Case No. 02-B02474 (Jointly Administered)United States Bankruptcy Court, N.D. Illinois, Eastern Division.
January 20, 2003
ORDER (I) AUTHORIZING THE DEBTORS TO ENTER INTO A COMMITMENT LETTER FOR A $2 BILLION EXIT FINANCING FACILITY, (II) AUTHORIZING USE OF ESTATE FUNDS FOR PAYMENT OF AN UNDERWRITING DEPOSIT AND OTHER FEES IN CONNECTION THEREWITH, AND (III) SHORTENING NOTICE OF THIS MOTION
SUSAN PIERSON SONDERBY, United States Bankruptcy Judge.
Upon the motion dated January 14, 2003 (the “Motion”) of Kmart Corporation (“Kmart”) and certain of its affiliates, each a debtor and debtor-in-possession in the above-captioned cases (collectively, the “Debtors”), for entry of an order, pursuant to Section 363 of Title 11 of the United States Code, 11 U.S.C. § 101, et seq. (the “Bankruptcy Code”) and Rules 2002, 6004, 9006, and 9007 of the Federal Rules of Bankruptcy Procedure, (i) authorizing the Debtors to enter into that certain commitment letter dated January 13, 2003 with General Electric Capital Corporation (“GE Capital”), Fleet Retail Finance, Inc. (“Fleet”), and Bank of America, N.A. (“BofA”), a copy of which is attached hereto as Exhibit 1, as amended by an amendment dated January 24, 2003, a copy of which is attached hereto as Exhibit 2 (collectively, the “Financing Commitment Letter”); (ii) authorizing the Debtors’ use of estate funds to pay the underwriting deposit and other fees contemplated by the Financing Commitment Letter and all other documents and letter agreements referred to therein; and (iii) shortening notice on the Motion; it appearing to the Court that (a) it has jurisdiction over the matters raised in the Motion pursuant to 28 U.S.C. § 157 and 1334; (b) this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2); (c) the relief requested in the Motion is in the best interests of the Debtors, their estates and their creditors; (d) proper and adequate notice of the Motion and the hearing thereon has been given and that no other or further notice is necessary; and (e) upon the record herein after due deliberation thereon, that the relief should be granted as set forth below,
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED THAT:
1. The hearing on the Motion is shortened to 14 days pursuant to Bankruptcy Rules 9006 and 9007 and this Court’s Case Management Order.
2. The Debtors’ decision to enter into the Financing Commitment Letter, substantially in the form set forth as Exhibit 1 and Exhibit 2
attached hereto, is reasonable and appropriate under the circumstances and is hereby approved.
3. The Debtors are authorized to execute and deliver the Financing Commitment Letter, the Syndication Letter, and the Fee Letter and to perform all acts and to make, execute and deliver all other instruments and documents as may be reasonably required by the Initial Lenders to give effect or evidence the same (all such letters, instruments, documents, amendments and modifications are referred to collectively as the “Documents”) and the Debtors are authorized to take any and all actions necessary or desirable to perform the obligations under the Financing Commitment Letter, the Syndication Letter, the Fee Letter, and the Documents.
4. It appears to the Court, the deposits and expenses payable pursuant to the terms of the Financing Commitment Letter, the Syndication Letter, and the Fee Letter are reasonable and appropriate and are hereby approved. The Debtors are authorized to pay such amounts in accordance with the terms of the Financing Commitment Letter, the Syndication Letter, and the Fee Letter.
5. GE Capital’s right to receive reimbursement of all costs and expenses incurred in connection with the financing, including those contemplated by the Fee Letter and the Syndication Letter, shall be secured by and payable with the Underwriting Deposit (as such term is defined in the Financing Commitment Letter) and (ii) each Lender Party’s rights to receive the fees, deposits, and reimbursement of costs and expenses incurred in connection with the financing, including those contemplated by the Fee letter and the Syndication Letter, shall be entitled to priority as an administrative claim under Section 503(b)(1) of the Bankruptcy Code and shall be payable upon demand by such Initial Lender without any further order of the Bankruptcy Court, whether or not the financing closes.
6. The Financing Commitment Letter, the Syndication Letter, and the Fee Letter have been negotiated in good faith and at arm’s-length among the Debtors and the Initial Lenders as the term “good-faith” is used in Section 363(m) of the Bankruptcy Code.
EXHIBIT 1 — FINANCING COMMITMENT LETTER GENERAL ELECTRIC CAPITAL CORPORATION 500 West Monroe Chicago, Illinois 60661 GECC CAPITAL MARKETS GROUP, INC. 3001 Summer Street Stamford, Connecticut 06927 FLEET RETAIL FINANCE NC. 40 Broad Street Boston, Massachusetts 02108 FLEET SECURITIES, INC. 100 Federal Street Boston, Massachusetts 02110 BANK OF AMERICA, N.A. 335 Madison Avenue New York, New York 10017 BANC OF AMERICA SECURITIES LLC 100 N. Tyron Street Charlotte, North Carolina 28255
January 13, 2003
CONFIDENTIAL
Kmart Corporation 3100 West Big Beaver Road Troy, Michigan 48084 Attn: Al Koch, Chief Financial Officer
Re: Plan of Reorganization Financing Commitment for Kmart Corporation
Ladies and Gentlemen:
You have advised each of General Electric Capital Corporation (“GECapital” or “Administrative Agent”), GECC Capital Markets Group, Inc. (“GECMG”), Fleet Retail Finance Inc. (“FRFI”), Fleet Securities, Inc. (“FSI”), Bank of America, N.A. (“BofA”) and Banc of America Securities LLC (“RAS”) that Kmart Corporation (“Kmart”, the “Company”, or the “Borrower”) is seeking up to $2,000,000,000 of financing (the “Financing”) as a reorganized debtor under a plan of reorganization (the “Plan of Reorganization”) to be confirmed in the bankruptcy case (the “Bankruptcy Case”) commenced under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court (the “Bankruptcy Court“).
We anticipate that upon the effective date of the Plan of Reorganization (as defined in the Plan of Reorganization, the “Effective Date”), any new investors and the current holders of Kmart’s existing, pre-petition indebtedness will own 100% of the equity of Kmart.
You have asked that the Financing include a $2,000,000,000 Senior Secured Revolving Credit Facility (“Revolver”).
Based on each of our understandings of the transaction described above and the information which you have provided to us so date, each of GE Capital, FRFI and BofA (GE Capital, FRFI and BofA are sometimes referred to herein collectively as the “Initial Lenders” and each, an “InitialLender”) is pleased to offer its commitment to provide (i) $750,000,000 in the case of GE Capital, (ii) $750,000,000 in the case of FRFI and (iii) $500,000,000 in the case of BofA, of the Financing described in this commitment letter (this “Commitment Letter”), with a total facility of S2,000,000,000, subject to the following terms and conditions. The respective commitments of the Initial Lenders hereunder shall be several and not joint.
SUMMARY OF TERMS
BORROWER. Kmart as reorganized debtor under the Financing.
GUARANTORS. Certain of the direct and indirect domestic subsidiaries of the Borrower that are no longer debtors in the Bankruptcy Case to be determined, and any parent holding company of the Borrower.
ADMNIISTRATIVE AGENT. GE Capital.
CO-LEAD ARRANGERS. GECMG, FSI and BAS (collectively, the “Co-Arrangers”).
CO-BOOK RUNNERS. GECMG, FSI AND BAS.
CO-SYNDICATION AGENTS. FRFI and BofA.
CO-COLLATERAL AGENTS. GE Capital and FRFI.
LENDERS. The Initial Lenders and other lenders acceptable to the Administrative Agent and Borrower (Borrower’s approval not to be unreasonably withheld).
AMOUNT. $2,000,000,000 (including a Letter of Credit Sub-facility of up to $800,000,000 and a swingline facility in an amount to be determined) or such lesser amount as the Borrower may elect prior to the Closing Date (as hereinafter defined). Letters of Credit would be issued by an Initial Lender and/or one of its affiliates or another bank, and on terms, reasonably acceptable to the Administrative Agent and set forth in the definitive credit documentation, and would be guaranteed or otherwise backed by all Lenders. A portion of this facility in an amount not to exceed $200,000,000 may take the form of a synthetic term loan facility using credit-linked deposits on terms set forth in the definitive Financing documentation.
TERM. Thirty-Six (36) months.
AVAILABILITY. The lesser of (1) $2,000,000,000 and (2) the sum of (a) the lesser of (i) 65% of Borrower’s and Guarantors’ eligible inventory valued at the lower of cost (FIFO) or market or (ii) 80% of the appraised net going out of business value of Borrower’s and Guarantors’ eligible inventory and (b) the lesser of (i) 50% of Borrower’s and Guarantors’ eligible in transit inventory covered by Letters of Credit valued at the lower of cost (FIFO) or market or (ii) 60% of the appraised net going out of business value of Borrower’s and Guarantors’ eligible in-transit inventory covered by Letters of Credit under the Letter of Credit subfacility. Appraisals would be subject to no more than quarterly updates in the first year (with semi-annual updates thereafter) absent an event of default under the Financing (an “Event of Default”). Eligible inventory would be determined based on standards at least as favorable to the Borrower as exist in the existing DIP facility.
The Administrative Agent may from time to time establish or modify advance rates, standards of eligibility and reserves against availability in the Administrative Agent’s reasonable and customary credit judgment upon ten (10) business days’ notice to Borrower; provided
that if (i) an Event of Default has occurred or (ii) Excess Availability (as hereinafter defined) has been less than the then applicable Minimum Covenant Trigger (as hereinafter defined) for the immediately preceding period of 5 consecutive days, the Administrative Agent may establish or modify advance rates, standards of eligibility and reserves against availability in its reasonable and customary credit judgment without notice to Borrower; provided
further, if the event described in clause (ii) shall occur once, and thereafter, Excess Availability is less than the then applicable Minimum Covenant Trigger at any time thereafter within a time period to be agreed upon, for all such subsequent occurrences, Administrative Agent may establish or modify advance rates, standards of eligibility and reserves against availability in its reasonable and customary credit judgment without notice to Borrower. The face amount of all letters of credit outstanding under the Letter of Credit Sub-facility would be reserved in full against availability. Reserves will not include a 5% holdback as per Kmart’s existing DIP facility. No reserves will be established for (a) cash management unless (i) any bank at which the concentration accounts are maintained requires the Administrative Agent to guaranty or backstop any claims that such bank may have against the Collateral (as hereinafter defined) or (ii) such bank otherwise asserts a claim against the Collateral which is not permitted by the cash management agreements referred to in this Commitment Letter; provided, however, that in no event will the Administrative Agent establish reserves with respect to local depository accounts in respect of which a Letter of Direction (as hereinafter defined) has been sent to the applicable depository bank. (b) the accrued and unpaid Martha Stewart royalty unless it exceeds $25,000,000 in which case a reserve will be established in the amount of such excess or (c) rental expenses for stores and distribution centers so long as the Borrower has certified as of the date of the most recent borrowing base certificate delivered on or about the last day of each calendar month that the rental expenses that are due and payable for at least 95% of all stores and 100% of all distribution centers have been paid current as of the immediately preceding calendar month. In the event the condition set forth in clause (c) cannot be met, then the Administrative Agent shall be entitled to impose a reserve against the borrowing base in the Administrative Agent’s reasonable and customary credit judgment solely in respect (i) of stores for which rent is overdue and which are located in states in which the landlord would have a priming lien by operation of law and (ii) distribution centers for which rent is overdue, unless, in each case, the Administrative Agent has received a landlord’s lien waiver in form and substance reasonably satisfactory to it signed by such landlord.
USE OF PROCEEDS. Loans made at closing (the “Closing Date”) would be used to repay certain post-petition secured indebtedness on the Effective Date, to otherwise enable Borrower to consummate the Plan of Reorganization (including payments (a)(i) to a class of convenience claims in an amount nor to exceed $20,000,000 in the aggregate and (ii) in respect of any pre-petition letters of credit that have not been replaced with a Letter of Credit under the Financing in an amount not to exceed $15,000,000 in the aggregate; provided that in no event shall payments permitted under this clause (a) exceed $30,000,000 in the aggregate and (b) in respect of pre-petition claims otherwise entitled to payment in cash or priority pursuant to the Bankruptcy Code or prior Bankruptcy Court order, in each case, to the extent reflected in the Business Plan (or a subsequent business plan delivered by the Borrower which is consistent in all material respects with the Business Plan) as used herein, the “Permitted Pre-Petition Claim Payments”), but excluding payments of any other pre-petition claims) on the Effective Date and to fund certain fees and expenses associated with the Financing. Loans made after the Closing Date would be used for Borrower’s working capital and other general corporate purposes, including permitted capital expenditures.
INTEREST. For all loans, at Borrower’s option, either (i) absent an Event of Default, 1, 2, 3 or 6-month reserve-adjusted LIBOR plus the Applicable Margin or (ii) floating at the Index Rate (higher of Prime or 50 basis points over Fed Funds) plus the Applicable Margin.
Interest would be payable monthly in arrears (except LIBOR) and calculated on the basis of a 360-day year (or, in the case of Index Rate Loans, a 365/6-day year) and actual days elapsed. Customary LIBOR mechanics and breakage fees would be set forth in the definitive Financing documents. Interest on LIBOR loans would be adjusted and payable at the end of each interest period, except that in the case of LIBOR periods greater than three months in duration, interest would be payable at three-month intervals and on the expiration of such LIBOR periods.
APPLICABLE MARGINS. The Applicable Margins shall be per annum rates as set forth below:
Applicable Revolver Index Margin 2.50% Applicable Revolver LIBOR Margin 3.50% Applicable L/C Margin 3.50%
Applicable Margins shall be subject to downward adjustment, prospectively, based on Borrower’s consolidated financial performance and Excess Availability in accordance with a grid to be determined. The definitive Financing documentation will contain provisions regarding the delivery of financial statements, and the timing and mechanics of subsequent prospective adjustments in the Applicable Margins. If a default under the Financing documentation is continuing at the time that a reduction in Applicable Margins is to be implemented, that reduction will be deferred until the first month commencing after the cure or waiver thereof.
FEES. In addition to the fees payable to the Administrative Agent (on behalf of itself and the other Lenders) as specified in the fee letter between Kmart and the Administrative Agent of even date herewith (the “Fee Letter”), the following fees would be payable to the Administrative Agent under the Financing documentation.
Unused Facility Fee equal to 0.50% per annum (calculated on the basis of a 360-day year and actual days elapsed) on the average unused daily balance of the Revolver, payable monthly in arrears.
Letter of Credit Fee equal to the Applicable L/C Margin (calculated on the basis of a 360-day year and actual days elapsed) on the face amount of the letters of credit, plus a fronting fee of 0.25%, payable monthly in arrears, plus any reasonable costs and expenses incurred by the Administrative Agent in arranging for the issuance or guaranty of Letters of Credit not issued by an Initial Lender plus any charges assessed by the issuing bank.
DEFAULT RATES. Default interest and Letter of Credit Fee at 2% above the rate otherwise applicable shall accrue during the continuance of (i) any payment or bankruptcy Event of Default or (ii) any other Event of Default if the Administrative Agent or the requisite Lenders have given the Borrower written notice during the continuance of such Event of Default that the Default Rates shall apply. Such interest and fees will be payable on demand.
SECURITY. To secure the Financing and all obligations of Borrower and the Guarantors in connection therewith, GE Capital, as the Administrative Agent for itself and for the ratable benefit of all Lenders, would receive a fully perfected first priority security interest in all of the following property, whether now existing or hereafter arising, of Borrower and each Guarantor (the “Collateral”): (a) all inventory of any kind wherever located other than inventory consigned to the Borrower or any Guarantor (“Inventory”); (b) all documents of title for any Inventory; (c) all claims and causes of action in any way relating to any of the Inventory; (d) all bank accounts into which any proceeds of Inventory are deposited (including all cash and other funds on deposit therein, but provided that the Administrative Agent will not seek to perfect its security interest in local depository accounts through control agreements); (e) all books and records relating to any of the foregoing; (f) all general intangibles (other than intellectual property, except to the extent of software which is necessary or advisable, in the Administrative Agent’s opinion, to monitor, sell or otherwise deal with the Collateral) in any way related to any of the inventory, (g) to the extent not prohibited by applicable law, customer scripts, including, without limitation, customer prescription lists relating to the pharmaceutical Inventory, (h) accounts receivable constituting credit card receivables, and (i) all substitutions, replacements, accessions, products or proceeds (including, without limitation, insurance proceeds and proceeds constituting accounts receivable) of any of the foregoing. In addition, the Administrative Agent would have the right, on behalf of the Borrower and the Guarantors (as applicable), to utilize, at no cost or expense, any tradenames, trademarks, copyrights or other intellectual property to the extent necessary or appropriate in order to sell, lease or otherwise dispose of any of the Collateral; provided, in the case of licenses, Kmart shall retain the right to sub-license such intellectual property to the extent such sub-licensing could not reasonably be expected to interfere with the Administrative Agent’s rights and remedies with respect to the Collateral. No negative pledge will be required on the non-Collateral assets of Borrower, each Guarantor or their subsidiaries, except to the extent set forth in the Exhibit A hereto.
All Collateral will be free and clear of other liens, claims and encumbrances, except permitted liens (including, without limitation, PACA claims) and other encumbrances acceptable to the Administrative Agent.
All obligations of Borrower and the Guarantors under the Financing would be (i) cross-defaulted to each other and to all other material indebtedness of Borrower and each Guarantor and (ii) cross collateralized with each other.
MANDATORY PREPAYMENTS. No mandatory commitment reduction or prepayments will be required upon disposition of assets, sale of equity, for excess cash flow or otherwise. Mandatory prepayment (but no concurrent commitment reduction) to the extent usage exceeds availability.
VOLUNTARY PREPAYMENTS. Permitted without any premium or penalty, other than customary LIBOR breakage costs.
FINANCIAL REPORTING. The Financing documentation would require Borrower, on a monthly basis, to provide to the Administrative Agent internally prepared financial statements. Annually, Borrower would be required to provide audited consolidated financial statements certified by one of the “Big Four” accounting firms or a firm otherwise acceptable to the Administrative Agent, a board approved operating plan for the subsequent year which would include the budget and operating profit and cash flow projections, and a management letter from Borrower’s auditors. Borrower would provide borrowing base certificates and other reports at the times, and on the terms set forth in the DIP facility and other information reasonably requested by the Administrative Agent; provided that in the event that Availability minus outstanding utilization of the facility (including, without duplication, outstanding revolving advances, the undrawn amount of outstanding letters of credit and outstanding swingline loans and outstandings under the synthetic term loan, if any) (“Excess Availability”) is (a) greater than or equal to (i) $1,000,000,000, borrowing base certificates will only be required to be delivered on a monthly basis or (ii) $750,000,000 but less than $1,000,000,000, borrowing base certificates will only be required to be delivered on a bi-weekly basis or (b) less than $750,000,000, borrowing base certificates will be required to be delivered on a weekly basis. All financial statements shall be compared to budget and prior comparable period and prepared on a consolidated basis.
DOCUMENTATION. See Exhibit A hereto.
SYNDICATION. Upon acceptance of this Commitment Letter, the Co-Arrangers will initiate discussions with potential lenders relating to the syndication of the Financing. It is expressly understood by the Borrower that the Initial Lenders, through the Co-Arrangers, intend to syndicate the Financing to allow the Initial Lenders to sell down the Financing to their respective desired hold positions. Borrower will agree to a syndication timetable that allows for the primary syndication of the Financing prior to the Closing Date. Each of the Initial Lender’s commitments hereunder is expressly subject to Borrower’s compliance with the terms hereof, the Fee Letter and of that certain letter agreement dated as of the date hereof by and among the Borrower, GE Capital, FRFI, FSI, BofA and BAS (the “Syndication Letter”). Notwithstanding anything contained in this paragraph, but assuming the Borrower’s compliance with the terms hereof, the Fee Letter and the Syndication Letter, the success of the syndication will not be a condition precedent to the closing or the Financing.
The Co-Arrangers would syndicate the Financing with the assistance of Borrower. Such assistance shall include, but not be limited to (i) prompt assistance in the preparation of the Information Memorandum and she verification of the completeness and accuracy of the information contained therein; (ii) preparation of offering materials and projections by Borrower and its advisors taking into account the proposed Financing; (iii) providing the Co-Arrangers with all information reasonably deemed necessary by the Co-Arrangers to successfully complete the syndication; (iv) confirmation as to the accuracy (or reasonableness of assumptions in the case of projections) and completeness in all material respects of such offering materials and information, and (v) participation of Borrower’s senior management in meetings and conference calls with potential lenders and rating agencies, if applicable, at such times and places as the Co-Arrangers may reasonably request.
Each of the Co-Arrangers reserves the right to provide industry trade organizations information necessary and customary for inclusion in league table measurements after closing of the Financing.
ASSIGNMENTS. The Lenders will be permitted to assign their loans and commitments in a minimum amount of $10,000,000 for the revolving tranche of the Financing and $2,500,000 for the institutional tranche of the Financing, subject in the case of assignments to persons other than affiliates of Lenders or existing Lenders, to the consent of the Administrative Agent and, in the absence of an Event of Default, the Borrower.
VOTING. Waivers and amendments of the documentation for the Financing will require the consent of a majority of the Lenders, provided that the consent of (a) 80% of the Lenders will be required for an increase in the advance rates, (b) 66-2/3% of the Lenders will be required for (i) any waivers or amendments that would result in increased availability in the eligibility criteria for determining Eligible Inventory, and (ii) any waiver or amendment that would lower the Excess Availability covenant and (C) 100% of the Lenders will be required for items which the unanimous vote of the Lenders is customary; it being understood that only the consent of a majority of the Lenders will be required for amendments and waivers in respect of (x) the EBITDA covenant and (y) additional asset sales and store closures and releases of liens on related assets unless such sales or closures are being made in connection with a sale of all or substantially all of the Collateral (it being understood that proceeds of dispositions of Collateral shall be applied to repay outstanding advances to the extent that such disposition results in an overadvance).
OTHER TERMS AND CONDITIONS. Each of the Initial Lender’s commitments with respect to the Financing is conditioned upon satisfaction of the following conditions as of the Closing Date, and the definitive Financing documentation will require, among other things, compliance with the following covenants (all in form and substance acceptable to the Initial Lenders to the extent provided below):
• Satisfactory completion of all business and legal due diligence set forth on Schedules 1 and 2 hereto, respectively. Appraisals in form and substance similar to those issued in connection with the DIP facility or otherwise acceptable to the Administrative Agent reflecting net appraised inventory values of at least $2,350,000,000 or otherwise at lower levels acceptable to the Administrative Agent. The initial appraisal would be performed by Abacus and any subsequent appraisals would be performed by Abacus or such other appraisers retained by the Administrative Agent in consultation with the Borrower.
• Borrower shall have obtained confirmation of the Plan of Reorganization and the terms of each of (a)(i) the Plan of Reorganization (which shall not permit the payment of prepetition claims (other than (x) through the issuance of (i) equity securities and/or (ii) debt securities reflected in the Business Plan as other long-term liabilities or otherwise on terms acceptable to the Initial Lenders in their reasonable credit judgment and (y) payment of the Permitted Pre-Petition Claim Payments)), (ii) the Borrower’s disclosure statement and (iii) all orders of the Bankruptcy Court approving the Plan of Reorganization, this Commitment Letter, and the Financing, or affecting the rights, remedies and obligations of the Administrative Agent and Lenders hereunder and thereunder, shall be in form and substance reasonably acceptable to the Initial Lenders in all material respects.
• The Plan of Reorganization shall have been confirmed by a final order entered by the Bankruptcy Court (the “Confirmation Order”) in form and substance reasonably acceptable to the Initial Lenders in all material respects, and which has not been stayed by the Bankruptcy Court or by any other court having jurisdiction to issue any such stay. The Confirmation Order shall have been entered upon proper notice to all parties to be bound by the Plan of Reorganization, all as may be required by the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, order of the Bankruptcy Court, and any applicable local bankruptcy rules. Moreover, (i) the time to appeal the Confirmation Order or to seek review, rehearing or certiorari with respect to the Confirmation Order must have expired, (ii) unless otherwise waived by the Administrative Agent, no appeal or petition for review, rehearing or certiorari with respect to the Confirmation Order may be pending and (iii) the Confirmation Order must otherwise be in full force and effect. The Effective Date shall have occurred or shall occur concurrently with the closing of the Financing.
• All conditions to the Effective Date shall have been satisfied or waived and the Initial Lenders shall have received satisfactory evidence thereof.
• The Financing documents will permit asset sales, including (i) asset sales in connection with sale/leaseback transactions permitted under the indebtedness covenant, (ii) sales of stores and distribution centers to be closed which are identified prior to execution of this Commitment Letter by the Borrower and consistent in all material respects with the closures contemplated by the business plan dated January 13, 2003 and delivered to the Initial Lenders on January 10, 2003 (the “Business Plan”), (iii) sales of inventory in the ordinary course of business, (iv) sales of obsolete or worn-out property in the ordinary course of business which is no longer useful, in the Borrower’s reasonable business judgment, in the conduct of the Borrower’s and Guarantor’s businesses, (v) transfers resulting from the casualty or condemnation of property or assets, (vi) sales of surplus assets in the ordinary course of business, (vii) transfers of assets among the Borrower and the Guarantors, and (viii) other sales of assets with a book value not exceeding $450,000,000 in the aggregate during the term of the Financing.
• Financial covenants comprised of: (a) minimum Excess Availability of $100,000,000 at all times, (b) maximum CAPEX and (c) a minimum EBITDA (to be defined in a mutually satisfactory manner, but in any event to include an add-back for non-cash charges) covenant at levels to be determined (based on an annual cushion of $150,000,000 off of EBITDA set forth in the Business Plan) for the most recently reported twelve month period (provided that until the first anniversary of the Closing Date, minimum EBITDA shall build up to a rolling twelve month period with an EBITDA cushion in an amount not to exceed $15,000,000 per month so long as the aggregate annual EBITDA cushion shall not exceed $150,000,000 for the applicable fiscal period) to be triggered in the event that minimum Excess Availability is less than $400,000,000 from each January through July and $250,000,000 from each August through December during the Term of the Financing (the “Minimum Covenant Trigger”). Once implemented, compliance with the minimum EBITDA covenant will be tested on a monthly basis. In the event that the minimum EBITDA covenant is triggered as set forth herein, Borrower would be allowed to avoid further minimum EBITDA testing to the extent that (i) Borrower is in compliance with the then applicable minimum EBITDA covenant, (ii) Borrower maintains average Excess Availability above the then applicable Minimum Covenant Trigger for five (5) consecutive business days and (iii) Borrower continues to maintain Excess Availability above the then applicable Minimum Covenant Trigger level (the “EBITDA Covenant Release”). Notwithstanding the foregoing, to the extent minimum Excess Availability is less than the then applicable Minimum Covenant Trigger at any time after the date of she second EBITDA Covenant Release, a minimum EBITDA covenant for the most recently reported twelve month period (as calculated above) will be instituted and remain in place for the term of the Financing, with compliance to be tested on a monthly basis.
• Borrower will use its commercially reasonable efforts to obtain landlord/mortgagee/bailee waivers as of the Closing Date (provided that such efforts shall only be required for the distribution centers) and thereafter, Borrower will be required to use such efforts to obtain landlord/mortgagee/bailee waivers for facilities at which any Collateral is located not in existence on the Closing Date).
• Consignments or similar filings will be permitted with respect to Inventory consigned to the Borrower or any Guarantor.
• Limitations on commercial transactions, management agreements, service agreements, and borrowing transactions between Borrower, each Guarantor and their respective officers, directors, employees and affiliates; it being understood that transactions permitted amongst the Borrower and the Guarantors under the documentation for the Financing will be permitted.
• Limitations on, or prohibitions of, cash dividends or other distributions to equity holders of Borrower and any other equity holder which is not a Guarantor of the Financing, payments in respect to subordinated debt, payment of management fee; to affiliates and redemption of common or preferred stock of the Borrower or any parent holding company of the Borrower; provided that, in the event that any new equity investor or controlling shareholder makes a capital contribution to the Borrower or its parent holding company, as applicable, a capital distribution may be paid to such person in an amount equal to such capital contribution to the extent that (i) average Excess Availability is greater than $1,000,000,000 for thirty (30) consecutive days immediately prior to the date of such proposed distribution and is projected to exceed $1,000,000,000 for ninety (90) consecutive days immediately after giving effect to such distribution and, (ii) no Event of Default has occurred, both before and after giving effect to the payment of such capital distribution; and provided further that, if the Borrower delivers to the Administrative Agent an officer’s certificate together with its audited financial statements demonstrating that, as of the last day of the immediately preceding fiscal year, the Borrower and the Guarantors have positive excess cash flow (to be defined as agreed in the definitive Financing documentation, “Excess Cash Flow”) as of such date, then the Borrower shall be permitted to use 50% of such Excess Cash Flow to, during the then-current fiscal year, either to make a one-time repayment or prepayment of any indebtedness for borrowed money owing to any new investor issued pursuant to the Plan of Reorganization or a one-time cash distribution to the equity holders, but in either case, only to the extent that (i) avenge Excess Availability is greater than $1,000,000,000 for thirty (30) consecutive days immediately prior to the date of such payment or distribution and is projected to exceed $1,000,000,000 for ninety (90) consecutive days immediately after giving effect to such payment or distribution and, (ii) no Event of Default has occurred, both before and after giving effect to any such payment distribution.
• Satisfactory opinions of counsel (including local counsel as may reasonably be requested) reasonably acceptable to the Administrative Agent.
• Borrower will be permitted to grant liens on its owned real estate in favor of its trade creditors and enter into Subordination Rights Agreements (as hereinafter defined) with respect to its leasehold real estate, subject to intercreditor arrangements regarding the Administrative Agent’s access to the premises and enforcement in respect of liens on the Collateral, in each case, on terms and conditions reasonably satisfactory to the Administrative Agent. As used herein, “Subordinated Rights Agreements” shall mean agreements (which shall not (a) apply to or affect (i) the Administrative Agent or any Lender or their respective rights and remedies under the definitive Financing documentation, (ii) any person providing financing in respect of any such real estate or (b) restrict the Borrower’s ability to encumber or sell the leasehold real estate of the Borrower) pursuant to which certain pre-petition claimants in the Bankruptcy Case agree to subordinate their rights to the proceeds of any leasehold real estate of the Borrower to the rights of the trade creditors (or any agent appointed on behalf of the trade creditors) to such proceeds.
• Receipt of all necessary or appropriate third party and governmental waivers and consents, compliance with applicable laws, decrees and material agreements or obtaining of applicable consents and waivers.
• The Initial Lenders shall have received Borrower’s consolidated financial statements for the period ending January 31, 2003 and, to the extent available, its audited financial statements for such period.
• Cash management system to be acceptable to the Administrative Agent and Borrower. The Administrative Agent shall have full cash dominion over concentration accounts by means of springing lock boxes and blocked account agreements in the event (i) a payment Event of Default or a financial covenant Event of Default occurs unless (A) a majority of the Lenders agree to waive the requirement for cash dominion and such Event of Default and (B) average Excess Availability is greater than $500,000,000 for thirty (30) consecutive days immediately prior to such waiver or (ii) Excess Availability is less than the then applicable Minimum Covenant Trigger for ten (10) consecutive business days. If cash dominion is established as set forth in clause (ii) above, it shall remain in place until such time as average Excess Availability is greater than $500,000,000 for thirty (30) consecutive days. Notwithstanding the foregoing, cash dominion may be required to retrain in place once established to the extent necessary to establish and maintain a relationship with the cash management bank. The Borrower shall, prior to the Closing Date, send to each of its and the Guarantors’ local depository banks a letter (each such letter, a “Letter of Direction”) which (a) specifies that such letter is irrevocable without the Administrative Agent’s prior written consent, that the Administrative Agent is an intended third party beneficiary of such letter and that as such, the Administrative Agent may enforce the terms of such letter and (b) instructs such bank to wire available funds on deposit in the accounts maintained with such bank only to the Borrower’s concentration accounts unless the prior written consent of the Administrative Agent is obtained. Frequency of sweeps from local depositary accounts to the concentration accounts to be determined. Lock box agreements and blocked account agreements pertaining to the concentration accounts will be executed and delivered by all parties prior to closing.
• As of the Closing Date, there would have been (i) since Borrower’s last consolidated financial statement for the period ended January 1, 2003, no material adverse change, individually or in the aggregate, in the business, financial or other condition of the Borrower and its subsidiaries taken as a whole or the Collateral which would be subject to the security interest granted to the Administrative Agent and Lenders or in the prospects or projections of Borrower and its subsidiaries taken as a whole; it being understood that neither (x) a war or armed conflict instituted by or against the United States nor (y) changes reflected in the Business Plan directly resulting from transactions contemplated thereby shall constitute a material adverse change under this clause (i), (ii) no litigation commenced which could reasonably be expected to have a material adverse impact on the Borrower and its subsidiaries taken as a whole, its or their respective business or ability to repay the loans, or which would challenge the transaction under consideration, (iii) since Borrower’s last consolidated financial statement for the period ended January 1, 2003, no material increase in the liabilities, liquidated or contingent, of the Borrower and its Subsidiaries taken as a whole, or a material decrease in the assets of the Borrower and its subsidiaries taken as a whole; it being understood that neither (x) the GOB sales contemplated by the Business Plan nor (y) the application of “fresh start” accounting by the Borrower shall constitute a material decrease in the assets of the Borrower and its subsidiaries, and (iv) since the date hereof, no material adverse change in the lending market for facilities of this nature that in the Co-Arrangers’ reasonable judgment would impair syndication of the Financing.
• As or the Closing Date, there shall not have been any increase in the long-term indebtedness of the Borrower and the Guarantors in excess of $150,000,000 over the long-term indebtedness projected in the Business Plan.
• As of the Closing Date, there shall be Excess Availability of at least $1,300,000,000 (which shall include unrestricted cash (other than cash necessary for store operations in an amount equal to $300,000,000) as availability for the purpose of determining whether this condition has been satisfied, but only to the extent no revolving advances, other than Letters of Credit, have been or will be made as of the Closing Date).
• As of the Closing Date, the Borrower shall have delivered a final business plan that is consistent to the Business Plan in all material respects or is otherwise satisfactory to the Initial Lenders.
• Lender syndication/assignment rights consistent with the terms hereof and the Syndication Letter.
• Governing law: New York.
Each Initial Lender’s commitment hereunder is subject so the execution and delivery of final legal documentation acceptable to such Initial Lender and its counsel incorporating the terms set forth in this Commitment Letter and, if applicable, the Syndication Letter and such other terms so be agreed between the Initial Lenders and the Borrower which are not inconsistent with the terms set forth herein, the Fee Letter or the Syndication Letter.
You agree that (i) each of GECMO, FSI and BAS will act as the co-lead arrangers and co-book runners for the Loans, (ii) each of GE Capital and FRFI will act as the co-collateral agents for the Loans, (iii) each of FRFI and BofA will act as co-syndication agents for the Loans and (iv) GE Capital will act as the sole and exclusive administrative agent for the Loans, and that no additional agents, co-agents or arrangers will be appointed, or other titles conferred, without the Co-Arrangers’ consent. You agree that no Lender will receive any compensation of any kind for its participation in the Financing, except as expressly provided for in this Commitment Letter or the Fee Letter or the Syndication Letter.
To ensure an orderly and effective syndication of the Financing, you agree that until the earlier to occur of (i) the syndication of each of the Initial Lender’s commitments to their respective desired hold position as described in the Syndication Letter or the termination of such commitment, (ii) 90 days after the Closing Date and (iii) the completion of the syndication, as determined by the Co-Arrangers, you will not, and will not permit any of your affiliates so, syndicate or issue, attempt to syndicate or issue, announce or authorize the announcement of the syndication of or issuance of, or engage in discussions concerning the syndication or issuance of, any debt facility or debt security (including any renewals thereof, but excluding (x) the issuance of any securities pursuant to the Plan of Reorganization, (y) the issuance or incurrence of indebtedness permitted pursuant to the terms hereof in an amount not to exceed $10,000,000 in the aggregate and (z) borrowings under the DIP facility), without the prior written consent of the Co-Arrangers.
By signing this Commitment Letter, Borrower and the Initial Lenders acknowledge that this Commitment Letter supersedes any and all discussions and understandings, written or oral, between or among GE Capital, the other Initial Lenders and any other person as to the subject matter hereof, including, without limitation, the letter of interest dated December 27, 2002 between GE Capital Commercial Finance, Inc. and Borrower (collectively, the “Prior Letter”). No amendments, waivers or modifications of this Commitment Letter or any of its contents shall be effective unless expressly set forth in writing and executed by Borrower and the Initial Lenders.
Except as required by law, neither this Commitment Letter, the Prior Letter, the Fee Letter, the Syndication Letter nor their contents will be disclosed publicly or privately except to the Sponsor and those individuals who are your or the Sponsor’s officers, employees or advisors who have a need to know as a result of being involved in the Financing only on the condition that such matters may not be further disclosed. No person, other than the parties signatory hereto, is entitled to rely on this Commitment Letter or any of its contents. No person shall, except as required by law, use the name of, or refer to, any Initial Lender, or any of its affiliates (including GECMG, FSI or BAS), in any correspondence, discussions, advertisement or disclosure made in connection with the Financing without the prior consent of such Initial Lender. Each of the parties hereto hereby consents to the delivery of this Commitment Letter to the Bankruptcy Court with respect to the Bankruptcy Case, all parties required to be served in connection with the Letter Approval (as defined below) and to the statutory committees in the Bankruptcy Case, but solely for the purpose of obtaining the Letter Approval.
Regardless of whether the commitment herein is terminated or the Financing closes, Kmart agrees to pay upon demand to each Initial Lender and GECMG, FSI and BAS (collectively, the “Lender Parties”, and each, as “Lender Party”) all (i) out-of-pocket appraisal costs and expenses of the Administrative Agent, (ii) other reasonable out-of-pocket expenses which may be incurred by such Lender Party in connection with the Financing (including all reasonable legal costs and fees) incurred in the preparation of this Commitment Letter, the Fee Letter, the Syndication Letter, the Prior Letter, and evaluation of and documenting of the Financing, and (iii) a field examination fee of $750 per person per day plus actual out-of-pocket expenses of the Administrative Agent in connection with the conduct of the Administrative Agent’s field audit). Borrower’s reimbursement obligation hereunder shall apply whether or not the Financing closes, and (x) GE Capital’s right to receive reimbursement of all costs and expenses incurred in connection with the Financing shall be secured by (and payable with) the Underwriting Deposit (as hereinafter defined) and (y) each Initial Lenders’ rights to receive reimbursement of all costs and expenses incurred in connection with the Financing shall be entitled to priority as an administrative claim under Section 503(b)(1) of the Bankruptcy Code and shall be payable upon demand by such Initial Lender without any further order of the Bankruptcy Court, whether or not the Financing closes. Regardless of whether the commitment herein is terminated or the Financing closes, Borrower shall indemnify and hold harmless each of the Lender Parties, the Lenders, their respective affiliates, and the directors, officers, employees, agents, attorneys and representatives of any of them (each, an “Indemnified Person”), from and against all suits, actions. proceedings, claims, damages, losses, liabilities and out-of-pocket expenses (including, but not limited to, reasonable attorneys fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal), which may be instituted or asserted against or incurred by any such Indemnified Person in connection with, or arising out of, this Commitment Letter, the Fee Letter, the Syndication Letter, the Prior Letter, the Financing, the documentation related thereto, any other financing related thereto, any actions or failures to act in connection therewith, and any and all environmental liabilities and reasonable legal costs and expenses arising out of or incurred in connection with any disputes between or among any parties to any of the foregoing, and any investigation, litigation, or proceeding related to any such matters. Notwithstanding the preceding sentence, indenmitors shall not be liable for any indemnification to an Indemnified Person to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense results solely from that Indemnified Person’s gross negligence or willful misconduct, as finally determined by a court of competent jurisdiction. Under no circumstances shall any Lender Party or any of their respective affiliates be liable to you or any other person for any punitive, exemplary, consequential or indirect damages which may be alleged in connection with this Commitment Letter, the Fee Letter, the Prior Letter, the Syndication Letter, the Financing, the documentation related thereto or any other financing, regardless of whether the commitment herein is terminated or the Transaction or the Financing closes.
So that GE Capital may begin its due diligence and field audit, please (i) deliver an underwriting deposit to GE Capital in the initial amount of $500,000 within one business day of the date of delivery of this Commitment Letter by GE Capital that is fully earned on as of the date hereof; provided that if, from time to time, after application of such amounts to the fees and expenses contemplated herein the amount on deposit with GE Capital is less than $50,000, you shall deposit such additional amounts with GE Capital so that the balance on deposit with GE Capital at any time prior to the Closing Date is not less than $50,000 (such initial deposit and any subsequent deposits, collectively, the “Underwriting Deposit”), (ii) deliver to GE Capital, an or before January 29, 2003, a copy of an order entered by the Bankruptcy Court in the Bankruptcy Case, in form and substance reasonably satisfactory to GE Capital, authorizing Kmart’s aggregate payment to GE Capital of the Underwriting Deposit, (iii) sign and return this Commitment Letter, the Syndication Letter and the Fee Letter on or before February 28, 2003 and (iv) deliver to the Administrative Agent, on or before February 28, 2003, a copy of an order entered by the Bankruptcy Court in the Bankruptcy Case, in form and substance reasonably satisfactory to the Administrative Agent, authorizing Borrower’s acceptance of, and performance under, this Commitment Letter, the Syndication Letter and the Fee Letter, which order shall specifically provide that (x) GE Capital’s rights to receive the fees and deposits referenced herein, in the Syndication Letter and in the Fee Letter, and reimbursement of all costs and expenses incurred in connection with the Financing, shall be secured by, and payable with, the Underwriting Deposit and (y) the Lender Parties’ rights to receive the fees and deposits referenced herein, the Syndication Letter and in the Fee Letter and reimbursement of all costs and expenses incurred in connection with the Financing, shall be entitled to priority as administrative expense claims under Section 503(b)(1) of the Bankruptcy Code and shall be entitled to payment upon demand by the Initial Lenders, in each case, without any further order of the Bankruptcy Court, whether or not the commitment described herein is terminated or whether the Financing closes (the “Letter Approval”).
GE Capital will charge the Underwriting Deposit for fees and expenses to be reimbursed as outlined above. If GE Capital should close the Financing, your remaining Underwriting Deposit (net of fees and expenses) will be applied toward fees due at closing. In all other circumstances, GE Capital will retain the remaining Underwriting Deposit.
EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANYCLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS COMMITMENTLETTER, THE SYNDICATION LETTER, THE FEE LETTER, THE PRIOR LETTER, ANYTRANSACTION RELATING HERETO OR THERETO, OR ANY OTHER INSTRUMENT, DOCUMENTOR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH,WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. Each party hereto consents and agrees that (i) the state or federal courts located in New York County, City of New York, New York and (ii) solely during the pendency of the Bankruptcy Case, the Bankruptcy Court, shall have exclusive jurisdiction to hear and determine any claims or dispute between or among any of the parties hereto pertaining to this Commitment Letter, the Fee Letter, the Syndication Letter, the Prior Letter or the Financing under consideration, any other financing related thereto, and any investigation, litigation, or proceeding related to or arising out of any such matters, provided, that the parties hereto acknowledge that any appeals from those courts may have to be heard by a court (including an appellate court) located outside of such jurisdiction. Each party hereto expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and hereby waives any objection which such party may have based upon lack of personal jurisdiction, improper venue or inconvenient forum.
This Commitment Letter is governed by and shall be construed in accordance with the laws of the State of New York applicable to contracts made and performed in that state.
This Commitment Letter shall be of no force and effect unless and until (a) this Commitment Letter, the Syndication Letter and the Fee Letter are each executed and delivered to the undersigned on or before 5:00 p.m. Central Standard time on February 28, 2003 by facsimile at (312) 463-3840 and (b) such delivery is accompanied by (i) payment of the Commitment Fee and any other fees or deposits due and payable to the Initial Lenders as provided herein, in the Syndication Letter or in the Fee Letter and (ii) a copy of an order entered by the Bankruptcy Court in the Bankruptcy Case, in form and substance reasonably satisfactory to the Initial Lenders, authorizing Borrower’s acceptance of, and performance under, this Commitment Letter, the Syndication Letter and the Fee Letter, which order shall specifically provide that (x) GE Capital’s rights to receive the fees and deposits referenced herein, in the Syndication Letter and in the Fee Letter, and reimbursement of all costs and expenses incurred in connection with the Financing, shall be secured by, and payable with, the Underwriting Deposit and (y) the Lender Parties’ rights to receive the fees and deposits referenced herein, the Syndication Letter and in the Fee Letter and reimbursement of all costs and expenses incurred in connection with the Financing, shall be entitled to priority as administrative expense claims under Section 503(b)(1) of the Bankruptcy Code and shall be entitled to payment upon demand by the Initial Lenders, in each case, without any further order of the Bankruptcy Court, whether or not the commitment described herein is terminated or whether the Financing closes. Once effective, each of the Initial Lender’s commitment to provide financing in accordance with the terms of this Commitment Letter shall cease if the Financing is not funded for any reason, on or before May 31, 2003, and, notwithstanding any further discussions, negotiations or other actions taken after such date, neither any Initial Lender nor any of its affiliates shall have any liability to any person in connection with its refusal to fund the Financing or any portion thereof after such date.
Notwithstanding anything to the contrary contained in this Commitment Letter, (i) each Initial Lender’s commitment to provide financing in accordance with the terms of this Commitment Letter, the Fee Letter and the Syndication Letter shall cease if (i) GE Capital is ordered by the Bankruptcy Court to return the Underwriting Deposit or (ii) the Borrower does not deliver to GE Capital, on or before January 29, 2003, a copy of an order entered by the Bankruptcy Court in the Bankruptcy Case, in form and substance reasonably satisfactory to GE Capital, authorizing Kmart’s aggregate payment to GE Capital of the Underwriting Deposit, and, notwithstanding any further discussions, negotiations or other actions taken after such date, neither any Initial Lender nor any of its affiliates shall have any liability to any person in connection with its refusal to fund the Financing or any portion thereof after such date.
Notwithstanding anything to the contrary contained in this Commitment Letter, the Fee Letter or the Syndication Letter, the Borrower shall have no obligations under this Commitment Letter (other than the obligation to remit the Underwriting Deposit to GE Capital), the Fee Letter or the Syndication Letter until such time as the Borrower obtains the Letter Approval.
Our business is helping yours. We look forward to working with you towards closing this Financing.
Sincerly,
GENERAL ELECTRIC CAPITAL CORPORATION
By: ___________________________ Donna Evans Its: Duly Authorized Signatory
GECC CAPITAL MARKETS GROUP, INC.
By: ___________________________ Its: Duly Authorized Signatory
FLEET RETAIL FINANCE INC.
By: Its: Duly Authorized Signatory
FLEET SECURITIES, INC.
By: ___________________________ Its: Duly Authorized Signatory
BANK OF AMERICA, N.A.
By: ___________________________ Its: Duly Authorized Signatory
BANK OF AMERICA SECURITIES LLC
By:____________________________ Its; Duly Authorized Signatory
AGREED AND ACCEPTED THIS _____ DAY OF _______, 2003
KMART CORPORATION, as Debtor and Debtor-in-Possession
By:______________________________ Its:
[SIGNATURE PAGE TO COMMITMENT LETTER] EXHIBIT 2 — AMENDMENT
Re Plan of Reorganization Financing for Kmart Corporation
Ladies and Gentlemen:
Reference is made to (a) that certain commitment letter dated January 13, 2003, with respect to the proposed plan of reorganization financing (the “Commitment Letter”), among General Electric Capital Corporation, GECC Capital Markets Group, Inc., Fleet Retail Finance, Inc., Fleet Securities, Inc., Bank of America, N.A., Banc of America Securities LLC and Kmart Corporation, (b) that certain syndication letter dated January 13, 2003 (the “Syndication Letter”) among General Electric Capital Corporation, GECC Capital Markets Group, Inc., Fleet Retail Finance, Inc., Fleet Securities, Inc., Bank of America, N.A., Banc of America Securities LLC and Kmart Corporation, and (c) that certain letter agreement dated January 16, 2003 among General Electric Capital Corporation, GECC Capital Markets Group, Inc., Fleet Retail Finance, Inc., Fleet Securities, Inc., Bank of America, N.A., and Banc of America Securities LLC (the “January 16th Letter”). All defined terms used herein and not otherwise defined shall have the meaning given to them in the Commitment Letter.
Kmart has previously advised the parties hereto that its principal stockholder on a post-reorganization basis (the “Stockholder”) contemplated contributing up to $280 million in cash to Kmart at closing, in exchange for equity securities of Kmart, to enable Kmart to repay certain of its pre-petition claims (the “Claims”) in cash. The Stockholder has subsequently advised Kmart GE Capital and GECMG that it may instead desire, at closing, to:
(a) Contribute $140 million in cash to Kmart in exchange for equity securities of Kmart (the “Cash Contribution”), to enable Kmart to repay the Claims.
(b) Loan $60 million (as the same may be reduced as provided below) in cash to Kmart, in exchange for a convertible, subordinated promissory note issued by Kmart and more fully described below (the “Initial Note”), to enable Kmart to repay the Claims; provided
that, if Kmart’s Liquidity (as hereinafter defined) at closing (after giving effect to the making of all distributions and other payments to be made pursuant to the Plan of Reorganization on the Closing Date (other than (x) $60 million of such distributions and payments and (y) priority claims in respect of post-petition payables in favor of Kmart’s and its subsidiaries’ vendors and suppliers which are to be paid in the ordinary course of their business) and without duplication of the foregoing, any extensions of credit under the Financing to be made on such date, but without giving effect to the issuance of any Note) is in excess of $1.545 billion, then the amount of the loan shall be reduced by the amount of such excess. As need herein, (i) “Liquidity” means, at any time, Excess Availability at such time plus the Cash Balance and (ii) “Cash Balance” means, at any time, the aggregate amount of Kmart’s unrestricted cash, cash equivalents and short-term investments at that time, calculated in a manner consistent with the Business Plan (but exclusive of cash necessary for store operations in an amount equal to $300 million).
(c) At the Stockholder’s option, contribute additional cash to Kmart, in exchange for additional equity securities of Kmart (each, an “Additional Contribution”), to enable Kmart to repay the Claims.
In addition, in the event Kmart determines during the 90-day period following the closing that the aggregate amount of distribution and other payments required to be made pursuant to the Plan of Reorganization (other than payables by Kmart and its subsidiaries to their suppliers and vendors on a post-petition basis, so long ma such psychics are to be paid (and ultimately are paid) out in the ordinary course of their business) are or will be in excess of those actually paid at closing (such excess, the “Excess Distributions”), Kmart shall have the right to (and shall) cause the Stockholder to make a loan in cash to Kmart, in exchange for a convertible, subordinated promissory note issued by Kmart and more fully
described below (the “Additional Note” and, together with the Initial Note, the “Notes” in an amount equal to the lesser of(s) the amount of the Excess Distributions, and (b) the excess, if any, of $60 million over the original principal amount of the Initial Note; provided that; if (i) the difference of Liquidity at closing (after giving effect to the making of all distributions and other payments to be made pursuant to the Plan of Reorganization on the Closing Date (other than (x) $60 million of such distributions and payments and (y) priority claims in respect of post-petition payables in favor of Kmart’s and its subsidiaries’ vendors and suppliers which ate to be paid (and ultimately are paid) in the ordinary course of their business) and without duplication of the foregoing; any extensions of credit under the Financing to be made on such date, but without giving effect to the issuance of any Note) minus the amount of the Excess Distributions is in excess (such excess, the “Excess Cash Balance”) of (ii) $1.545 billion, then the amount of such loan shall be reduced by the amount of the Excess Cash Balance.
The Notes, if any; (a) will not require amortization payments, but will be payable in full on the date which is no sooner than one year following the date of closing, (b) may provide for intent to be paid in cash so long as the interest rate does not exceed 10% per. annum, (c) will provide that no payments (whether interest, principal or otherwise) may be made (i) unless Liquidity as of the end of the fiscal month immediately preceding such payment exceeds Liquidity contemplated by the Business Plan as of such time by at least $60 million, provided that, notwithstanding the foregoing, “such payment may be made on or about January 31, 2005 if both (X) the Cash Balance at that time is at least $100 million and (Y) there are no outstanding borrowings under the Financing, other than outstanding and undrawn Letters of Credit or (ii) if a default or Event of Default has occurred and is continuing wider the definitive Financing documentation, (d) will not be secured, (e) may be convertible into common equity securities of Kmart, and (f) will be subject to subordination provisions reasonably acceptable to the Initial Lenders. Any other material terms and conditions of the Note not specifically described herein shall be reasonably acceptable to the Initial Lenders. Notwithstanding anything in the Syndication Letter to the contrary or anything therein which may otherwise be inconsistent with the following, the defined term “Original Flex” in the Syndication Letter is hereby deemed to include the Initial Lenders’ ability to change the terms of clause (a) of this paragraph (but only with respect to the maturity date of the Notes) and subclause (i) of clause (c) of this paragraph, in each case, to the extent GECMG and the other Co-Arrangers determine that they will not be able to sell down the Financing to the Desired Hold Positions (as defined in the Syndication Letter) without making such change(s).
Any Claims which are not paid in full on the Closing Date with the proceeds of the Cash Contribution and the Initial Note may be paid (a) in cash, in an amount not to exceed $140 million minus the actual principal amount of the Initial Note (the “Cap”), on the Closing Date either by borrowings of up to $80 million under the Financing (subject to the terms and conditions of the Commitment Letter, as amended hereby) or with Kmart’s other cash on hand (exclusive of any Additional Contribution) and/or (b) in cash with the proceeds of any Additional Contribution (provided that the sum of the aggregate amount of Additional Contributions received by Kmart plus the original principal amount of the Additional Note shall reduce the amount of the Cap on a dollar-for-dollar basis) or the Additional Note. Furthermore, if the aggregate amount of Additional Contributions exceed the original amount of the Cap, then the principal amount of the Initial Note (and thereafter the Additional Note) shall be reduced on a dollar-for-dollar basis by such excess amount.
By your signatures below, please acknowledge your agreement that, notwithstanding the terms of the Commitment Letter, (a) the term “Permitted Pre-Petition Claim Payments” (as defined under the heading “Use of Proceeds” in the Commitment Letter) shall include, in addition to the payments currently described in such definition, payments to pre-petition creditors made (i) with the proceeds of the Cash Contribution and the Notes, (ii) from the winces described in clause (a) of the immediately preceding paragraph in an amount not to exceed the Cap (as the same may be decreased as described in the immediately preceding paragraph), and (iii) with the proceeds of Additional Contributions, (b) the principal amount of the Initial Note will be excluded from the long term indebtedness condition referred to in the 17th bullet point under the heading “Other Terms and Conditions” in the Commitment Letter and (c) each of the Notes will constitute permitted indebtedness for purposes of “Exhibit A” to the Commitment Letter, but only, in the case of the preceding clauses (b) and (c), so long as such Note is consistent with the terms and conditions identified herein.
This letter agreement (a) amends to the extent set forth herein, and constitutes a part of, each of the Commitment Letter and the Syndication Letter and (b) supercedes all discussions and understandings, written or oral, since the date of the Commitment Letter, between or among the parties hereto with respect to the subject matter hereof (including, without limitation, the January 16th Letter).
This letter agreement is governed by the internal laws of the State of New York and may be executed in two or more counterparts, all of which, when taken together, will constitute one original.
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Very truly yours,
KMART CORPORATION
By: ____________________________ Duly Authorized Signatory
ACCEPTED AND AGREED
GENERAL ELECTRIC CAPITAL CORPORATION
By : __________________________ Duly Authorized Signatory
GECC CAPITAL MARKETS GROUP, INC.
By: ___________________________ Duly Authorized Signatory
FLEET RETAIL FINANCE INC.
By _________________________________ Its: Duly Authorized Signatory
FLEET SECURITIES [NC.
By: ________________________________ Its: Duly Authorized Signatory
BANK OF AMERICA, N.A.
By: _________________________________ Its: Duly Authorized Signatory
BANC OF AMERICA SECURITIES LLC
By: _____________________________________ Its: Duly Authorized Signatory