Case No. 02-B-02474 (Jointly Administered).United States Bankruptcy Court, N.D. Illinois, Eastern Division.
November 4, 2004
WILMER CUTLER PICKERING HALE AND DORR LLP, Andrew N. Goldman, New York, New York, attorneys for KMART CORPORATION and its Affiliated Reorganized Debtors.
PIPER RUDNICK LLP, David M. Neff, Chicago, Illinois, attorneys for SHANRI HOLDINGS CORPORATION.
STIPULATION AND ORDER
SUSAN SONDERBY, Chief Judge, Bankruptcy
This Stipulation and Order (the “Stipulation and Order”) is entered into on this ____ day of November, 2004, by and among Kmart Corporation and its affiliated reorganized debtors (collectively, “Kmart”) on the one hand, and Shanri Holdings Corporation (“Shanri,” and together with Kmart, the “Parties”).
WHEREAS on June 23, 1995, Bradlees Stores, Inc. (“Bradlees”) filed for relief under chapter 11 of the Bankruptcy Code; and
WHEREAS fifteen months into Bradlees’ chapter 11 case, Bradlees rejected, pursuant to Section 365 of the Bankruptcy Code, a nonresidential real property lease for which Shanri was the landlord and Kmart was the guarantor; and
WHEREAS on or about February 25, 1997, Shanri commenced suit in the Superior Court of Rhode Island (the “State Court Suit”) against Builders Square, Inc. (as the original assignor of the lease to Bradlees) and Kmart; and
WHEREAS the parties to the State Court Suit ultimately reached a global resolution of that litigation, which was memorialized in a settlement agreement dated November 24, 1997 (the “Settlement Agreement”); and
WHEREAS pursuant to the terms of the Settlement Agreement, Kmart was required to make the following payments to Shanri: (A) monthly payments in the amount of $20,416.66
Page 2
which would end upon the later of February 1, 2006 or the date that Shanri provided proof that the Release Condition (as defined therein) had occurred (the “Monthly Payments”); (B) a one time payment of $900,000 upon the effective date of the Settlement Agreement; and (C) a payment of $3,500,000 upon the date that the Release Condition was satisfied; and
WHEREAS Kmart’s obligation to make the $3,500,000 payment referenced in subsection (C) above was secured by a letter of credit (the “L/C”) issued by The Chase Manhattan Bank (n/k/a JP Morgan Chase) (the “Bank”); and
WHEREAS the L/C was made drawable by Shanri only upon delivery of a certificate (the “Certificate”) signed by both Kmart and Shanri acknowledging that certain conditions had occurred; and
WHEREAS on January 22, 2002 (the “Petition Date”), Kmart Corporation and certain of its subsidiaries and affiliates each filed a voluntary petition in the Bankruptcy Court for relief under chapter 11 of title 11 of the United States Code; and
WHEREAS following the Petition Date, Kmart ceased making the Monthly Payments to Shanri (though it had made all Monthly Payments through the Petition Date); and
WHEREAS approximately three months after the Petition Date, Shanri requested that Kmart execute the Certificate necessary to allow Shanri to draw on the L/C; and
WHEREAS Kmart refused to execute the Certificate; and
WHEREAS on June 5, 2002, Shanri commenced suit (the “Adversary Proceeding”) against Kmart in the Bankruptcy Court, seeking specific performance (in the form of Kmart executing the Certificate) and monetary damages (which cause of action was later withdrawn); and
WHEREAS on July 8, 2002, Kmart moved to dismiss the Adversary Proceeding; and
WHEREAS both Parties thereafter moved for summary judgment; and
Page 3
WHEREAS on November 19, 2002, the Bankruptcy Court granted Kmart’s motion to dismiss Shanri’s Adversary Proceeding (the “Bankruptcy Court Initial Ruling”); and
WHEREAS on July 26, 2002, Shanri filed proof of claim number 34186 (the “Shanri Monthly Payments Claim”), in the amount of “not less than $122,499.96”, representing amounts owed (as of that date) by Kmart as a result of Kmart’s failure to make certain Monthly Payments; and
WHEREAS on December 5, 2002, Shanri filed its notice of appeal of the Bankruptcy Court’s Initial Ruling (the “Initial Appeal”); and
WHEREAS on April 22, 2003, the Bankruptcy Court entered an order confirming the First Amended Joint Plan of Reorganization of Kmart Corporation and its Affiliated Debtors and Debtors-in-Possession, as modified (the “Plan”); and
WHEREAS the Plan became effective on May 6, 2003; and
WHEREAS on June 20, 2003, Shanri filed proof of claim number 53959 (the “Shanri L/C Claim” and together with the Shanri Monthly Payments Claim, the “Shanri Claims”), in the amount of $3,847,083.22 in the Kmart chapter 11 case, representing its asserted money damages arising from Kmart’s refusal to execute the Certificate; and
WHEREAS on August 27, 2003, the United States District Court for the Northern District of Illinois (the “District Court”) remanded the matter to the Bankruptcy Court for consideration of certain issues; and
WHEREAS prior to the expiration of the L/C on November 28, 2003, the Bank advised the Parties that it would not renew the L/C; and
WHEREAS on October 29, 2003, the Bankruptcy Court approved the Stipulation Regarding Depositing Funds With Court (the “Stipulation Regarding Funds”), between Kmart and Shanri, pursuant to which (i) the Bank deposited $3,500,000 (the “Funds”) with the clerk of the Bankruptcy Court (the “Clerk”) and (ii) the Parties agreed that the Funds would remain in the Court registry until a final, non-appealable order was entered by the Bankruptcy Court or another
Page 4
court of competent jurisdiction adjudicating the Parties’ rights to the Funds (the “Adjudication Order”); and
WHEREAS on March 10, 2004, the Bankruptcy Court reversed its Initial Ruling and granted summary judgment in favor of Shanri (the “Bankruptcy Court Remand Ruling”); and
WHEREAS on March 19, 2004, Kmart filed its notice of appeal of the Bankruptcy Court Remand Ruling; and
WHEREAS on August 25, 2004, the District Court affirmed the Bankruptcy Court’s Remand Ruling (the “District Court Remand Affirmance”); and
WHEREAS on September 23, 2004, Kmart filed its notice of appeal of the District Court Remand Affirmance to the United States Court of Appeals for the Seventh Circuit (the “Circuit Appeal”); and
WHEREAS the Parties have agreed to consensually resolve their disputes with respect to this matter; and
NOW THEREFORE and subject to the terms hereof, and for good and sufficient consideration, it is hereby stipulated and agreed by and between the Parties, by and through their respective counsel, as follows:
1. The Stipulation Regarding Funds is hereby amended solely with respect to the “final, nonappealable” nature of an Adjudication Order, and both Kmart and Shanri both agree to waive any requirement that such Adjudication Order be “final and nonappealable.”
2. This Stipulation and Order shall constitute the Adjudication Order with respect to disposition of the Funds now held in the registry of the Court pursuant to the Stipulation Regarding Funds.
3. Upon entry of this Stipulation and Order by the Bankruptcy Court, the Clerk of the Court shall be authorized and directed, without further order, to (a) pay exactly
Page 5
$2,872,166.00 of the Funds to the order of “Shanri Holdings,” and (b) pay Kmart all of the remaining Funds held in the registry of the Court.[1]
4. Upon entry of this Stipulation and Order by the Bankruptcy Court, the Shanri Claims shall be assigned to Kmart, without the need for any further filings or assignment documents being completed by the Parties.
5. Nothing contained herein shall affect either Parties’ rights with respect to Shanri’s lease rejection claim for the Kmart locations formerly located in Lake City, Florida (Store No. 3714) and Destin, Florida (Store No. 7604) (the “Unaffected Lease Rejection Claims”).[2]
6. As soon as reasonably possible after entry of this Stipulation and Order by the Bankruptcy Court, Kmart shall take all reasonable and necessary steps to effectuate the prompt release of the Funds in accordance with the terms hereof.
7. Effective upon entry of this Stipulation and Order by the Bankruptcy Court, the Parties do hereby remise, release and forever discharge the other, and each of their respective agents, assigns, attorneys, directors, and officers from all claims, debts, actions, and demands of whatever kind or nature (whether legal or equitable) that either may have asserted (or could have asserted) against the other prior to the date hereof; provided, however, that nothing contained in this global and mutual release provision shall release (a) either party’s rights relating to the Unaffected Lease Rejection Claims, or (b) claims by one party against the other for breach of this Stipulation and Order.
8. This Stipulation and Order contains the complete understanding and agreement of the Parties with respect to the matters covered herein, and this Stipulation and Order may only
Page 6
be modified or amended in a written document signed by the Parties, with Bankruptcy Court approval.
9. This Court shall retain exclusive jurisdiction to hear any suit, claim or other proceeding arising from this Stipulation and Order, including, but not limited to: (i) any proceeding to enforce the terms of this Stipulation and Order; and (ii) any claim arising from a breach or default under the Stipulation and Order.
10. Each of the Parties represents to the other that (i) except as set forth herein, no promises or agreements of any kind have been made to it by any person or entity whatsoever to cause it to sign this Stipulation and Order, and that it is not relying upon any statement, promise or representation whatsoever which is not contained in this Stipulation and Order; and (ii) the decision to enter into this Stipulation and Order is done so freely and after full and adequate opportunity to be thoroughly advised of the terms and conditions of this Stipulation and Order. The parties further acknowledge that the provisions of this Stipulation and Order shall not constitute an admission by either party of any of the allegations asserted in connection with the Adversary Proceeding.
11. The Parties agree to cooperate and execute any additional documents required to implement this Stipulation and Order.
Page 7
12. This Stipulation and Order may be executed in counterparts and may be delivered by facsimile or other equivalent electronic means. Any copy so executed and delivered (including delivery by facsimile or other equivalent electronic means), when taken with another executed copy, shall be considered and deemed an original.
SO ORDERED.
Page 1