merger Agreement, the commencement of any action in connection with this Agreement or the Merger Agreement, at law or in equity or arbitration, by the Company or any of its Affiliates or by Parent (only if such action by Parent is brought at the written request and direction of the Company or any of its Affiliates) against (i) the Investor or any Related Party of the Investor relating to this Agreement (except, as to the Investor, to the extent provided in Section 5(b) or, as to Parent or Merger Subsidiary, to the extent provided in the Merger Agreement) or (ii) the Investor or any Related Party of the Investor relating to the Merger Agreement or any of the transactions contemplated hereby or thereby (including in respect of any oral representations made or alleged to be made in connection therewith) (except, as to the Investor, to the extent provided in Section 5(b), as to the Related Party that is party to the ESL Letter Agreement, under the ESL Letter Agreement, or, as to Parent or Merger Subsidiary, to the extent provided in the Merger Agreement). Upon termination of this Agreement, no party hereto shall have any further obligations or liabilities hereunder.
12. No Assignment. The rights and obligations under this Agreement may not be assigned by any party hereto without the prior written consent of the other party hereto and of the Company. Notwithstanding the foregoing, the Investor may assign all or any portion of its obligation to contribute the Commitment to one or more of its Affiliates or to any members of Parent; provided, that no such assignment shall relieve the assigning party of its obligations hereunder. Any purported assignment in contravention of this Section 12 shall be null and void ab initio.
13. Representations and Warranties. The Investor hereby represents and warrants to Parent that (a) it has all corporate or other organizational power and authority to execute, deliver and perform this Agreement, (b) the execution, delivery and performance of this Agreement by it has been duly and validly authorized and approved by all necessary corporate or other organizational action by it, (c) this Agreement has been duly and validly executed and delivered by it and constitutes a valid and legally binding obligation of it, enforceable against it in accordance with the terms of this Agreement, (d) the execution, delivery and performance by it of this Agreement does not (i) violate the organizational documents of the Investor or (ii) violate any applicable law or judgment and (e) it currently has the financial capacity to pay and perform its obligations hereunder and will maintain such capacity until this Agreement has been fully discharged or validly terminated.
[Remainder of the page intentionally left blank]
Sincerely, | ||
ESL Investments, Inc. | ||
By: | /s/ Edward S. Lampert | |
Name: | Edward S. Lampert | |
Title: | Chief Executive Officer |
Accepted and Agreed:
Transform Holdco LLC | ||
By: | /s/ Edward S. Lampert | |
Name: | Edward S. Lampert | |
Title: | Chief Executive Officer |
[Signature Page to Equity Commitment Letter]
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