EXHIBIT 99.1
SUPPORT AGREEMENT AND IRREVOCABLE PROXY
November 16, 2004
Kmart Holding Corporation
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▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Senior Vice President, Finance
Sears, ▇▇▇▇▇▇▇ and Co.
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇
Chairman, President & CEO
Ladies and Gentlemen:
The undersigned (the "Stockholders," and each a "Stockholder")
understand that Kmart Holding Corporation, a Delaware corporation ("Kmart"), and
Sears, ▇▇▇▇▇▇▇ and Co., a New York corporation (the "Sears"), propose to enter
into an Agreement and Plan of Merger, dated as of November 16, 2004 (the "Merger
Agreement"), providing for, among other things, the Mergers, in which (i) each
issued and outstanding share of common stock, par value $0.01 per share, of
Kmart (the "Kmart Common Stock") (other than shares of Kmart Common Stock owned
by Kmart or Kmart Merger Sub), will be cancelled and converted into one share of
common stock, par value $0.01, of Holdco (the "Holdco Common Stock") and (ii)
each issued and outstanding share of common stock, par value $0.75 per share, of
Sears (the "Sears Common Stock," and together with the Kmart Common Stock, the
"Common Stock") (other than shares of Sears Common Stock owned by Sears or Sears
Merger Sub and Dissenting Shares) will be cancelled and converted into the right
to receive, at the election of the holder thereof and subject to proration, $50
per share in cash or 0.50 of a share of Holdco Common Stock. Capitalized terms
used without definition in this letter agreement shall have the meanings
ascribed thereto in the Merger Agreement.
Each Stockholder is the beneficial and record owner of (i)
that number of shares of Kmart Common Stock, (ii) that number of shares of Sears
Common Stock, (iii) outstanding options, warrants and other derivative
securities exercisable for such number of shares of Kmart Common Stock, and (iv)
outstanding options, warrants and other derivative securities exercisable for
such number of shares of Sears Common Stock, in each case, as set forth opposite
the name of such Stockholder on Schedule I to this letter agreement. Each
Stockholder in its capacity as such, is entering into this letter agreement
Kmart Holding Corporation
Sears, ▇▇▇▇▇▇▇ and Co.
November 16, 2004
in consideration of, and as a condition to, Kmart's and Sears's willingness to
enter into the Merger Agreement and to consummate the transactions contemplated
thereby.
Each Stockholder confirms its agreement with each of you as
follows:
1. Each Stockholder represents, warrants and agrees that (a)
Schedule I to this letter agreement sets forth the number and type of shares of
Common Stock (together with any shares of Common Stock acquired by such
Stockholder on or after the date of this letter agreement, whether by exercise
of the Derivative Securities or otherwise, the "Shares") and the number and type
of shares of Common Stock that are issuable upon exercise of outstanding
warrants, options or other derivative securities, whether or not exercisable
(the "Derivative Securities"), of which such Stockholder is the record or
beneficial owner, (b) such Stockholder owns such Shares and Derivative
Securities, free and clear of all liens, charges, encumbrances, voting
agreements and commitments of every kind, and (c) such Stockholder has the power
to vote all Shares without restriction and that no proxies heretofore given in
respect of any or all of the Shares are irrevocable and that any such proxies
have heretofore been revoked.
2. Each Stockholder agrees that it will not, directly or
indirectly, sell, transfer, assign, pledge, encumber or otherwise dispose of any
of the Shares, or any interest therein, or any other securities convertible into
or exchangeable for Common Stock (including the Derivative Securities), or any
voting rights with respect thereto or enter into any contract, option or other
arrangement or understanding with respect thereto (including any voting trust or
agreement and the granting of any proxy), other than: (a) pursuant to the
Mergers or (b) with the prior written consent of both Kmart and Sears. Each
Stockholder hereby agrees to authorize and request each of Kmart and Sears to
notify its transfer agent that there is a stop transfer order with respect to
all of the Shares and that this letter agreement places limits on the voting of
the Shares. If so requested by Kmart or Sears, as the case may be, each
Stockholder agrees that the certificates representing Shares shall bear a legend
stating that they are subject to this letter agreement and to the irrevocable
proxy granted in paragraph 4 of this letter agreement.
3. (a) At every meeting of the stockholders of Kmart called,
and at every postponement or adjournment thereof, and on every action or
approval by written consent of the stockholders of Kmart, each Stockholder
irrevocably agrees to vote any Shares entitled to be voted thereat or to cause
any such Shares to be voted: (i) in favor of adoption of the Merger Agreement,
(ii) in favor of the issuance of Holdco Common Stock in the Mergers, and (iii)
against (A) any proposal made in opposition to adoption of the Merger Agreement
or in competition or inconsistent with the Mergers or any other transaction
contemplated by the Merger Agreement, (B) any Acquisition Proposal, (C) any
change in the management or board of directors of Kmart (other than as
contemplated by the Merger Agreement) and (D) any action or agreement that would
result in a breach of any representation, warranty, covenant or agreement or any
other obligation of Kmart under the Merger Agreement or of such Stockholder
under this letter agreement. The obligations of each Stockholder specified in
this paragraph 3(b) shall apply whether or not (x) the Board of Directors of
Kmart (or any committee thereof) shall
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Kmart Holding Corporation
Sears, ▇▇▇▇▇▇▇ and Co.
November 16, 2004
(I) withdraw or modify (or adopt or approve any resolution to, or publicly
disclose its intention to, withdraw or modify) its recommendation to the holders
of Kmart Common Stock, to vote in favor of the adoption of the Merger Agreement
or (II) recommend any Acquisition Proposal (either action described in clause
(I) or (II), a "Change in Kmart Recommendation"), or (y) Kmart breaches any of
its representations, warranties, agreements or covenants set forth in the Merger
Agreement; provided, however, that, in the event of a Change in Kmart
Recommendation, the obligation of the Stockholders to vote Shares in the manner
set forth in clauses (i) through (iii) of this paragraph 3(a) shall only apply
to an aggregate number of Shares that is equal to one third of the total number
of shares of Kmart Common Stock entitled to vote in respect of such matter and
the Stockholders shall cause all remaining Shares to be voted in a manner that
is proportionate to the manner in which all holders of shares of Kmart Common
Stock (other than the Stockholders) vote in respect of such matter.
(b) At every meeting of the stockholders of Sears, called, and
at every postponement or adjournment thereof, each Stockholder irrevocably
agrees to vote any Shares entitled to be voted thereat or to cause any such
Shares to be voted: (i) in favor of adoption of the Merger Agreement and (ii)
against (A) any proposal made in opposition to adoption of the Merger Agreement
or in competition or inconsistent with the Mergers or any other transaction
contemplated by the Merger Agreement, (B) any Acquisition Proposal, (C) any
change in the management or board of directors of Sears (other than in
connection with the transactions contemplated by the Merger Agreement) and (D)
any action or agreement that would result in a breach of any representation,
warranty, covenant or agreement or any other obligation of Sears under the
Merger Agreement or of such Stockholder under this letter agreement. The
obligations of each Stockholder specified in this paragraph 3(b) shall apply
whether or not (x) the Board of Directors of Sears (or any committee thereof)
shall (I) withdraw or modify (or adopt or approve any resolution to, or publicly
disclose its intention to, withdraw or modify) its recommendation to the holders
of Sears Common Stock, to vote in favor of the adoption of the Merger Agreement
or (II) recommend any Acquisition Proposal, or (y) Sears breaches any of its
representations, warranties, agreements or covenants set forth in the Merger
Agreement.
4. In furtherance of the agreements contained in paragraph
3(a) of this letter agreement and as security for such agreement, each
Stockholder hereby irrevocably appoints ▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (the
"Grantees"), and each of them individually, as the sole and exclusive
attorneys-in-fact and proxies of such Stockholder, for and in the name, place
and stead of such Stockholder, with full power of substitution and
resubstitution, to vote, grant a consent or approval in respect of, or execute
and deliver a proxy to vote, those Shares that are Kmart Common Stock, subject
to the proviso contained in paragraph 3(a) of this letter agreement, (a) in
favor of the adoption of the Merger Agreement, (b) in favor of the issuance of
Holdco Common Stock in the Mergers, (c) against any matter referred to in
paragraph 3(a)(iii) of this letter agreement and (d) in the discretion of the
Grantees, with respect to any proposed postponements or adjournments of any
annual or special meeting of the stockholders of Kmart held in
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Kmart Holding Corporation
Sears, ▇▇▇▇▇▇▇ and Co.
November 16, 2004
connection with any of the foregoing. Each Stockholder hereby affirms that the
irrevocable proxy set forth in this paragraph 4 is given in connection with, and
in consideration of, the execution of the Merger Agreement by Kmart and Sears,
and that such irrevocable proxy is given to secure the performance of the duties
of such Stockholder under this letter agreement. Each Stockholder hereby further
affirms that the proxy granted in this paragraph 4 is coupled with an interest
and may under no circumstances be revoked. Each Stockholder hereby ratifies and
confirms all that the Grantees may lawfully do or cause to be done by virtue
hereof. The proxy contained herein with respect to shares of Kmart Common Stock
is intended to be irrevocable in accordance with the provisions of Section
212(e) of the Delaware General Corporation Law.
5. Each Stockholder agrees to make a Stock Election with
respect to the conversion of all shares of Sears Common Stock beneficially owned
by such Stockholder in the Sears Merger.
6. Each Stockholder represents and warrants that there is, as
of the date hereof, and as of the Closing Date there will be, no binding
commitment or present plan or intention to sell, exchange or otherwise dispose
of any of the Holdco Common Stock that such Stockholder will receive pursuant to
or in connection with the Kmart Merger or the Sears Merger. Each Stockholder
agrees to deliver an officer's certificate to such effect in connection with the
tax opinions contemplated by Sections 6.2(c) and 6.3(c) of the Merger Agreement.
7. The parties acknowledge and agree that nothing contained in
this letter agreement shall restrict, limit or prohibit any affiliate of any
Stockholder from exercising (in his capacity as a director of Kmart or any such
person) his fiduciary duties as such a director.
8. Each Stockholder represents and warrants that it has all
necessary power and authority to enter into this letter agreement, and that this
letter agreement is the legal, valid and binding agreement of such Stockholder
and is enforceable against such Stockholder in accordance with its terms.
9. This letter agreement may be terminated at the option of
either party at any time after the earlier of (a) termination of the Merger
Agreement in accordance with its terms or (b) the day following the Effective
Time.
10. This agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without giving effect to
principles of conflict of laws.
11. Each Stockholder recognizes and acknowledges that a breach
by it of any covenants or agreements contained in this letter agreement will
cause Kmart and Sears to sustain damages for which they would not have an
adequate remedy at law for money damages, and therefore each Stockholder agrees
that in the event of any such
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Kmart Holding Corporation
Sears, ▇▇▇▇▇▇▇ and Co.
November 16, 2004
breach, Kmart or Sears shall be entitled to specific performance of such
covenants and agreements and injunctive and other equitable relief in addition
to any other remedy to which it may be entitled, at law or in equity.
12. The effectiveness of this letter agreement shall be
conditioned upon the execution and delivery of the Merger Agreement by each of
the parties thereto.
13. Each Stockholder agrees that this letter agreement and the
obligations hereunder shall attach to the Shares and shall be binding upon any
person or entity to which legal or beneficial ownership of the Shares shall
pass, whether by operation of law or otherwise.
[SIGNATURE PAGES FOLLOW]
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Kmart Holding Corporation
Sears, ▇▇▇▇▇▇▇ and Co.
November 16, 2004
Please confirm that the foregoing correctly states the
understanding between us and you by signing and returning to us a counterpart
hereof.
Very truly yours,
ESL PARTNERS, L.P.
By: RBS Partners, L.P.,
as its general partner
By: ESL Investments, Inc.,
as its general partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and COO
ESL INVESTORS, L.L.C.
By: RBS Partners, L.P.,
as its manager
By: ESL Investments, Inc.,
as its general partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and COO
ESL INSTITUTIONAL PARTNERS, L.P.
By: RBS Investment Management, L.L.C.,
as its general partner
By: ESL Investments, Inc.,
as its manager
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and COO
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Kmart Holding Corporation
Sears, ▇▇▇▇▇▇▇ and Co.
November 16, 2004
ESL INVESTMENT MANAGEMENT, L.L.C.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Member
CRK PARTNERS, LLC
By: ESL Investments, Inc.,
its sole member
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and COO
CRK PARTNERS II, L.P.
By: CRK Partners, LLC,
as its general partner
By: ESL Investments, Inc.,
its sole member
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and COO
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Kmart Holding Corporation
Sears, ▇▇▇▇▇▇▇ and Co.
November 16, 2004
Confirmed as of the date
first above written:
KMART HOLDING CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Senior Vice President, Finance
SEARS, ▇▇▇▇▇▇▇ AND CO.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇
Title: Chairman, President & CEO
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SCHEDULE I
NUMBER OF NUMBER OF
SHARES OF KMART SHARES OF SEARS
NAME OF STOCKHOLDER COMMON STOCK OWNED COMMON STOCK OWNED
------------------- ------------------ ------------------
ESL PARTNERS, L.P. 9,352,379(1) 22,810,436
ESL INVESTORS, L.L.C. 4,525,556(2) 8,073,364
ESL INSTITUTIONAL PARTNERS, L.P. 284,693(3) 165,366
ESL INVESTMENT MANAGEMENT, L.L.C. - 50,834
CRK PARTNERS, LLC 24 -
CRK PARTNERS II, L.P. 40,346,071(4) -
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1 Includes 1,108,200 shares of Kmart Common Stock issuable upon the exercise of
outstanding options and 1,026,854 shares of Kmart Common Stock issuable upon
conversion of outstanding convertible notes.
2 Includes 537,900 shares of Kmart Common Stock issuable upon the exercise of
outstanding options and 498,431 shares of Kmart Common Stock issuable upon
conversion of outstanding convertible notes.
3 Includes 33,800 shares of Kmart Common Stock issuable upon the exercise of
outstanding options and 31,371 shares of Kmart Common Stock issuable upon
conversion of outstanding convertible notes.
4 Includes 4,795,400 shares of Kmart Common Stock issuable upon the exercise of
outstanding options and 4,443,341 shares of Kmart Common Stock issuable upon
conversion of outstanding convertible notes.