Case No, B02474, Jointly AdministeredUnited States Bankruptcy Court, N.D. Illinois, Eastern Division
March 19, 2002
John W. Butler, Jr., J. Eric Ivester, Mark A. McDermott, SKADDEN, ARPS, SLATE, MEAGHER FLOM, Chicago, Illinois, for Debtors and Debtors in Possession.
Myron Trepper, John Longmire, WILLKIE FARR GALLAGHER, New York, NY, for Wal-Mart Stores, Inc. and Sam’s Real Estate Business Trust.
STIPULATION AND ORDER RESPECTING ASSUMPTION, ASSIGNMENT AND TRANSFER OF DEBTORS’ INTERESTS, IF ANY, IN CERTAIN LEASES AND SUBLEASES OF NON-RESIDENTIAL REAL PROPERTY
SUSAN PIERSON SONDERBY, Bankruptcy Judge
This Stipulation and Order (the “Stipulation and Order”) by and among Kmart Corporation (“Kmart”), the other above-captioned debtors and debtors in possession (collectively with Kmart, the “Debtors”), Wal-Mart Stores, Inc. and Sam’s Real Estate Business Trust (together, “Wal-Mart” and, collectively with the Debtors, the “Parties”), is entered into based upon the following:
RECITALS:
A. On January 22, 2002 (the “Petition Date”), each of the Debtors filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). The Debtors continue in the possession of their respective properties and the management of their respective businesses as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. The Debtors’ chapter 11 cases have been consolidated for procedural purposes only. On January 31, 2002, the Office of the United States Trustee for the Northern District of Illinois (the “United States Trustee”) appointed two official committees of the Debtors’ unsecured creditors (the “Committees”). No trustee or examiner has been appointed in these cases.
B. The United States Bankruptcy Court for the Northern District of Illinois (the “Bankruptcy Court” or the “Court”) has jurisdiction over this matter pursuant to 28 U.S.C. § 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2).
C. The Debtors shall file a motion for approval of this Stipulation and Order on or before April 4, 2002 and shall provide notice of such motion to the United States Trustee, counsel to the Committees, all parties (the “Assigned Lease Parties”) to the Assigned Leases (as defined herein), and all other relevant parties, which motion (together with all disputes regarding Cure Amounts (as hereinafter defined)) shall be scheduled to be heard at the Omnibus Hearing scheduled in these cases for April 24, 2002. The Debtors believe that such notice is appropriate under the circumstances and that no further notice is required.
D. On March 8, 2002, the Debtors filed a motion entitled “Third Motion For An Order Pursuant to 11 U.S.C. § 105(1) and 365(a) Authorizing (A) Rejection of Certain Unexpired Real Property Leases and (B) Approving Procedures for Rejecting Other Unexpired Leases” (the “Motion”) with the proposed form of order attached to the Motion as Exhibit A (the “Proposed Rejection Order”). Wal-Mart has objected to the relief requested in the Motion.
E. Pursuant to the Motion, the Debtors sought the Court’s authority to reject (a) certain unexpired nonresidential real property leases, under which Kmart (or, in some cases, another Debtor) is lessee (the “Leases”) and (b) certain subleases, under which Kmart (or, in some cases, another Debtor) is sublessor (the “Subleases”), which Leases and Subleases are listed on Schedules A and B to the Proposed Rejection Order (“Schedule A” and “Schedule B,” respectively), with such rejection to be effective (i) in the case of the Leases and Subleases set forth on Schedule A, as of the date the Motion was filed, and (ii) in the case of the Leases and Subleases set forth on Schedule B, as of the date that is ten days following the delivery of a notice of rejection (a “Rejection Notice”) by the Debtors to the landlord (and, if applicable, any subtenant) with respect to each Lease or Sublease set forth on Schedule B.
F. Wal-Mart is listed as subtenant under several of the Subleases. Wal-Mart seeks to have all of the Debtors’ right, title and interest, if any, in and to certain of such Subleases (the “Wal-Mart Subleases”) and the related Leases (the “Wal-Mart Leases”), as well as any other subleases of premises governed by the Wal-Mart Leases,[1] whether or not such subleases are listed on Schedule A or Schedule B (such subleases, collectively with the Wal-Mart Leases and the Wal-Mart Subleases, the “Assigned Leases”) assumed by the Debtors and assigned to Wal-Mart. A list of the Wal-Mart Leases is annexed hereto as Exhibit 1 and a list of the Wal-Mart Subleases is annexed hereto as Exhibit 2.[2]
G. In order to permit Wal-Mart to retain its leasehold interests in the premises governed by the Wal-Mart Subleases and to minimize rejection damage claims against the Debtors, and for other good and valuable consideration as provided herein and hereby acknowledged by the Parties, the Parties have determined to enter into this Stipulation and Order, pursuant to which Kmart will assume, and assign, sell and transfer to Wal-Mart all of its right, title and interest, if any, in and to the Assigned Leases.
H. Kmart desires to assign and transfer to Wal-Mart all of its right, title and interest, if any, in and to the Assigned Leases and the real property interests created thereby, and Wal-Mart desires to accept such assignment and assume all rights, duties and obligations of Kmart under the Assigned Leases arising on and after the Assignment Date (as defined herein)
I. The Debtors have determined that the assumption and assignment of the Assigned Leases is in the best interests of their estates, creditors and parties in interest. The Debtors have no plans to utilize the leased properties, no person other than Wal-Mart has expressed any interest in purchasing or taking an assignment of such leases and the Debtors would reject such leases but for Wal-Mart’s desire to acquire and assume Kmart’s rights and obligations thereunder.
J. The assumption of the Assigned Leases and assignment and transfer thereof to Wal-Mart is in good faith. The terms hereof do not benefit any insiders of the Debtors. The Debtors submit that Wal-Mart has acted in good faith in the assignment of the Assigned Leases.
K. The Debtors have informed Wal-Mart that the Debtors believe that no “cure amounts” would arise as a result of Kmart’s assumption of the Assigned Leases.
NOW THEREFORE, in consideration of the foregoing, the Parties agree and stipulate, and (upon the Court’s approval of this Stipulation and Order) it is hereby ORDERED, ADJUDGED and DECREED THAT:
1. This Stipulation and Order is subject to the approval of the Bankruptcy Court, and (other than with respect to (a) the provisions hereof obligating Wal-Mart to pay Carry Costs (as hereinafter defined), which obligations shall terminate ten (10) days after any determination by the Court not to approve this Stipulation and Order and (b) the terms of paragraphs 19 and 21 hereof, each of which shall be binding on the Parties regardless of whether the Court has “So Ordered” this Stipulation and Order) the Parties shall not be bound by the terms hereof absent such approval.
2. The notice described in Recital C above, and the notice provided for in the motion to approve this Stipulation and Order with respect to the procedure for determining any Cure Amount (hereinafter defined), constitutes due and sufficient notice to all parties entitled thereto.
3. The “Assignment Date” shall mean the date on which the Bankruptcy Court approves this Stipulation and Order.
4. As of the Assignment Date, the Debtors shall be deemed to have assumed and assigned, sold, transferred and set over unto Wal-Mart all of their right, title and interest, if any, in and to the Assigned Leases pursuant to sections 363(b) and 365(a) of the Bankruptcy Code, in accordance with and subject to the terms hereof.
5. Such assumption, assignment, sale, transfer and setting over of the Assigned Leases satisfies the applicable provisions of the Bankruptcy Code and reflects a reasonable exercise of the Debtors’ business judgment.
6. Wal-Mart shall reimburse the Debtors for any Carry Costs arising from April 1, 2002 through the Assignment Date with respect to the Assigned Leases. For purposes of this Stipulation and Order, “Carry Costs” shall mean all real estate taxes, common area maintenance charges and any and all other amounts due under the respective Lease.
7. Subject to the terms and conditions of this Paragraph 7, Wal-Mart shall pay the cure amount with respect to each Assigned Lease (the “Cure Amount”). Notwithstanding anything to the contrary herein, the Debtors’ decision to assume any of the Assigned Leases, and Wal-Mart’s obligation to accept assignment of any such leases, remain subject to resolution of the amount of each Cure Amount in a manner satisfactory to Wal-Mart, in its sole discretion. Accordingly, with respect to any Assigned Lease, Wal-Mart shall have the option, notwithstanding anything to the contrary herein, of (a) modifying Exhibit 1 and Exhibit 2 hereto to allow for the rejection, rather than the assumption and assignment, of the relevant Lease(s) and/or Sublease(s) or (b) paying any Cure Amount that the Court determines (or the parties agree, as applicable) is owed to such Assigned Lease Party. In the event any Lease or Sublease is rejected pursuant to clause (a) of this paragraph. (x) such Lease or Sublease shall not be treated as an “Assigned Lease” for purposes of this Stipulation and Order and (y) Wal-Mart shall reimburse the Debtors for any Carry Costs arising under such Lease or Sublease for the period commencing April 1, 2002 through the effective date of rejection of such lease. In the event Wal-Mart determines to pay a Cure Amount pursuant to clause (h) of this paragraph, the Debtors shall be released and forever discharged of any and all obligations with respect to cure claims under the relevant Assigned Lease(s), without any further action by any Assigned Lease Party or order of the Court. Wal-Mart and the Debtors shall fully cooperate with one another in responding to and resolving any Cure Amount dispute with any Assigned Lease Party.
8. Wal-Mart has provided adequate assurance of future performance, within the meaning of section 365(f)(2)(B) (and, to the extent applicable, section 365(b)(3)) of the Bankruptcy Code with respect to the Assigned Leases.
9. Wal-Mart hereby accepts the foregoing assignment, sale, transfer and setting over and agrees that, on and after the Assignment Date, Wal-Mart and its successors and assigns shall assume and agree to keep, perform, fulfill or cause to be performed all of the terms, covenants, conditions and obligations of Kmart contained in the Assigned Leases which, by the respective terms therein and this Stipulation and Order, are imposed upon Wal-Mart, including, without limitation, the payment of any and all rents due thereunder. However, except as otherwise provided herein (including, without limitation, Wal-Mart’s obligation to pay any Cure Amount as provided herein), Wal-Mart shall not have any liability to any party under or in connection with any Assigned Lease (except for any liability Wal-Mart may have had, prior to the Assignment Date, as subtenant under any Wal-Mart Sublease) based on any claim or other matter arising or accruing prior to the Assignment Date. Except as otherwise provided herein, as of the Assignment Date, the Debtors shall be released and forever discharged of any and all obligations and claims (i) under the Assigned Leases and (ii) with respect to the cure claims under the Leases and Subleases, without any further action by any Assigned Lease Party or order of the Court.
10 Wal-Mart’s rights hereunder and under the Assigned Leases shall not be prejudiced by any failure by the Debtors to satisfy timely the requirements of section 365(b) of the Bankruptcy Code.
11. Notwithstanding anything to the contrary contained herein, in the event that prior to April 24, 2002. the parties determine that Wal-Mart (or one of Wal-Mart’s affiliates) is not operating in premises identified on Schedule A or Schedule B as having been subleased to Wal-Mart, Wal-Mart shall have the option to modify Exhibit 1 and Exhibit 2 hereto to allow for the rejection, rather than the assumption and assignment, of the relevant Lease(s) and/or Sublease(s); provided, however, that: (a) the Debtors shall issue Rejection Notices with respect to such Lease(s) and/or Sublease(s) as soon as reasonably practicable, but no later than three (3) business days, following receipt of written notice from Wal-Mart that such Lease(s) and/or Sublease(s) shall not be an Assigned Lease, and shall simultaneously send copies of such Rejection Notices to Wal-Mart and the undersigned counsel; and (b) Wal-Mart shall reimburse the Debtors for any Carry Costs arising from April 1, 2002 through the effective date of rejection of such Lease and/or Sublease.
12. Intentionally Deleted.
13. The Parties acknowledge that the Debtors have executed and delivered agreements pursuant to which the Debtors agreed to guaranty certain of the obligations of the tenant arising under certain of the Wal-Mart Leases (such agreements collectively, the “Guaranties”). Subject to the terms hereof, Wal-Mart hereby agrees to indemnify, protect, defend and hold the Debtors harmless from and against all claims, damages, losses, costs and expenses (including attorneys’ fees) arising in connection with the Guaranties on and after the Assignment Date.
14. The assignment, sale and transfer hereunder of the Assigned Leases shall be free and clear, pursuant to section 363(f) of the Bankruptcy Code, of any interests of third parties (other than parties to the Assigned Leases) in the Assigned Leases, including but not limited to any leasehold mortgagees.
15. Wal-Mart shall be entitled to the benefits and protections of section 363(m) of the Bankruptcy Code with respect to the transfer of the Assigned Leases.
16. The Debtors are authorized to execute any and all documents as may be reasonably requested by Wal-Mart to effectuate the transactions contemplated by this Stipulation and Order.
17. Pursuant to section 365(f)(1) of the Bankruptcy Code, any defaults or termination or recapture rights under the Assigned Leases which purportedly arise from or as a result of the Debtors’ assumption and/or assignment of the Assigned Leases are of no force and effect, null, void, and unenforceable.
18. Pursuant to section 365(b)(2) of the Bankruptcy Code, any defaults or termination or recapture rights under any Assigned Leases which purportedly arise from or as a result of the commencement of these cases are of no force and effect, null, void and unenforceable.
19. The Rejection Leases shall be rejected by Kmart, in accordance with the following terms: (a) the Lease and Sublease relating to the Fayetteville Premises, which are listed on Schedule A, shall be rejected, in accordance with the terms of the Proposed Rejection Order, as of the date of the filing of the Motion; (b) the Leases and Subleases relating to the Montclair Premises and the Phoenix Premises, which are listed on Schedule B, shall be rejected in accordance with the terms of the Proposed Rejection Order, and the Debtors shall issue Rejection Notices with respect to such Leases and Subleases as soon as reasonably practicable, but no later than three (3) business days, following Court approval of the earlier to be approved of (i) the Motion and (ii) this Stipulation and Order, and shall simultaneously send copies of such Rejection Notices to Wal-Mart and the undersigned counsel; and (c)(i) the Lease and Sublease relating to the Baltimore Premises, which are listed on Schedule B, shall be rejected in accordance with the terms of the Proposed Rejection Order, (ii) the Debtors shall issue Rejection Notices with respect to such Lease and Sublease, as soon as reasonably practicable following receipt by the Debtors of Wal-Mart’s written request to issue such Rejection Notices, but no later than three (3) business days following receipt of such written request, and shall simultaneously send copies of such Rejection Notices to Wal-Mart and the undersigned counsel and (iii) Wal-Mart shall reimburse the Debtors for Carry Costs from April 1, 2002 through the effective date of rejection of the Lease and Sublease for the Baltimore Premises.
20. As to each Rejection Lease that is a Sublease, Wal-Mart hereby elects, pursuant to section 365(h)(1)(A)(i) of the Bankruptcy Code, to treat such Sublease as terminated as of the effective date of rejection of such Sublease pursuant to the terms of the Proposed Rejection Order and the terms hereof.
21. This Stipulation and Order shall not be binding until approved by the Bankruptcy Court and, in the event not approved, shall not constitute an admission by any Party as to any matter relating to or in connection with the subject matter or this Stipulation and Order. The Debtors shall act diligently to seek the Court’s prompt approval of this Stipulation and Order. Notwithstanding any objection deadlines, or the entry of any order, with respect to the Motion, except as otherwise provided herein, (a) the Debtors shall not seek to reject the Leases or the Subleases in connection with the Motion or otherwise and (b) none of the Assigned Leases shall be rejected pending the Court’s approval, or determination not to approve, this Stipulation and Order. Upon such approval of the Court, Wal-Mart shall be deemed to have withdrawn its objection to the Motion. If the Court determines not to approve this Stipulation and Order, the Debtors shall retain the right to prosecute the Motion, and Wal-Mart shall retain the right to prosecute its objection thereto, with respect to the Assigned Leases.
22. The Court shall retain jurisdiction over the parties hereto with respect to the subject matter of this Stipulation and Order.
23. This Stipulation and Order may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Stipulation and Order by telecopier shall be effective as delivery of a manually executed counterpart of this Stipulation and Order.
SO ORDERED.