Under Maryland law, certain obligations or liabilities imposed by law on our shareholders,
trustees, or officers may not be avoided by the dissolution. For example, if we make distributions to our shareholders without making adequate provisions for payment of creditors claims (including litigation claims), our shareholders may be
liable to the creditors to the extent of the distributions to them in excess of the amount of any payments due to creditors, up to the amounts previously received by such shareholder from us. Accordingly, in such event, a shareholder could be
required to return all shareholder distributions previously made to such shareholder and a shareholder could receive nothing from us under the plan of sale. Moreover, in the event a shareholder has paid taxes on amounts previously received as a
shareholder distribution, a repayment of all or a portion of such amount could result in a shareholder incurring a net tax cost if the shareholders repayment of an amount previously distributed does not cause a commensurate reduction in taxes
payable. Therefore, to the extent that we have underestimated the size of our contingency reserve and distributions to our shareholders have already been made, our shareholders may be required to return some or all of such distributions.
Following the Sears Holdings bankruptcy, we have been named as a defendant in litigation that could adversely affect our business and
financial condition, divert managements attention from our business, subject us to significant liabilities, including remedies that may be imposed as a result of a finding of fraudulent conveyance, and/or reduce or delay the payment of
shareholder distributions.
Claims under the Sears Holdings bankruptcy, as well as any other similar claims, would need to be
resolved prior to completion of the plan of sale, and any damages paid by the Company thereunder would reduce the shareholder distributions payable to our common shareholders. Any of these claims, if resolved unfavorably for the Company, could have
a material adverse impact on the timing or amount of any shareholder distributions, or could prevent the Company from making any such shareholder distributions altogether.
On April 18, 2019, at the direction of the Restructuring Sub-Committee of the Restructuring
Committee of the Board of Directors of Sears Holdings, plaintiffs Sears Holdings, Sears, Roebuck & Co., Sears Development Co., Kmart Corporation, and Kmart of Washington, LLC filed a lawsuit (the Litigation) in the United States
Bankruptcy Court for the Southern District of New York (the Bankruptcy Court) against, among others, Edward S. Lampert, ESL Investments, Inc. and certain of its affiliates and investors, Fairholme Capital Management, L.L.C., certain
members of the Sears Holdings board of directors, and the Company, the Operating Partners, and certain of our affiliates and subsidiaries (the Company, the Operating Partnership, and certain of our affiliates and subsidiaries, collectively, the
Seritage Defendants). The Litigation is dual captioned as In re: Sears Holdings Corporation, et al., Case No. 18-23538 (RDD) and Sears Holdings Corporation et al., v. Lampert et al., Case No. 19-08250 (RDD). The initial complaint has been superseded by the Amended Complaint, as described below.
On October 15, 2019, the Bankruptcy Court entered an order (the Confirmation Order) confirming the Modified Second Amended
Joint Chapter 11 Plan of Sears Holdings and its affiliated debtors (the Chapter 11 Plan). Pursuant to the terms of the Confirmation Order, upon the effective date of the Chapter 11Plan, a liquidating trust will be formed, and the
Litigation will vest in the liquidating trust. The Confirmation Order further provides that, prior to the effective date of the Chapter 11 Plan and the formation of the liquidating trust, the Litigation will be controlled by five litigation
designees selected by Sears Holdings and the Official Committee of Unsecured Creditors (the Creditors Committee). For further information, refer to the Chapter 11 Plan, Confirmation Order and liquidating trust agreement,
each of which has been publicly filed with the Bankruptcy Court.
On November 25, 2019, the Creditors Committee filed a first
amended complaint (the Amended Complaint) in the Bankruptcy Court. The Amended Complaint alleges, among other things, that certain transactions undertaken by Sears Holdings since 2011 (including the July 2015 transactions giving rise to
Seritage, the execution of the Master Lease with Sears Holdings (the Original Master Lease), and the acquisition of real estate from Sears Holdings) constituted actual and/or constructive fraudulent transfers and/or illegal dividends by
Sears Holdings and that the real estate acquired by Seritage from Sears Holdings in July 2015 was worth hundreds of millions of dollars more than the purchase price paid. (The Company notes the original complaint filed in the Litigation alleged,
among other things, that the that the real estate acquired by Seritage from Sears Holdings in July
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