EXHIBIT 4.1
INVESTMENT AGREEMENT
By and Among
KMART CORPORATION,
on the one hand,
and
THE INVESTORS NAMED HEREIN,
on the other hand
Dated as of January 24, 2003
TABLE OF CONTENTS
PAGE
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ARTICLE I
DEFINITIONS
Section 1.1. Definitions.....................................................................................1
Section 1.2. Other Definitions...............................................................................6
ARTICLE II
PURCHASE AND SALE OF SHARES
Section 2.1. Issuance and Sale...............................................................................7
Section 2.2. The Purchase Price..............................................................................8
ARTICLE III
THE CLOSING
Section 3.1. The Closing.....................................................................................8
Section 3.2. Deliveries......................................................................................8
Section 3.3. Breaching Plan Investor.........................................................................9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1. Organization, Subsidiaries.....................................................................10
Section 4.2. Due Authorization..............................................................................11
Section 4.3. Capitalization.................................................................................11
Section 4.4. Consents and Approvals.........................................................................12
Section 4.5. No Violations..................................................................................12
Section 4.6. Compliance with Laws...........................................................................13
Section 4.7. Financial Advisory Fees........................................................................13
Section 4.8. Allowed Claims.................................................................................13
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PLAN INVESTORS
Section 5.1. Organization...................................................................................13
Section 5.2. Due Authorization..............................................................................14
Section 5.3. Consents and Approvals.........................................................................14
Section 5.4. No Violations..................................................................................14
Section 5.5. Financial Advisory Fees........................................................................14
Section 5.6. Financing......................................................................................15
Section 5.7. Ownership of Shares and Prepetition Claims.....................................................15
Section 5.8. Investment Representations.....................................................................15
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ARTICLE VI
COVENANTS
Section 6.1. Conduct of Business Pending the Closing........................................................15
Section 6.2. No Solicitation of Alternative Proposals.......................................................17
Section 6.3. Cooperation; Access to Information.............................................................18
Section 6.4. Further Actions; Reasonable Efforts............................................................20
Section 6.5. Use of Proceeds................................................................................21
Section 6.6. Restructuring..................................................................................21
Section 6.7. Registration Rights Agreement..................................................................21
Section 6.8. Corporate Governance...........................................................................21
Section 6.9. Releases.......................................................................................21
Section 6.10. Payment of Plan Investors' Expenses............................................................22
Section 6.11. Notification of Certain Matters................................................................22
Section 6.12. Information....................................................................................22
Section 6.13. Transfer Restrictions..........................................................................23
Section 6.14. ESL Option.....................................................................................23
Section 6.15. Company Call...................................................................................23
ARTICLE VII
CONDITIONS
Section 7.1. Conditions to the Plan Investors' Obligations..................................................24
Section 7.2. Conditions to the Obligations of the Company...................................................25
ARTICLE VIII
TERMINATION
Section 8.1. Termination....................................................................................26
Section 8.2. Commitment Fee.................................................................................27
ARTICLE IX
MISCELLANEOUS
Section 9.1. Governing Law..................................................................................28
Section 9.2. Jurisdiction; Forum; Service of Process; Waiver of Jury Trial..................................28
Section 9.3. Successors and Assigns.........................................................................28
Section 9.4. Entire Agreement; Amendment....................................................................29
Section 9.5. Notices........................................................................................29
Section 9.6. Delays or Omissions............................................................................30
Section 9.7. Consent........................................................................................31
Section 9.8. Counterparts...................................................................................31
Section 9.9. Severability...................................................................................31
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Section 9.10. Headings.......................................................................................31
Section 9.11. No Public Announcement.........................................................................31
Section 9.12. Interpretation.................................................................................31
Exhibits.
Exhibit A -- Plan
Exhibit B -- Exit Financing Facility Commitment Letter
Exhibit C -- Term Sheet of Called Notes
Schedules.
Company Disclosure Schedule
Plan Investors' Disclosure Schedule
Store Closing Schedule
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INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT (as it may be amended, restated,
supplemented or otherwise modified from time to time, this "Agreement") is made
as of January 24, 2003 by and among Kmart Corporation, a Michigan corporation,
in its capacity as debtor and debtor-in-possession (the "Company"), on the one
hand, and ESL Investments, Inc., a Delaware corporation ("ESL") and Third Avenue
Trust, a Delaware business trust, on behalf of certain of its investment series
("Third Avenue"), on the other hand. ESL and Third Avenue and each of their
permitted assignees are sometimes referred to herein individually as a "Plan
Investor" and collectively as the "Plan Investors."
RECITALS
WHEREAS, on January 22, 2002 (the "Petition Date") the Company
and certain of its subsidiaries (collectively, the "Debtors") filed voluntary
petitions for reorganization relief (the "Bankruptcy Cases") under chapter 11 of
Title 11 of the United States Code, 11 U.S.C. ▇▇.▇▇. 101 et seq., as amended
(the "Bankruptcy Code") in the United States Bankruptcy Court for the Northern
District of Illinois (the "Bankruptcy Court");
WHEREAS, the Company desires to undertake the Restructuring
(as hereinafter defined);
WHEREAS, in connection with the Restructuring, the Plan
Investors desire to make a significant investment in the Reorganized Debtors (as
hereinafter defined);
WHEREAS, to implement such investment, the Plan Investors
desire to purchase from the Reorganized Debtor (as hereinafter defined), and the
Reorganized Debtor desires to issue and sell to the Plan Investors, upon the
terms and subject to the conditions set forth herein, the Plan Investors' Shares
(as hereinafter defined); and
WHEREAS, with respect to the sale and purchase of the Plan
Investors' Shares, the Plan Investors will have the benefit of the registration
rights provided for in a Registration Rights Agreement, in form and substance
reasonably mutually acceptable to the Company and the Plan Investors, to be
executed at the Closing of the transactions contemplated hereby (the
"Registration Rights Agreement").
NOW, THEREFORE, in consideration of the mutual covenants,
agreements, representations and warranties contained herein, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Definitions. For the purposes of this Agreement,
the following terms shall have the following meanings:
"Adjusted Excess Availability" shall mean, as of any date, the
excess of (i) Liquidity over (ii) the aggregate amount of trade payables, other
accounts payable and accrued liabilities, as of such date.
"Affiliate" shall have the meaning ascribed thereto in Rule
12b-2 promulgated under the Exchange Act.
"Board of Directors" shall mean the Board of Directors of the
Company (or the Reorganized Debtor, as the case may be).
"Business Day" shall mean any day excluding Saturday, Sunday,
or any other day on which banking institutions located in Chicago, Illinois or
New York, New York are required or authorized to be closed.
"Business Plan" shall mean that five-year business plan of the
Company, as the same shall exist as of the date hereof, a copy of which has been
previously provided to ESL.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Commitment Fee" shall mean a payment in cash in an aggregate
amount equal to ten million dollars ($10,000,000), payable pursuant to Section
8.2(b), following entry of the Commitment Fee Order.
"Commitment Fee Order" shall mean an order of the Bankruptcy
Court approving, inter alia, (i) the Commitment Fee and (ii) the reimbursement
of the Expenses of the Plan Investors pursuant to Section 6.10 hereof, as
administrative expenses of the Debtors' Chapter 11 Estates.
"Commitment Letter" shall mean the commitment letter for the
Exit Financing Facility in the form attached hereto as Exhibit B, together with
the Side Letter, in each case without giving effect to any amendments or
supplements thereto.
"Company Debentures" shall mean the 12-1/2% Debentures due
2005, the 7-3/4% Debentures due 2012, the 8-3/4% Debentures due 2022 and the
7.95% Debentures due 2023 of the Company.
"Company Senior Notes" shall mean the 8-3/4% Notes due 2004,
the 8-1/8% Notes due 2006, the 8-1/4% Notes due 2022 and the Fixed-Rate Medium
Term Notes (Series A, B, C, D) of the Company.
"Confirmation Order" shall mean an order, which shall include
orders of the Bankruptcy Court that have the effect, except as contemplated by
the Plan, of vesting all licenses, permits, authorizations, registrations and
other governmental or regulatory requirements to conduct the business of the
Debtors in the Reorganized Debtors without any further action, filing, notice,
declaration or registration by them, and otherwise in form and substance
reasonably acceptable to the Plan Investors entered by the Bankruptcy Court in
the Bankruptcy Cases confirming the Plan pursuant to Section 1129 of the
Bankruptcy Code.
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"Creditor Shares" shall mean the New Common Shares to be
issued to the creditors of the Debtors pursuant to the Plan.
"DIP Financing Facility" shall mean that certain Revolving
Credit and Guaranty Agreement, dated as of January 22, 2002, as amended to the
date hereof, among the Company and certain of its direct or indirect
subsidiaries signatory thereto, JPMorgan Chase Bank, a New York banking
corporation, certain other financial institutions from time to time party
thereto and JPMorgan Chase Bank, in its capacity as administrative agent.
"Disclosure Statement" shall mean the disclosure statement
filed in connection with the Plan in the Bankruptcy Cases.
"Domestic Subsidiary" shall mean any Subsidiary (as defined
below) that is created or organized in or under the law of the United States,
any State thereof or the District of Columbia.
"Encumbrance" shall mean, with respect to any Person, any
mortgage, lien, pledge, security interest or other encumbrance, or any interest
or title of any vendor, lessor, lender or other secured party to or of such
Person under any conditional sale or other title retention agreement or capital
lease, upon or with respect to any property or asset of such Person (including
in the case of stock, stockholder agreements, voting trust agreements, voting
rights agreements and all similar arrangements).
"ESL Existing Prepetition Credit Agreement Obligations" shall
mean the allowed amount of ESL's claims pursuant to the Prepetition Credit
Agreements in respect of such claims that ESL holds as of the date of this
Agreement.
"ESL Subsequent Prepetition Credit Agreement Obligations"
shall mean the allowed amount of ESL's claims pursuant to the Prepetition Credit
Agreements in respect of such claims that ESL acquires after the date of this
Agreement.
"Excess Availability" shall have the meaning ascribed thereto
in the Commitment Letter.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations of
the SEC thereunder, all as the same shall be in effect at the time. Reference to
a particular section of the Exchange Act shall include reference to the
comparable section, if any, of such successor federal statute.
"Exit Financing Facility" shall mean the exit financing
facility obtained by the Reorganized Debtors having a committed amount of at
least two billion dollars ($2,000,000,000), which shall either be on terms and
conditions consistent in all material respects with those set forth on the
Commitment Letter, or to the extent inconsistent therewith, on terms and
conditions acceptable to the Plan Investors.
"FIC" shall mean the Financial Institutions Committee.
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"Governmental Entity" shall mean any supranational, national,
foreign, federal, state or local judicial, legislative, executive,
administrative or regulatory body or authority.
"Knowledge" of a party hereto shall mean the actual knowledge
of any executive officer of such party after due inquiry.
"Law" shall mean any law, statute, ordinance, rule,
regulation, order, judgment, decree or body of law of any Governmental Entity.
"Material Adverse Effect" shall mean, when used in connection
with the Company or the Reorganized Debtor, any change, effect, event,
occurrence or development that is, or is reasonably likely to be, materially
adverse to the business, results of operations or financial condition of the
Company and its Subsidiaries, taken as a whole, other than any change, effect,
event or occurrence relating to or arising out of (i) the economy or securities
markets in general, (ii) this Agreement or the transactions contemplated hereby
or the announcement thereof or the announcement of the Store Closing Program,
(iii) the Company's financial condition as of the date of this Agreement, (iv)
the filing of the Plan or (v) the Company's industry generally.
"Non-Lender Unsecured Claims" shall have the meaning ascribed
thereto in the Plan attached hereto as Exhibit A.
"Ordinary Course of Business" shall mean the ordinary course
of business of the Debtors.
"Permitted Encumbrances" shall mean: any Encumbrance (i)
permitted under the DIP Financing Facility; (ii) approved by the Bankruptcy
Court, including, without limitation, liens granted pursuant to a cash
collateral and/or debtor-in-possession financing order and liens granted as
adequate protection; (iii) granted pursuant to any forbearance agreement, or
amendment thereto, entered into with respect to the DIP Financing Facility; (v)
mechanics', materialmen's, and similar liens; (vi) liens for taxes not yet due
and payable or for taxes that the taxpayer is contesting through appropriate
proceedings; (vii) purchase money liens and liens securing rental payments under
capital lease arrangements; and (viii) other liens or Encumbrances either (A)
arising in the Ordinary Course of Business that are not incurred in connection
with the borrowing of money or (B) that would not materially interfere with the
conduct of the business of the Company or any of its Subsidiaries that is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X.
"Person" shall mean any individual, firm, corporation, limited
liability company, partnership, company, trust or other entity, and shall
include any successor (by merger or otherwise) of such entity.
"Plan" shall mean the plan of reorganization in a form
acceptable to the Debtors and the Plan Investors and embodying the terms set
forth in the Plan attached hereto as Exhibit A, with such changes as may be
reasonably acceptable to the Debtors and the Plan Investors hereafter, together
with all contracts, agreements, schedules, exhibits, certificates, orders and
other documents prepared in connection therewith, provided, however, that any
such change that adversely affects the Plan Investors or the distributions
required to be made to ESL or Third
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Avenue pursuant to the Plan in respect of their prepetition claims against the
Company, shall require the prior written consent of the Plan Investors, in their
sole and absolute discretion.
"Preferred Obligations" shall mean the 7-3/4% Trust
Convertible Preferred Securities of Kmart Financing I, a Delaware Statutory
business trust and Debtor.
"Prepetition Credit Agreements" shall mean that certain
364-Day Credit Agreement, dated as of November 31, 2001 and that certain
Three-Year Credit Agreement, dated as of December 6, 1999 and each made by and
among Kmart, Chase Securities, Inc., as Lead Arranger and Book Manager, The
Chase Manhattan Bank, as Administrative Agent, Bank of America, National
Association, as Syndication Agent, BankBoston, N.A., as Co-Documentation Agent,
and Bank of New York, as Co-Documentation Agent, as amended, supplemented or
otherwise modified from time to time, and all documents executed in connection
therewith.
"Prepetition Credit Agreement Obligations" shall mean the
allowed amount of the Prepetition Lenders' claims pursuant to the Prepetition
Credit Agreements.
"Prepetition Lender" shall mean any creditor of the Debtors
holding claims pursuant to the Prepetition Credit Agreements.
"Prepetition Note Claims" shall have the meaning ascribed
thereto in the Plan.
"Reorganized Debtor" shall mean the Reorganized Debtor whose
shares of New Common Stock will be issued pursuant to the Plan.
"Reorganized Debtors" shall mean the entities, which may
include one or more new holding companies and operating companies to be formed
pursuant to the Plan, that will carry out the business of the Company and its
Subsidiaries upon emergence from bankruptcy under chapter 11 of the Bankruptcy
Code.
"SEC" shall mean the United States Securities and Exchange
Commission and any successor Governmental Entity.
"SEC Reports" shall mean any and all proxy statements, annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and other documents required to be filed by the Company under the Exchange
Act since January 27, 2000, as amended and/or restated.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
SEC thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Act shall include reference to the
comparable section, if any, of such successor federal statute.
"Side Letter" shall mean the side letter to the Commitment
Letter, dated January 23, 2003, without giving effect to any amendments or
supplements thereto.
"Store Closing Program" shall mean the Company's program (i)
to close and conduct store closing sales of up to the 326 stores set forth on
the attached Store Closing
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Schedule and (ii) in connection therewith, to (A) close one or more distribution
centers and (B) reduce personnel at the Company's headquarters and regional
offices, after the 2002 holiday selling season consistent with its long-term
business plan, together with any actions required or necessary therefor or
connected therewith, including but not limited to any reduction in force, sales
of assets and rejection of unexpired leases and executory contracts related
thereto.
"Transaction Documents" shall mean this Agreement, the
Registration Rights Agreement, and all other contracts, agreements, schedules,
certificates, orders and other documents being delivered pursuant to or in
connection with this Agreement.
"UCC" shall mean the Unsecured Creditors' Committee.
Section 1.2 Other Definitions. The following terms shall have
the meanings defined in the Section indicated:
Agreement................................................................................Preamble
Alternative Plan Investor.............................................................Section 3.3
Alternative Proposal...............................................................Section 6.2(a)
Balance Sheet Cash................................................................Section 6.15(a)
Bankruptcy Cases.........................................................................Recitals
Bankruptcy Code..........................................................................Recitals
Bankruptcy Court.........................................................................Recitals
Breaching Plan Investor...............................................................Section 3.3
Called Notes......................................................................Section 6.15(a)
Cash Balance......................................................................Section 6.15(a)
Closing...............................................................................Section 3.1
Closing Date..........................................................................Section 3.1
Company..................................................................................Preamble
Company Call......................................................................Section 6.15(a)
Company Confidential Information...................................................Section 6.3(f)
Company Disclosure Schedule............................................................Article IV
Debtors..................................................................................Recitals
Disclosure Statement Approval Order...................................................Section 6.6
ESL......................................................................................Preamble
ESL Option........................................................................Section 6.14(a)
ESL Prepetition Obligation Shares..................................................Section 2.1(c)
Excess Distributions..............................................................Section 6.15(a)
Expenses.............................................................................Section 6.10
Governmental Requirements.............................................................Section 4.4
HSR Act...............................................................................Section 4.4
Initial Called Note...............................................................Section 6.15(a)
Initial Company Call..............................................................Section 6.15(a)
Investment............................................................................Section 2.2
Liquidity.........................................................................Section 6.15(a)
Maximum Company Call Amount.......................................................Section 6.15(b)
Maximum Optioned Shares...........................................................Section 6.14(b)
New Common Shares..................................................................Section 4.3(b)
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New ESL Shares........................................................................Section 2.1
New Third Avenue Shares...............................................................Section 2.1
Option Price......................................................................Section 6.14(a)
Petition Date............................................................................Recitals
Plan Investor............................................................................Preamble
Plan Investors' Disclosure Schedule.....................................................Article V
Plan Investors' Shares.............................................................Section 2.1(b)
Proceeding............................................................................Section 9.2
Purchase Price........................................................................Section 2.2
Registration Rights Agreement............................................................Recitals
Representatives.......................................................................Section 6.2
Restraint..........................................................................Section 7.1(b)
Restructuring.........................................................................Section 6.6
Selected Courts....................................................................Section 9.2(a)
Subsequent Called Note............................................................Section 6.15(a)
Share Price........................................................................Section 2.2(b)
Subsidiary.........................................................................Section 4.1(b)
Third Avenue.............................................................................Preamble
ARTICLE II
PURCHASE AND SALE OF SHARES
Section 2.1. Issuance and Sale. (a) Upon the terms and subject
to the conditions set forth herein, at the Closing: (i) the Reorganized Debtor
shall issue and sell to ESL, and ESL shall purchase from the Reorganized Debtor
a number of New Common Shares (the "New ESL Shares") equal to the sum of (A)
78.21% of the Plan Investors' Shares and (B) the ESL Prepetition Obligation
Shares, (ii) the Reorganized Debtor shall issue and sell to Third Avenue, and
Third Avenue shall purchase from the Reorganized Debtor, 21.79% of the Plan
Investors' Shares (the "New Third Avenue Shares") and (iii) if requested by the
Reorganized Debtor under the circumstances provided for in, and in accordance
with, Section 6.15, the Reorganized Debtor shall issue and sell to ESL, and ESL
shall purchase from the Reorganized Debtor, the Initial Called Note (as defined
in Section 6.15(a)).
(b) The "Plan Investors' Shares" shall mean fourteen million
(14,000,000) New Common Shares.
(c) The "ESL Prepetition Obligation Shares" shall mean a
number of New Common Shares equal to the quotient obtained by dividing, (i) the
sum of (A) the aggregate amount of cash required to be paid by the Reorganized
Debtor to ESL pursuant to the Plan in settlement and compromise of the ESL
Existing Prepetition Credit Agreement Obligations and (B) such portion as ESL
may in its sole discretion designate of the aggregate amount of cash required to
be paid by the Reorganized Debtor to ESL pursuant to the Plan in settlement and
compromise of the ESL Subsequent Prepetition Credit Agreement Obligations by
(ii) the Share Price (as defined below).
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Section 2.2. The Purchase Price. (a) At the Closing, (i) in
consideration of the issuance of the New ESL Shares to ESL, ESL shall pay to the
Reorganized Debtor an amount equal to the sum of (A) 78.21% of the Purchase
Price and (B) the product of (1) the Share Price and (2) the ESL Prepetition
Obligation Shares, (ii) in consideration of the issuance of the Third Avenue
Shares to Third Avenue, Third Avenue shall pay to the Reorganized Debtor an
amount equal to 21.79% of the Purchase Price, and (iii) in consideration of the
issuance of the Initial Called Note to ESL, if requested by the Reorganized
Debtor under the circumstances provided for in, and in accordance with, Section
6.15, ESL shall pay to the Reorganized Debtor an amount equal to the principal
amount of the Initial Called Note. The payment of the consideration set forth in
this Section, in whole or in part, shall sometimes be referred to herein as the
"Investment".
(a) The "Purchase Price" shall mean an amount in dollars equal
to one hundred forty million dollars ($140,000,000).
(b) The "Share Price" shall mean a price per share equal to
the quotient obtained by dividing, (x) the Purchase Price by (y) the Plan
Investors' Shares.
ARTICLE III
THE CLOSING
Section 3.1. The Closing. The closing of the purchase and sale
of the Plan Investors' Shares hereunder and the other transactions contemplated
hereby (the "Closing") shall take place at the offices of Skadden, Arps, Slate,
▇▇▇▇▇▇▇ & ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, at a date
(the "Closing Date") and time to be mutually agreed upon by the Company and ESL
on behalf of the Plan Investors, which shall be at least three (3) but no more
than ten (10) Business Days after the date following the satisfaction (or waiver
by ESL or the Company, as appropriate) of all of the conditions set forth in
Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or waiver of those
conditions); provided, however, that in the event the Company and ESL are not
able mutually to agree on a Closing Date in accordance with the immediately
preceding clause, the parties agree that the Closing Date shall be on the tenth
Business Day following the satisfaction or waiver of all the conditions set
forth in Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or waiver of those
conditions); and provided, further, that the Closing Date shall be the same date
as the Effective Date of the Plan.
Section 3.2. Deliveries. (a) At the Closing, the Reorganized
Debtor shall deliver certificates to (i) ESL, evidencing the aggregate number of
New ESL Shares being purchased by ESL and registered in the name of ESL or, to
the extent designated by ESL to the Reorganized Debtors at least three (3)
Business Days prior to the Closing Date, to an Affiliate thereof, as its nominee
or designee (with the individual certificates in such amounts as ESL shall
specify to the Reorganized Debtor at least three (3) Business Days prior to the
Closing Date) and (ii) Third Avenue, evidencing the aggregate number New Third
Avenue Shares being purchased by Third Avenue and registered in the name of
Third Avenue or, to the extent designated by Third Avenue to the Reorganized
Debtors at least three (3) Business Days prior to the Closing
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Date, an Affiliate thereof, as its nominee or designee (with the individual
certificates in such amounts as Third Avenue shall specify to the Reorganized
Debtor at least three (3) Business Days prior to the Closing Date). At the
Closing, if the Reorganized Debtor requests that ESL purchase the Initial Called
Note under the circumstances provided for in, and in accordance with, Section
6.15, the Reorganized Debtor shall deliver a convertible note to ESL, in form
and substance consistent with the terms set forth on Exhibit C and otherwise
reasonably acceptable to ESL, evidencing the Initial Called Note being purchased
by ESL and registered in the name of ESL or, to the extent designated by ESL to
the Reorganized Debtors at least three (3) Business Days prior to the Closing
Date, to an Affiliate thereof, as its nominee or designee. Delivery of such
certificates to each Plan Investor shall be made against receipt by the
Reorganized Debtor of the portion of the Purchase Price payable by such Plan
Investor and any other portion of the Investment payable by ESL pursuant to
Section 2.2, which in each case shall be paid by wire transfer of immediately
available funds to an account designated at least three (3) Business Days prior
to the Closing Date by the Reorganized Debtor.
(b) At the Closing, the Company shall deliver to the Plan
Investors statements prepared in accordance with the Company's reasonable and
customary practices and procedures used in preparing financial statements and in
accordance with the terms of this Agreement (together with supporting detail
therefor in form and substance reasonably acceptable to the Plan Investors)
setting forth the calculation of the estimated amount of (i) the Excess
Availability and (ii) the Adjusted Excess Availability of the Company and its
Domestic Subsidiaries, in each case as of the Closing.
(c) At the Closing, the Company shall deliver to the Plan
Investors the Commitment Fee.
(d) At the Closing, the Company shall deliver to the Plan
Investors the officers' certificates required under Sections 7.1(c), 7.1(d) and
7.1(g).
(e) At the Closing, each Plan Investor shall deliver to the
Company the officers' certificates required under Sections 7.2(c) and 7.2(d).
Section 3.3. Breaching Plan Investor. Notwithstanding anything
contained in this Agreement to the contrary, if each of the conditions to each
party's obligations to this Agreement set forth in Article VII has otherwise
been satisfied or waived and if Third Avenue breaches its obligation to
consummate the transactions contemplated herein (the "Breaching Plan Investor"),
ESL shall, or shall cause one or more other Persons to, by the earlier of (x)
May 30, 2003 and (y) the date that is ten (10) Business Days from the date that,
but for the Breaching Plan Investor's failure to close, would have been the
Closing Date, assume and perform all the rights and obligations of the Breaching
Plan Investor (an "Alternative Plan Investor"); provided that any such
Alternative Plan Investor which is neither an Affiliate of, or an investor in
(including a limited partner thereof), a Plan Investor as of the date of this
Agreement shall be subject to the reasonable approval of the Company. If ESL
does not assume or cause an Alternative Plan Investor to assume and perform the
Breaching Plan Investor's rights and obligations under this Agreement, the
Company shall have the right to terminate this Agreement without any liability
to the Plan Investors (including, without limitation, liability for the
Commitment Fee or any Expenses, which if previously paid, shall be repaid to the
Company),
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but without in any way (i) releasing the Breaching Plan Investor from any
liability to the Company for its breach or limiting the Company's rights with
respect to the Breaching Plan Investor, (ii) releasing ESL from any liability to
the Company for any breach of its obligations hereunder or limiting the
Company's rights with respect to ESL or (iii) releasing the Breaching Plan
Investor from any liability to ESL for the Breaching Plan Investor's breach or
limiting ESL's rights with respect to the Breaching Plan Investor.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as specifically set forth in the disclosure schedule
prepared and signed by the Company (the "Company Disclosure Schedule") and
delivered to the Plan Investors simultaneously with the execution and delivery
hereof, the Company represents and warrants to each of the Plan Investors that
all of the statements contained in this Article IV are true and correct as of
the date of this Agreement (or, if made as of a specified date, as of such
date).
Section 4.1. Organization, Subsidiaries. (a) The Company and
each of its Subsidiaries is a corporation or other legal entity duly organized,
validly existing and (in the jurisdictions recognizing the concept) in good
standing under the laws of the jurisdiction in which it is organized and has the
requisite corporate or other power and authority to own, lease and operate its
properties and to conduct its business as it is now being conducted. To the
Knowledge of the Company, the Company and each of its subsidiaries is duly
qualified or licensed as a foreign entity to do business and (in the
jurisdictions recognizing the concept) is in good standing (and has paid all
relevant franchise or analogous taxes) in each jurisdiction in which the nature
of its business or the ownership, leasing or operation of its properties makes
such qualification or licensing necessary, except for failures to be so
qualified that, individually or in the aggregate, are not reasonably likely to
have a Material Adverse Effect.
(b) Except for Kmart Financing I, Section 4.1(b) of the
Company Disclosure Schedule sets forth, as of the date hereof, (i) each
corporation, limited liability company, partnership, business association or
other Person in which the Company owns any direct or indirect equity interest
(each a "Subsidiary," and collectively the "Subsidiaries"), (ii) the ownership
interest therein of the Company or such other Subsidiary, and (iii) if such
Subsidiary is not directly or indirectly wholly-owned by the Company, to the
extent of the Knowledge of the Company, the identity and ownership interest of
each of the other owners of such Subsidiary.
(c) Except as set forth on Section 4.1(c) of the Company
Disclosure Schedule or except as it relates to Kmart Financing I (i) the Company
owns, either directly or indirectly through one or more Subsidiaries, all of the
capital stock or other equity interests of the Subsidiaries free and clear of
all Encumbrances, other than Permitted Encumbrances, and (ii) there are no
outstanding subscription rights, options, warrants, convertible or exchangeable
securities or other rights of any character whatsoever relating to issued or
unissued capital stock or other equity interests of any Subsidiary, or any
commitments of any character whatsoever relating to issued or unissued capital
stock or other equity interests of any Subsidiary or pursuant to which any
Subsidiary is or may become bound to issue or grant additional shares of its
capital stock or other equity interests or related subscription rights, options,
warrants, convertible or
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exchangeable securities or other rights, or to grant preemptive rights, which,
in each case, will be in effect immediately following the Closing.
Section 4.2. Due Authorization. Subject to the approval of the
Bankruptcy Court, the Company has all corporate right, power and authority to
enter into this Agreement and each of the other Transaction Documents to which
it is a party, to consummate the transactions contemplated hereby and thereby
and to comply with the terms, conditions and provisions hereof and thereof. The
execution and delivery by the Company of this Agreement and of each other
Transaction Document to which it is a party is, and the issuance, sale and
delivery of the New Common Shares by the Reorganized Debtor and the compliance
by the Company (or the Reorganized Debtors, as the case may be) with each of the
provisions of this Agreement and of each other Transaction Document to which it
(or the Reorganized Debtors, as the case may be) is a party will, upon the
approval of the Bankruptcy Court, be (i) within the corporate power and
authority of the Company (or the Reorganized Debtors, as the case may be) and
(ii) have been duly authorized by all requisite corporate action of the Company
(or the Reorganized Debtors, as the case may be). This Agreement has been, and
each of the other Transaction Documents to which the Company (or the Reorganized
Debtors, as the case may be) is a party when executed and delivered by the
Company (or the Reorganized Debtors, as the case may be) will be, duly and
validly executed and delivered by the Company (or the Reorganized Debtors, as
the case may be), and this Agreement constitutes, and each of such other
Transaction Documents when executed and delivered by the Company (or the
Reorganized Debtors, as the case may be) will constitute, upon approval of the
Bankruptcy Court, a valid and binding agreement of the Company (or the
Reorganized Debtors, as the case may be), enforceable against the Company (or
the Reorganized Debtors, as the case may be) in accordance with its terms,
except as such enforcement is limited by bankruptcy, reorganization, insolvency
and other similar laws affecting the enforcement of creditors' rights generally
and limitations imposed by general principles of equity.
Section 4.3. Capitalization. (a) Except as set forth in
Section 4.3 of the Company Disclosure Schedule and the Plan and except for the
transactions contemplated by this Agreement, the other Transaction Documents or
any benefit plans approved by the Plan Investors, there are no outstanding
subscription rights, options, warrants, convertible or exchangeable securities
or other rights of any character whatsoever to which the Company is a party
relating to issued or unissued capital stock of the Company, or any commitments
of any character whatsoever relating to issued or unissued capital stock of the
Company or pursuant to which the Company or any of the Subsidiaries are or may
become bound to issue or grant additional shares of their capital stock or
related subscription rights, options, warrants, convertible or exchangeable
securities or other rights, or to grant preemptive rights, which, in each
instance, will be in effect immediately following the Closing. Except as
contemplated by this Agreement, the Plan and the Registration Rights Agreement,
(i) the Company has not agreed to register any Creditor Shares under the
Securities Act or under any state securities law or granted registration rights
to any Person and (ii) there are no voting trusts, stockholders agreements,
proxies or other understandings in effect to which the Company is a party with
respect to the voting or transfer of any of the New Common Shares (as defined
below) that will be outstanding as of the Closing.
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(b) As of the Closing, after giving effect to the Investment
and the Restructuring contemplated hereby, (i) the authorized capital stock of
the Reorganized Debtor shall be the number of shares of common stock provided in
the Plan, i.e., 100 million common shares ("New Common Shares") and 20 million
shares of preferred stock and (ii) the shares of capital stock of the
Reorganized Debtor (A) outstanding shall consist solely of (x) the New ESL
Shares, New Third Avenue Shares and the Creditor Shares and (y) New Common
Shares issued pursuant to executive compensation plans, if any, approved by the
Plan Investors and (B) subject to issuance pursuant to outstanding options shall
consist solely of the New Common Shares reserved for issuance pursuant to (x)
executive compensation plans, if any, approved by the Plan Investors and (y) the
ESL Option.
Section 4.4. Consents and Approvals. To the Knowledge of the
Company, no consent, approval, authorization of, declaration, filing, or
registration with, any Governmental Entity is required to be made or obtained by
either the Company or any of its Subsidiaries in connection with the execution,
delivery, and performance of this Agreement or any of the other Transaction
Documents contemplated hereby, except for (i) the filing of new Certificates of
Incorporation for one or more of the Reorganized Debtors with the Secretary of
State of such Reorganized Debtors' state of incorporation, (ii) any required
filings under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvement Act of 1976, as
amended (the "HSR Act"), the Exchange Act or the Securities Act, (iii) the
Confirmation Order, and (iv) the Commitment Fee Order. The items referred to in
clauses (i) through (iv) of this Section 4.4 are hereinafter referred to as the
"Governmental Requirements."
Section 4.5, No Violations. Except as set forth on Section 4.5
of the Company Disclosure Schedule, assuming that the Governmental Requirements
will be satisfied, made or obtained and will remain in full force and effect and
the conditions set forth in Article VII will be satisfied, except as
contemplated by the Plan and the reorganization of the Company and the other
Debtors under the Plan (including any consents required thereunder), neither the
execution, delivery or performance by the Company of this Agreement or any of
the other Transaction Documents to which the Company (or the Reorganized
Debtors, as the case may be) is a party nor the consummation of the transactions
contemplated hereby or thereby will: (i) conflict with, or result in a breach or
a violation of, any provision of the certificate of incorporation or bylaws or
other organizational documents of the Company or any of its Subsidiaries (or the
Reorganized Debtors, as the case may be) or (ii) as of the Closing, constitute,
with or without notice or the passage of time or both, a breach, violation or
default, create an Encumbrance (other than any Permitted Encumbrance) or give
rise to any right of termination, modification, cancellation, prepayment,
suspension, limitation, revocation or acceleration, under any Law or any
provision of any agreement or other instrument to which the Company or any of
its Subsidiaries is a party or pursuant to which the Company or any of its
Subsidiaries or any of their respective assets or properties is subject, except
for breaches, violations, defaults, Encumbrances (other than Permitted
Encumbrances), or rights of termination, modification, cancellation, prepayment,
suspension, limitation, revocation or acceleration which, individually or in the
aggregate, are not material and would not materially adversely affect the
ability of the Company (or the Reorganized Debtors, as the case may be) to
perform its obligations under this Agreement or any of the Transaction
Documents.
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Section 4.6. Compliance with Laws. Except as disclosed in the
SEC Reports or in Section 4.6 of the Company Disclosure Schedule, to the
Knowledge of the Company, the Company and its Subsidiaries are in compliance
with all Laws, and neither the Company nor any of its Subsidiaries has received
any notice of any alleged violation of Law, except, in either instance, for
failures to comply or violations which, individually or in the aggregate, are
not reasonably likely to have a Material Adverse Effect. To the Knowledge of the
Company, the Company and its Subsidiaries hold all other licenses, franchises,
permits, consents, registrations, certificates, and other governmental or
regulatory permits, authorizations or approvals required for the operation of
the business as presently conducted and for the ownership, lease or operation of
the assets of the Company and its Subsidiaries, except for failures to hold such
licenses or approvals that, individually or in the aggregate, are not reasonably
likely to have a Material Adverse Effect.
Section 4.7. Financial Advisory Fees. No agent, broker,
investment bank or other financial advisor is or will be entitled to any fee,
commission, expense or other amount from the Company or any of its Subsidiaries
in connection with any of the transactions contemplated by this Agreement or the
other Transaction Documents except for (a) those fees, payments and agreements
to pay approved by the Bankruptcy Court and (b) other Persons (i) hired by the
Debtors after the date of this Agreement in connection with the Bankruptcy Cases
or (ii) required or authorized to be paid by the Debtors by the Bankruptcy Code
or by an order of the Bankruptcy Court.
Section 4.8. Allowed Claims. The sum of the aggregate amount
of allowed claims in the classes set forth in Section III.A.1 (Administrative
Claims) and Section III.A.2 (Other Priority Claims) of the Plan does not exceed
eight hundred million dollars ($800,000,000). The sum of the aggregate amount of
allowed claims in the class set forth in Section III.C (Secured Claims) of the
Plan does not exceed one hundred twenty-five million dollars ($125,000,000).
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PLAN INVESTORS
Except as specifically set forth in the disclosure schedule
prepared and signed by each of the Plan Investors (the "Plan Investors'
Disclosure Schedule") and delivered to the Company simultaneously with the
execution and delivery hereof, each Plan Investor hereby severally represents
and warrants solely as to itself to the Company that all of the statements
contained in this Article V are true and correct as of the date of this
Agreement (or, if made as of a specified date, as of such date).
Section 5.1. Organization. Such Plan Investor is a corporation
or other legal entity duly organized, validly existing and (in the jurisdictions
recognizing the concept) in good standing under the laws of the jurisdiction in
which it is organized and has the requisite corporate or other power and
authority to own, lease and operate its properties and to conduct its business
as it is now being conducted.
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Section 5.2. Due Authorization. (a) Such Plan Investor has all
right, power and authority to execute and deliver this Agreement and the other
Transaction Documents to which it is a party, to consummate the transactions
contemplated hereby and thereby and to comply with the terms, conditions and
provisions hereof applicable to such Plan Investor.
(b) The execution, delivery and performance by such Plan
Investor of this Agreement and each of the other Transaction Documents to which
it is a party, the compliance by such Plan Investor with each of the provisions
of this Agreement and each of the Transaction Documents and the consummation of
the transactions contemplated hereby and thereby, are within the power and
authority of such Plan Investor, have been duly authorized and approved by the
requisite actions of such Plan Investor and do not require any further
authorization or consent of such Plan Investor or its beneficial owners. This
Agreement is the legal, valid and binding agreement of such Plan Investor,
enforceable against such Plan Investor in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws from time to time affecting the
enforcement of creditors' rights generally.
Section 5.3. Consents and Approvals. To the Knowledge of such
Plan Investor, no consent, approval, authorization of, declaration, filing, or
registration with, any Governmental Entity is required to be made or obtained by
it in connection with the execution, delivery, and performance of this Agreement
or any of the other Transaction Documents contemplated hereby, except for the
Governmental Requirements.
Section 5.4. No Violations. Assuming that the Governmental
Requirements will be satisfied, made or obtained and will remain in full force
and effect and the conditions set forth in Article VII will be satisfied,
neither the execution, delivery or performance by such Plan Investor of this
Agreement or any of the other Transaction Documents to which it is a party and
the consummation of the transactions contemplated hereby and thereby, will: (i)
conflict with, or result in a breach or a violation of, any provision of the
certificate of incorporation or bylaws or other organizational documents of such
Plan Investor or (ii) constitute, with or without notice or the passage of time
or both, a breach, violation or default, create an Encumbrance (other than any
Permitted Encumbrance) or give rise to any right of termination, modification,
cancellation, prepayment, suspension, limitation, revocation or acceleration,
under any Law or any provision of any agreement or other instrument to which
such Plan Investor is a party or pursuant to which such Plan Investor or any of
its respective assets or properties is subject, except for breaches, violations,
defaults, Encumbrances (other than Permitted Encumbrances), or rights of
termination, modification, cancellation, prepayment, suspension, limitation,
revocation or acceleration which, individually or in the aggregate, are not
material and would not materially adversely affect the ability of such Plan
Investor to perform its obligations under this Agreement or any of the
Transaction Documents.
Section 5.5. Financial Advisory Fees. Except as provided in
Section 6.10, no agent, broker, investment bank or other financial advisor is or
will be entitled to any fee, commission, expense or other amount from such Plan
Investor in connection with any of the transactions contemplated by this
Agreement or the other Transaction Documents.
-14-
Section 5.6. Financing. Such Plan Investor has, and at the
Closing will have, available to it funds in amounts sufficient to pay its
portion of the Purchase Price and to effect the transactions contemplated
hereby.
Section 5.7. Ownership of Shares and Prepetition Claims.
Section 5.7 of the Plan Investors' Disclosure Schedule sets forth the number of
shares of common stock, the amount of Preferred Obligations and the prepetition
claims of the Company held by such Plan Investor.
Section 5.8. Investment Representations.
(a) Such Plan Investor understands that the Plan Investors'
Shares have not been registered under the Securities Act.
(b) Such Plan Investor has substantial experience in
evaluating and investing in private placement transactions of securities so that
it is capable of evaluating the merits and risks of its investment in the
Reorganized Debtor and has the capacity to protect its own interests.
(c) Such Plan Investor is acquiring its portion of the Plan
Investors' Shares for its own accounts for investment only, and not with a view
towards their distribution.
(d) Such Plan Investor represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
(e) Such Plan Investor acknowledges and agrees that it shall
hold its portion of the Plan Investors' Shares indefinitely unless such Plan
Investors' Shares are subsequently registered under the Securities Act or an
exemption from such registration is available and such shares are sold or
otherwise transferred or otherwise disposed of in accordance therewith. Such
Plan Investor is aware of the provisions of Rule 144 promulgated under the
Securities Act as in effect from time to time.
(f) ESL is a Delaware corporation, whose office is located at
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇. Third Avenue is a Delaware business
trust, whose office is located at ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇. After February 21, ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇'▇ office will be located at ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇-▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇.
ARTICLE VI.
COVENANTS
Section 6.1. Conduct of Business Pending the Closing. Except
as otherwise expressly contemplated by this Agreement and the Plan or any of the
other Transaction Documents or as consented to by the Plan Investors in writing
or as required by the Bankruptcy Code, during the period from the date of this
Agreement through and including the Closing Date, the Company shall, and shall
cause each of its Subsidiaries to, conduct its operations and business in the
Ordinary Course of Business, including, without limitation, paying its vendors,
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trade creditors and other creditors in a manner consistent with the Business
Plan. Without limiting the generality of the foregoing, the Company shall not,
and shall not permit any of its Subsidiaries to:
(a) amend its charter, bylaws or other comparable
organizational documents other than in accordance with this Agreement or amend
or waive any provisions of the Transaction Documents;
(b) acquire any "business", as defined in Rule 3-05(a)(2) of
Regulation S-X (whether by merger, consolidation, purchase of assets or
otherwise) or acquire any, or increase any existing, equity interest in any
person not a Subsidiary (whether through a purchase of stock, establishment of a
joint venture or otherwise), except in connection with the disposition of any
item referenced in Section 6.1(d) of the Company Disclosure Schedule;
(c) assume or reject any material executory contract or
unexpired lease to which the Plan Investors have filed a written objection which
has not been withdrawn by the date of entry of the order authorizing the
assumption or rejection of such contract or lease;
(d) other than the items set forth in Section 6.1(d) of the
Company Disclosure Schedule and other than in connection with the Store Closing
Program, (i) sell, exchange, license or otherwise dispose of any of its real
properties or other material assets, except for sales of inventory in the
Ordinary Course of Business, (ii) enter into any new joint ventures or similar
projects, (iii) enter into any new real estate development projects, (iv) enter
into any new licenses, leases or other material agreements or understandings
other than in the Ordinary Course of Business or (v) mortgage any of its real
properties or other assets except for Permitted Encumbrances; provided that
nothing set forth in this Section 6.1(d) shall prevent the Company from (i)
entering into licenses, leases or subleases for which the Company is the
licensor, lessor or sublessor, respectively, or (ii) transferring real property
in connection with condemnation proceedings and easement agreements in the
Ordinary Course of Business.
(e) except as set forth in Section 6.1(e) of the Company
Disclosure Schedule, change its methods of accounting, except as required by
changes in GAAP; or change any of its methods of reporting income and deductions
for federal income tax purposes from those employed in the preparation of the
federal income tax returns for the taxable year ended January 30, 2002, and
except for future amendments of those tax returns to correct immaterial mistakes
or as required by changes in law or regulation or as may be required in
connection with the Bankruptcy Cases;
(f) (i) incur any additional indebtedness, except as permitted
by the DIP Financing Facility, or (ii) make any loans, advances or capital
contributions to, or investments in, any Person (excluding any Subsidiary),
except as permitted by the DIP Financing Facility;
(g) except as set forth on Section 6.1(g) of the Company
Disclosure Schedule, (i) terminate the employment of any executive officer of
the Company other than for cause, or (ii) except pursuant to agreements in
effect on the date hereof (A) enter into any new employment agreement with any
existing director or executive officer without the consent of the Plan
Investors, which consent shall not be unreasonably withheld, (B) grant to any
current or
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former director or executive officer of the Company or its Subsidiaries any
increase in compensation, bonus or other benefits (other than increases in base
salary in the Ordinary Course of Business or arising due to a promotion or other
change in status and consistent with generally applicable compensation
practices), (C) grant to any such current or former director, executive officer
or other employee any increase in severance or termination pay, except in
connection with the Store Closing Program, (D) amend, adopt or terminate any
employment, deferred compensation, severance, termination or indemnification
agreement with any such current or former director, executive officer or
employee, except in connection with the Store Closing Program, or (E) amend,
adopt or terminate any employee benefit plan, except as may be required to
retain qualification of any such plan under Section 401(a) of the Code and
except for the adoption of one or more severance plans in connection with the
Store Closing Program;
(h) enter into any new agreement or amend any existing
agreement containing a non-competition, geographical restriction or similar
covenant, in each case in a manner materially adverse to the Plan Investors or
the Reorganized Debtor; or
(i) agree to take any of the foregoing actions.
Section 6.2. No Solicitation of Alternative Proposals. (a)
Except as otherwise expressly provided by this Section 6.2 and except and only
to the extent that the Board of Directors determines in good faith that it is
necessary or desirable to authorize such actions in connection with the
administration of the Bankruptcy Cases or that it is required to authorize such
actions to comply with its fiduciary duties under any applicable Law, including
the Bankruptcy Code, from and after the date of this Agreement until the earlier
of (x) the Closing Date and (y) the termination of this Agreement in accordance
with section 8.1, the Company shall not authorize, and shall not permit any of
its Subsidiaries or any of the Company's or the Subsidiaries' directors,
officers, employees, representatives, agents and advisors (including any
investment banker, financial advisor, attorney, accountant or other
representative retained by any of them or acting on their behalf) (all such
Persons, "Representatives"), directly or indirectly, to (i) solicit, initiate,
or take any other action designed to solicit a proposal or offer for a
restructuring transaction or a plan of reorganization, merger, consolidation,
transfer or exchange of shares, issuance of equity securities (or securities
convertible into equity securities), debt refinancing, sale of a material
portion of the assets of the Debtors (except in connection with the Store
Closing Program and with respect to the items described in Section 6.1(d) of the
Company Disclosure Schedule) or similar transaction involving the Debtors
(collectively, an "Alternative Proposal"), (ii) participate in any discussions
or negotiations regarding any Alternative Proposal, (iii) enter into any letter
of intent, agreement in principle, acquisition agreement or other similar
agreement related to any Alternative Proposal or (iv) subject to the following
sentence, furnish any nonpublic information. Notwithstanding anything to the
contrary that may be set forth in the foregoing, none of the Company or any of
its Representatives will be precluded from providing information to, or
discussing and negotiating with, any Person that has after the date hereof
notified the Company in an unsolicited writing that it is considering making, or
has made in writing an unsolicited bona fide Alternative Proposal or has
notified the Company prior to the date hereof that it is considering making or
has made a bona fide Alternative Proposal so long as the Company and its
Representatives are not in violation of this Section 6.2. In addition, so long
as the Company and its Representatives are not in violation of this Section 6.2,
none of the Company or any of its Representatives will be precluded from
executing an agreement providing
-17-
for an Alternative Proposal or recommending any such Alternative Proposal to the
creditors of the Company, if in the good faith opinion of the Board of Directors
(in consultation with its financial advisors and outside legal counsel) such
Alternative Proposal provides a higher transaction value or is otherwise more
favorable to the Company than and its creditors the transactions contemplated by
this Agreement and that the Board of Directors reasonably believes in good faith
(after consultation with outside legal counsel) that the failure to authorize
such actions would be inconsistent with its fiduciary duties under any
applicable Law, including the Bankruptcy Code; provided that no such action
shall be authorized unless (i) the Company shall have delivered the notice with
respect to such Alternative Proposal to the Plan Investors pursuant to Section
6.2(b) and (ii) the Plan Investors do not, within five (5) Business Days of
receipt of such notice, make an offer to revise the transactions contemplated by
this Agreement that in the good faith opinion of the Board of Directors (in
consultation with its financial advisors and outside legal counsel) provides an
equal or higher transaction value or is otherwise more favorable to the Company
and its creditors than the Alternative Proposal. No Person considering making an
Alternative Proposal shall be provided non-public information by the Company
unless such Person has executed a customary confidentiality agreement; provided
that such confidentiality agreement shall not prohibit the Company from
delivering any notice required by Section 6.2(b).
(b) The Company shall notify the Plan Investors promptly (and
in no event later than seventy-two (72) hours) after (i) receipt by the Company
of (A) any written or oral indication from any Person that informs the Company
that such Person is considering making an Alternative Proposal or (B) any
Alternative Proposal or (ii) the delivery by the Company of any non-public
information in connection with an Alternative Proposal or the granting of access
by the Company to the properties, books or records of the Company to any Person
that informs the Company that it is considering making, or has made an
Alternative Proposal. Such notice shall be made in writing and shall indicate
the identity of the offeror and shall also indicate all the material terms and
conditions of such proposal, inquiry or contract.
(c) Notwithstanding any other provision of this Agreement, the
Company agrees that it will not (i) enter into any definitive agreement, letter
of intent or agreement in principle relating to an Alternative Proposal unless
such definitive agreement, letter of intent or agreement in principle shall
provide for an obligation by the Company to pay any portion of the Commitment
Fee, not theretofore paid to the Plan Investors pursuant to and in accordance
with Section 8.2 or (ii) consummate any Alternative Proposal unless there shall
be paid any portion of the Commitment Fee, not theretofore paid to the Plan
Investors, pursuant to and in accordance with Section 8.2.
Section 6.3. Cooperation; Access to Information. (a) From the
date hereof through the earlier of termination hereof and the Effective Date of
the Plan, the Company shall, and shall cause each of its Subsidiaries and, to
the extent any other Person is controlled directly or indirectly by the Company,
each such other Person to, give ESL and its agents, attorneys, accountants, and
representatives, reasonable, non-exclusive access, during normal business hours
upon reasonable notice, to the books, contracts, records and other documents,
and personnel of the Company, its Subsidiaries and such other Persons; provided,
however, that none of the foregoing shall unreasonably interfere with the
conduct of business of the Debtors, their Subsidiaries, or such other Persons;
provided, further, that, subject to Section 6.3(f) hereof, ESL
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shall be required, if requested by Third Avenue, to disclose any information
furnished or obtained pursuant to this Section 6.3(a) to Third Avenue and its
agents, attorneys, accountants, and representatives, so long as they have a
confidentiality agreement containing terms and conditions substantially similar
to those set forth in Section 6.3(f) with respect to such information.
(b) From the date hereof through the earlier of termination
hereof and the Effective Date of the Plan, the Company shall use its reasonable
commercial efforts to cause its independent certified public accountants and the
independent certified public accountants of each of its Subsidiaries and, to the
extent any other Person is controlled directly or indirectly by the Company, of
each such other Person, to afford ESL and its agents, attorneys, accountants,
and representatives, reasonable access to the audit work papers and other
records of each such firm relating to the Company, its Subsidiaries and any of
such Persons, subject to ESL executing any agreement reasonably required by the
certified public accountants of the Company or its Subsidiaries.
(c) The Company and ESL agree to cooperate fully in
facilitating the access provided for under this Agreement in accordance with
mutually acceptable procedures, which procedures shall require, among other
things, that all requests for such access: (i) be made to the President and
Chief Executive Officer of the Company or such other person as the Company may
designate in writing to ESL, and (ii) specify the representatives of ESL to whom
such access is to be provided and the scope and nature of the access requested.
Further, the Company shall be permitted to have any of its representatives
present during any requested meetings or discussions.
(d) The preceding subsections of this Section 6.3 shall not
require the disclosure of any information if, in the Company's reasonable
determination (after consultation with counsel), such information is reasonably
believed to be (i) subject to an attorney-client or work product privileges and
disclosure would result in the loss of such privileges or (ii) subject to a
binding confidentiality agreement entered into as of the date hereof and
disclosure would cause a breach of such confidentiality agreement. The Company
will use its commercially reasonable efforts, including commercially reasonable
efforts to obtain appropriate consents or waivers under any confidentiality
agreement, to disclose all such information requested by ESL. In the case that
attorney-client or work product privileges apply, the parties shall use their
commercially reasonable efforts to make appropriate substitute disclosure
arrangements.
(e) Between the entry of the approval order and the earlier of
termination hereof and the Effective Date of the Plan:
(i) The Company's senior management shall meet
with ESL's representatives weekly (or as
otherwise reasonably requested by ESL) to
inform the Plan Investors of pending or
proposed transactions (including claim
resolutions) involving the Company, its
Subsidiaries or any other Person controlled
by the Debtor which could have a material
effect on the assets or liabilities of the
Company, any of its Subsidiaries or any such
controlled Person.
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(ii) The Company shall serve copies of all
pleadings it files in the Bankruptcy Cases
upon ESL.
(f) Each Plan Investor shall, and shall cause each of its
agents, attorneys, accountants, and representatives to keep strictly
confidential all nonpublic, confidential and/or proprietary information
provided, or caused to be provided, by the Company pursuant to this Section 6.3
("Company Confidential Information"); provided, however, that no Plan Investor
shall be required to keep confidential any information that (i) (A) was
previously available to it on a non-confidential basis or by virtue of it being
a member of an official committee in the Bankruptcy Cases; provided, however,
that any information made available to a Plan Investor in its capacity as a
member of a statutory committee shall be kept confidential as may be required
pursuant to agreements between such statutory committees and the Company, (B)
was at the time of its disclosure, or thereafter became, generally available to
the public other than as a result of a disclosure by any Plan Investor or any of
its respective agents, attorneys, accountants, and representatives, (C) was
available to the Plan Investor on a non-confidential basis from a source other
than the Company or its Representatives, provided that such source was not in
breach of any obligation of confidentiality to the Company or (D) has been
independently acquired or developed by any Plan Investor without the use of, and
is not derived from, any Company Confidential Information or (ii) is required to
be disclosed pursuant to applicable Law. In the event that any Plan Investor or
any of its agents, attorneys, accountants, and representatives is requested
pursuant to, or required by, Law to disclose any such Company Confidential
Information, such Plan Investor will provide the Company with prompt prior
written notice of such request or requirement in order to enable the Company to
(x) seek an appropriate protective order or other appropriate remedy (and if the
Company seeks such order, such Plan Investor will provide, at the Company's sole
expense, such cooperation as the Company shall reasonably request) or (y) in its
sole discretion, waive compliance with the terms of this Section 6.3. In the
event that such protective order or other remedy is not obtained, or the Company
waives compliance with the terms of this Section 6.3, only that portion of such
Company Confidential Information may be disclosed as the Plan Investor is
advised by counsel is legally required to be disclosed and the Plan Investor
will use its commercially reasonable efforts to ensure that all such Company
Confidential Information so disclosed will be accorded confidential treatment.
Section 6.4 Further Actions; Reasonable Efforts. Without
waiving any right to terminate this Agreement under Section 8.1, upon the terms
and subject to the conditions hereof, each of the parties agrees to use its
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, and to assist and cooperate with the other parties
in doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by the Transaction Documents, including without limitation (i) the
obtaining of all Governmental Requirements, (ii) the defending of any lawsuits
or other legal proceedings, whether judicial or administrative, challenging any
of the Transaction Documents or the consummation of the transactions
contemplated thereby, including seeking to have any stay or temporary
restraining order entered by any court or other Governmental Entity or any
restraint vacated or reversed, and (iii) the execution and delivery of any
additional instruments necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of, the Transaction Documents.
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Section 6.5. Use of Proceeds. The proceeds received by the
Reorganized Debtor in respect of the Investment shall be used by the Reorganized
Debtors in accordance with the Plan to fund the cash distribution to Prepetition
Lenders pursuant to the Plan.
Section 6.6. Restructuring. The Company shall, and shall cause
each of its Subsidiaries to, in coordination with the Plan Investors, use its
reasonable best efforts to restructure the capitalization of the Company and its
Subsidiaries pursuant to the Plan (the "Restructuring"). In furtherance of, and
without limiting the generality of the foregoing, the Company and its
Subsidiaries that are Debtors shall, as promptly as practicable, (i) file the
Plan and related Disclosure Statement, the material provisions of which
Disclosure Statement shall be in form and substance reasonably acceptable to the
Plan Investors, with the Bankruptcy Court, (ii) seek to obtain an order of the
Bankruptcy Court approving the Disclosure Statement (the "Disclosure Statement
Approval Order"), (iii) file a motion with the Bankruptcy Court seeking the
Commitment Fee Order and (iv) seek to obtain the Confirmation Order with respect
to the Plan which shall provide, among other things, (x) that the issue and sale
of the New Common Shares pursuant to this Agreement or to be otherwise
outstanding or subject to issuance upon completion of the Restructuring shall at
the time of their issuance be duly authorized and validly issued and
outstanding, fully paid and nonassessable, and free and clear of any
Encumbrances of any kind, (y) an express finding that each Plan Investor has
acted in good faith in connection with the Bankruptcy Cases, the Plan and the
Restructuring, and (z) that the issuance of the New Common Shares to creditors
as contemplated by the Plan is exempt from registration under the Securities
Act.
Section 6.7. Registration Rights Agreement. Effective as of
the Closing, the Reorganized Debtor shall enter into the Registration Rights
Agreement, in form and substance reasonably acceptable to the Plan Investors,
for the benefit of the Plan Investors.
Section 6.8. Corporate Governance. Pursuant to the Plan,
immediately prior to the Closing, the Company shall cause the resignation of
each member of the Board of Directors. The Board of Directors of the Reorganized
Debtor shall consist of nine members. One member of senior management of the
Reorganized Debtors will serve on the initial Board of Directors of the
Reorganized Debtor, as designated in the Plan. The other board members shall
consist of (i) four directors selected by the Plan Investors, at least one of
whom shall not be an officer or employee of any of the Plan Investors or a
family member of any of the foregoing, (ii) two directors selected by the FIC
neither of which shall be an officer or employee of ESL or a family member
thereof and (iii) two directors to be selected by the UCC; provided that the
Board of Directors, collectively, including any required committee thereof,
shall comply with any other qualification, experience and independence
requirements under applicable Law, including the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 and
the rules then in effect of the stock exchange or quotation system (including
the benefit of any transition periods available under applicable Law) on which
the New Common Shares are listed or are anticipated to be listed, when such
shares are listed following the Closing.
Section 6.9. Releases. The Company shall use its reasonable
best efforts to ensure that the Plan and Confirmation Order shall provide, among
other things, that the directors, officers, advisors, attorneys, investment
bankers and agents of each Plan Investor and each of their respective
Affiliates, members, managers, stockholders, partners, representatives,
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employees, attorneys and agents are fully, completely and unconditionally
released from any and all claims related to the Company, its Subsidiaries and
Affiliates, its business, its governance, its securities disclosure practices,
the purchase or sale of any of the Company's equity or debt securities, or the
Restructuring.
Section 6.10. Payment of Plan Investors' Expenses. On the date
on which the Bankruptcy Court enters the Commitment Fee Order, the Company shall
reimburse ESL for all of the reasonable out-of-pocket costs and expenses of the
Plan Investors, including the fees and reasonable expenses of advisors,
accountants, attorneys, consultants and other parties that the Plan Investors
have engaged to assist them in connection with the Bankruptcy Cases, actually
incurred by the Plan Investors in connection with the evaluation, due diligence,
negotiation and consummation of the Plan, this Agreement, the Restructuring, the
other Transaction Documents and the transactions contemplated hereby and thereby
(collectively, "Expenses"); provided that in no event shall the amount that the
Company is obligated to pay ESL on the date of the entry of the Commitment Fee
Order exceed two million dollars ($2,000,000); and provided, further that any
such amount shall be repaid by ESL if this Agreement is terminated pursuant to
Sections 8.1(d)(ii) or 8.1(g). At or prior to the earlier of (x) the Closing and
(y) the date on which this Agreement is terminated pursuant to Article VIII
(other than pursuant to Sections 8.1(d)(ii) or 8.1(g)), the Company shall pay to
ESL an amount in dollars equal to the excess of (i) its Expenses over (ii) any
amount already paid to ESL on the date of the entry of the Commitment Fee Order
pursuant to the previous sentence; provided that in no event shall the aggregate
Expenses that the Company is obligated to pay under this Section exceed five
million dollars ($5,000,000). ESL hereby agrees to reimburse Third Avenue for up
to forty thousand dollars ($40,000) of its reasonable out-of-pocket costs and
expenses, including the fees and reasonable expenses of attorneys, actually
incurred by Third Avenue in connection with the evaluation and negotiation of
this Agreement, but only if and to the extent that the Company shall have paid
ESL the Expenses of the Plan Investors pursuant to this Section and ESL shall
not have been obligated to repay those Expenses to the Company under this
Section or any other section of this Agreement.
Section 6.11. Notification of Certain Matters. From the date
hereof through the Closing, each party hereto shall give prompt notice to the
other parties hereto of the occurrence, or failure to occur, of any event the
occurrence or failure of which shall have caused any of such party's
representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect or of any condition not satisfied for
purposes of satisfying the conditions set forth in Section 7.1 hereof; provided,
however, that no such notification shall be deemed for any purpose under this
Agreement to permit such party to alter or amend such party's representations
and warranties contained herein.
Section 6.12. Information. (a) Between the date hereof and the
Closing Date, the Plan Investors shall notify the Company promptly after any
Plan Investor purchases, or enters into an agreement to purchase, additional
shares of common stock, Preferred Obligations or prepetition claims of the
Company.
(b) Between the date hereof and the Closing, the Plan
Investors shall comply with reasonable requests from the Company for information
concerning the Plan Investors related to preparation of the Plan or the
Disclosure Statement.
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Section 6.13. Transfer Restrictions. ESL agrees that, from the
Closing Date until the earlier of (i) the first anniversary of the Closing Date
and (ii) the date on which all of the Non-Lender Unsecured Claims are
reconciled, it will not in any transaction or series of transactions sell,
transfer or otherwise dispose of (other than to any other Plan Investor or to
any Affiliate thereof, provided such Affiliate shall agree to be bound by the
terms of this Agreement) more than twenty percent (20%) in aggregate of the New
Common Shares issued to it pursuant to the terms and conditions of this
Investment Agreement, other than in connection with a sale of the Reorganized
Debtor in its entirety. The Plan Investors agree that, prior to the earlier of
the Closing Date and the date this Agreement is terminated, the Plan Investors
shall not transfer or sell (other than to any Plan Investor or any Affiliate
thereof, provided such Affiliate shall agree to be bound by the terms of this
Agreement) any Prepetition Credit Agreement Obligations or Prepetition Note
Claims held by such Plan Investor.
Section 6.14. ESL Option. (a) From and after the date hereof
until the second anniversary of the Closing, ESL shall have an unconditional and
irrevocable right (the "ESL Option"), exercisable, in its sole discretion, at
any time and in one or more tranches, prior to the second anniversary of the
Closing, to purchase from the Reorganized Debtor an aggregate number of New
Common Shares not to exceed the Maximum Optioned Shares at a price per share
equal to 130% of the Share Price (the "Option Price").
(b) The "Maximum Optioned Shares" shall mean the number of New
Common Shares (rounded up to the nearest whole number) equal to the quotient
obtained by dividing (x) eighty-six million dollars ($86,000,000) by (y) the
Option Price, adjusted by customary antidilution protections.
Section 6.15. Company Call. (a) At the Closing, the Company
shall have an unconditional and irrevocable right (the "Initial Company Call"),
exercisable in its sole discretion, to require ESL to purchase from the
Reorganized Debtor a note (the "Initial Called Note") in an aggregate principal
amount equal to the lesser of (i) sixty million dollars ($60,000,000) (the
"Maximum Company Call Amount"), and (ii) the excess, if any, of (A) one billion
five hundred forty five million dollars ($1,545,000,000) over (B) (i) the
Company's Liquidity (as hereinafter defined) at Closing, reduced by (ii) the
amount of all payments and distributions to be made on the Effective Date of the
Plan or required to be paid in respect of prepetition and/or priority claims
(other than priority claims in respect of postpetition trade payables) pursuant
to the Plan, at a purchase price equal to the principal amount of such note. For
purposes hereof, (i) "Liquidity" shall mean, at any time, Excess Availability at
such time plus the Cash Balance at such time and (ii) "Cash Balance" shall mean,
at any time, the aggregate amount of the Company's and its Subsidiaries
unrestricted cash, cash equivalents and short term investments at such time,
calculated in the manner consistent with the Business Plan (but exclusive of
cash necessary for store operations, which amount is agreed to be equal to three
hundred million dollars ($300,000,000)). The Initial Called Note and any
Subsequent Called Note (as hereinafter defined) shall have the terms set forth
in Exhibit C hereto.
(b) In the event that the Reorganized Debtors determine during
the 90 day period following the Closing that the aggregate amount of payments
required to be made pursuant to the Plan in respect of prepetition and/or
priority claims (other than priority claims in respect of postpetition trade
payables) are or will be in excess of those actually paid at the Closing (such
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excess, the "Excess Distributions"), the Reorganized Debtor shall have an
unconditional and irrevocable right, in its sole discretion, to require ESL to
purchase from the Reorganized Debtor a note (the "Subsequent Called Note," and,
together with the Initial Called Note, the "Called Notes"), which Subsequent
Called Note shall be in an aggregate principal amount equal to the lesser of (1)
the excess, if any, of (A) one billion five hundred forty five million dollars
($1,545,000,000) over (B)(i) the Company's Liquidity at Closing (after giving
effect to all payments and borrowings made at Closing other than in respect of
postpetition trade payables), reduced by (ii) the amount of any Excess
Distributions, and (2) the excess, if any, of the Maximum Company Call Amount
over the principal amount of the Initial Called Note, at a purchase price equal
to the principal amount of such note, it being agreed that the aggregate of the
principal amounts of the Initial Called Note and the Subsequent Called Note, if
either or both shall be issued, shall not exceed the Maximum Company Call
Amount.
ARTICLE VII
CONDITIONS
Section 7.1. Conditions to the Plan Investors' Obligations.
The obligation of each of the Plan Investors to consummate the transactions
contemplated hereby with respect to the Investment shall be subject to the
satisfaction at or prior to the Closing of each of the following conditions;
provided, however, that ESL may, in its sole and absolute discretion, waive any
or all of the following conditions (other than (a), (b) and (i), and purchase
the New ESL Shares, in which event Third Avenue Funds shall be required to
purchase the New Third Avenue Shares.
(a) HSR Approval. The applicable waiting period (and any
extension thereof) under the HSR Act, relating to the transactions contemplated
by the Transaction Documents shall have been terminated or shall have expired.
(b) No Injunction. No temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction (each, a "Restraint") preventing consummation of any of the
transactions contemplated hereby shall be in effect.
(c) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
as of the Closing Date as though made on the Closing Date (or, if made as of a
specified date, as of such date), except to the extent that all such failures of
such representations and warranties to be true and correct taken together shall
not result or be reasonably expected to result in a Material Adverse Effect and
shall not prevent or materially impair the ability of the Company to consummate
the transactions contemplated hereby, except with respect to the representations
and warranties set forth in Section 4.8, which shall be true and complete in all
respects, and the Plan Investors shall have received a certificate to such
effect signed on the Closing Date on behalf of the Company by its respective
Chief Executive Officer and Chief Financial Officer in their corporate (not
personal) capacities as such, in form and substance reasonably satisfactory to
the Plan Investors, to the foregoing effect. Said representations and warranties
shall not survive the Closing and the signatories to any closing certificate
shall have no personal liability for any of the representations and warranties
or as a result of signing such certificate.
(d) Performance of Obligations. The Company shall have
performed in all material respects all obligations required to be performed by
them under this Agreement at or prior to the Closing and the Company shall have
delivered to the Plan Investors at the Closing a certificate signed by its Chief
Executive Officer and Chief Financial Officer, dated the Closing Date, in form
and substance reasonably satisfactory to the Plan Investors, to the foregoing
effect and such signatories shall have no personal liability as a result of
signing such certificate.
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(e) Transaction Documents. Each of the parties to the
Transaction Documents (other than the Plan Investors) shall have executed and
delivered to the Plan Investors, in form and substance reasonably acceptable to
the Plan Investors, the applicable Transaction Documents and such Transaction
Documents shall constitute the legal, valid and binding obligation of the
Reorganized Debtor (or other Reorganized Debtors, as the case may be).
(f) Financing. The Exit Financing Facility shall be in full
force and effect, there shall exist no material breach of or default under the
Exit Financing Facility, and any and all fees and expenses paid or payable to
any commercial bank or any other financial institution in connection with the
Exit Financing Facility shall be as provided in the Commitment Letter and
related side letters or for amounts otherwise reasonably acceptable to the Plan
Investors.
(g) Excess Liquidity. As of the Closing, after giving effect
to all payments and distributions to be made on the Effective Date of the Plan
or required to be paid in respect of administrative and priority claims pursuant
to the Plan, the Reorganized Debtors shall have Liquidity of at least one
billion, two hundred fifty million dollars ($1,250,000,000) and Adjusted Excess
Availability of at least five hundred eighty-nine million dollars ($589,000,000)
and the Company shall have delivered to the Plan Investors at the Closing a
certificate signed by its Chief Executive Officer and Chief Financial Officer,
dated the Closing Date, in form and substance reasonably satisfactory to the
Plan Investors, to the foregoing effect and such signatories shall have no
personal liability as a result of signing such certificate.
(h) Plan. All conditions precedent to the effectiveness of the
Plan (other than those relating to the Closing hereunder) shall have been
satisfied or waived.
(i) Bankruptcy Cases. The Plan, in form and substance
satisfactory to the Plan Investors, shall have been approved by the Bankruptcy
Court pursuant to the Confirmation Order and shall have an Effective Date no
later than May 30, 2003.
Section 7.2. Conditions to the Obligations of the Company. The
respective obligation of the Company to consummate the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing of each
of the following conditions:
(a) HSR Approval. The applicable waiting period (and any
extension thereof) under the HSR Act, relating to the transactions contemplated
by the Transaction Documents shall have been terminated or shall have expired.
(b) No Injunction. No Restraint preventing consummation of any
of the transactions contemplated hereby shall be in effect.
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(c) Plan. All conditions precedent to the effectiveness of the
Plan (other than those relating the Closing hereunder) shall have been satisfied
or waived.
(d) Representations and Warranties. The representations and
warranties of each of the Plan Investors set forth in this Agreement shall be
true and correct as of the Closing Date as though made on the Closing Date (or,
if made as of a specified date, as of such date) except to the extent that all
such failures of such representations and warranties to be true and correct
shall not have a material adverse effect on the ability of the Plan Investors,
taken together, to consummate the transactions contemplated hereby, and the
Company shall have received certificates to such effect signed on the Closing
Date on behalf of each of the Plan Investors by their respective Chief Executive
Officers and Chief Financial Officers in their corporate (not personal)
capacities as such, in form and substance reasonably satisfactory to the
Company, to the foregoing effect. Said representations and warranties shall not
survive the Closing and the signatories to any closing certificate shall have no
personal liability for any of the representations and warranties or as a result
of signing such certificate.
(e) Performance of Obligations. Each of the Plan Investors
shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing and each of
the Plan Investors shall have delivered to the Company at the Closing a
certificate signed by their respective Chief Executive Officer and Chief
Financial Officer, dated the Closing Date, in form and reasonably substance
satisfactory to the Company, to the foregoing effect. Such signatories having no
personal liability as a result of signing such certificate.
ARTICLE VIII
TERMINATION
Section 8.1. Termination. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned at any time prior to the
Closing Date notwithstanding the fact that any requisite authorization and
approval of the transactions contemplated hereby shall have been received and no
party hereto shall have any liability to any other party hereto as a result of
its invoking its rights to terminate this Agreement pursuant to this Section
(provided that any such termination shall not relieve any party from liability
for a breach of any provision hereof prior to such termination nor shall it
terminate the Company's obligations under this Article VIII nor eliminate the
liability of any Breaching Plan Investor):
(a) by the mutual written consent of ESL and the Company;
(b) by ESL if: (i) the Closing has not occurred by May 30,
2003 or (ii) there shall be any Law that makes consummation of the purchase of
the New Common Shares hereunder illegal or otherwise prohibited or if any court
of competent jurisdiction or Governmental Entity shall have issued an order,
decree or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the purchase of the New Common Shares hereunder and such order,
decree, ruling or other action shall have become final and non-appealable;
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(c) by ESL, (i) if the Board of Directors withdraws or changes
its recommendation of this Agreement in a manner materially adverse to the Plan
Investors, (ii) if the Board of Directors recommends an Alternative Proposal or
(iii) if the Company enters into a written agreement or letter of intent or
agreement in principle providing for any Alternative Proposal;
(d) (i) by ESL, if the Company shall be in breach of its
obligations hereunder such that the conditions to the obligations of the Plan
Investors set forth in Section 7.1 will not be satisfied at or prior to the
Closing, and such failure cannot be or has not been cured within twenty (20)
Business Days after the giving of written notice to the Company and the other
Plan Investors; and (ii) by the Company, if the Plan Investors shall be in
breach of their obligations hereunder such that the conditions to the
obligations of the Company set forth in Section 7.2 will not be satisfied at or
prior to the Closing, and such failure cannot be or has not been cured within
twenty (20) Business Days after the giving of written notice to the Plan
Investors;
(e) by ESL, if (i) the Disclosure Statement Approval Order has
not been entered on or prior to February 28, 2003, in form and substance
reasonably acceptable to the Plan Investors, (ii) the Commitment Fee Order has
not been entered on or prior to February 28, 2003, in form and substance
reasonably acceptable to the Plan Investors, or (iii) the Confirmation Order has
not been entered on or prior to May 16, 2003, in form and substance reasonably
acceptable to the Plan Investors; provided that in the case of (i) or (ii) ESL
shall be deemed to have waived such termination right if it does not exercise
such right within five (5) Business Days of the applicable date;
(f) by the Company, if (i) the Board of Directors determines
in good faith that termination of this Agreement is necessary in order for the
Company to accept any Alternative Proposal, or (ii) the Bankruptcy Court has
ordered the Company to terminate this Agreement in order to accept any
Alternative Proposal; provided that the Company shall have the right to
terminate this Agreement pursuant to clause (i) above only if it has complied in
all material respects with the provisions of Section 6.2(a), and shall
acknowledge its obligation to comply with the requirements of Section 8.2
relating to any required payment (including the timing of any payment) of the
Commitment Fee;
(g) by the Company pursuant to Section 3.3.
Section 8.2. Commitment Fee.
Commitment Fee. Unless (a) the Plan Investors are in material
breach of their obligations hereunder as determined in a final order by the
Bankruptcy Court or (b) this Agreement has previously been terminated in
accordance with its terms (except under clause (iii) below), ESL shall be
entitled to receive, and the Company shall pay to ESL for the benefit of the
Plan Investors, the Commitment Fee no later than the earlier to occur of (i) May
30, 2003, (ii) the Effective Date of the Plan, and (iii) the date of termination
of this Agreement by ESL under Section 8.1(c), or by the Company under Section
8.1(f).
(a) The Company acknowledges and agrees that (i) the payment
of the Commitment Fee is an integral part of the transaction contemplated by
this Agreement, (ii) in the
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absence of the Company's obligation to pay the Commitment Fee, the Plan
Investors would not have entered into this Agreement and (iii) time is of the
essence with respect to the payment of the Commitment Fee.
(b) The Plan Investors acknowledge and agree that ESL shall be
entitled to receive 87.8% of the Commitment Fee and that Third Avenue shall be
entitled to receive 12.2% of the Commitment Fee.
ARTICLE IX
MISCELLANEOUS
Section 9.1. Governing Law. This Agreement shall be governed
by, and construed in accordance with, the internal and substantive Laws of the
State of Delaware without giving effect to conflicts of law principles thereof.
Section 9.2. Jurisdiction; Forum; Service of Process; Waiver
of Jury Trial. With respect to any suit, action or proceeding ("Proceeding")
arising out of or relating to this Agreement each of the Company and the Plan
Investors hereby irrevocably:
(a) submits to the exclusive jurisdiction of the courts of the
State of Illinois and of the United States of America, in each case located in
▇▇▇▇ County (the "Selected Courts"), including the Bankruptcy Court, for any
Proceeding arising out of or relating to this Agreement or the other Transaction
Documents and the transactions contemplated hereby and thereby (and agrees not
to commence any Proceeding relating hereto or thereto except in such courts) and
waives any objection to venue being laid in the Selected Courts whether based on
the grounds of forum non conveniens or otherwise; provided that each of the
Company and the Plan Investors hereby irrevocably submits to the exclusive
jurisdiction of the Bankruptcy Court for so long as the Bankruptcy Cases are
pending;
(b) consents to service of process in any Proceeding by the
mailing of copies thereof by registered or certified mail, postage prepaid, or
by recognized international express carrier or delivery service, to the Company
or the Plan Investors at their respective addresses referred to in Section 9.5
hereof; provided, however, that nothing herein shall affect the right of any
party hereto to serve process in any other manner permitted by law; and
(c) waives, to the fullest extent permitted by law, any right
it may have to a trial by jury in any Proceeding directly, or indirectly arising
out of, under or in connection with this Agreement or the other Transaction
Documents.
Section 9.3. Successors and Assigns. Except as otherwise
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors by operation of law and permitted assigns of the
parties hereto. No assignment of this Agreement may be made by any party at any
time, whether or not by operation of law, without the other parties' prior
written consent; provided, however, that, any (i) transfer of New Common Shares
permitted hereunder (other than transfers between and among the Plan Investors
or their respective Affiliates) shall not entitle the transferee to the rights
of the transferring Plan Investor under this Agreement and (ii) any Plan
Investor shall be permitted to assign it rights and obligations under
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this Agreement to another Plan Investor or any of their respective Affiliates,
in each case without the consent of any other party hereto; provided that no
such assignment shall relieve the Plan Investor from its obligations under this
Agreement. Only the parties to this Agreement or their permitted assigns shall
have rights under this Agreement.
Section 9.4. Entire Agreement; Amendment. This Agreement
(including the Exhibits and Schedules attached hereto) and the other Transaction
Documents constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and supersedes all prior agreements
relating to the subject matter hereof. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and by the
Plan Investors. No waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether or
not similar). No delay on the part of any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof. The Company and the
Plan Investors acknowledge and agree that nothing herein shall prohibit the Plan
Investors from acquiring any further claims against the Debtors or any interest
in such claims. After the Effective Date, in the event that any terms of this
Agreement conflict with any terms of the Plan, the terms of the Plan shall
control.
Section 9.5. Notices. All notices, requests, consents and
other communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(i) if to the Company or to any Subsidiary that
is a Debtor:
Kmart Corporation, et al.
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: General Counsel
with a copy to:
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇
(Illinois)
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▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇▇. ▇▇▇▇▇▇, Jr., Esq.
and
(ii) if to ESL, to:
ESL Investments, Inc.
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▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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with a copy to:
Wachtell, Lipton, ▇▇▇▇▇ & ▇▇▇▇
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▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
(iii) if to Third Avenue, on or before February
21, 2003, to:
Third Avenue Trust
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▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
and after February 21, 2003, to:
Third Avenue Trust
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▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
All such notices, requests, consents and other communications shall be deemed to
have been given or made if and when delivered personally or by overnight courier
to the parties at the above addresses or sent by electronic transmission, with
confirmation received, to the telecopy numbers specified above (or at such other
address or telecopy number for a party as shall be specified by like notice).
Any notice delivered by any party hereto to any other party hereto shall also be
delivered to each other party hereto simultaneously with delivery to the first
party receiving such notice.
Section 9.6. Delays or Omissions. Except as expressly provided
herein, no delay or omission to exercise any right, power or remedy accruing to
the Company or the Plan Investors upon any breach or default of any party under
this Agreement, shall impair any such right, power or remedy of the Company or
the Plan Investors nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of the Company or the Plan Investors of any breach or
default under this Agreement, or any waiver on the part of any such party of any
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provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to the
Company or the Plan Investors shall be cumulative and not alternative.
Section 9.7. Consent. Any consent or approval of the Plan
Investors under this Agreement shall be deemed to have been given by all of the
Plan Investors if such consent or approval has been given by ESL.
Section 9.8. Counterparts. This Agreement may be executed in
any number of counterparts, each of which may be executed by only one of the
parties hereto, each of which shall be enforceable against the party actually
executing such counterpart, and all of which together shall constitute one
instrument.
Section 9.9. Severability. In the event that any, provision of
this Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provisions; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
Section 9.10. Headings. The table of contents and headings
used in this Agreement are used for convenience only, do not constitute a part
of this Agreement and are not to be considered in construing or interpreting
this Agreement.
Section 9.11. No Public Announcement. The parties agree that
the initial press release to be issued with respect to the transactions
contemplated by the Transaction Documents shall be in a form reasonably mutually
agreed to by the parties. Thereafter, the Company and the Plan Investors shall,
to the extent reasonably practicable, consult with the other regarding the
content of those press releases, public announcements or filings with
Governmental Entities concerning the transactions contemplated by the
Transaction Documents.
Section 9.12. Interpretation. The parties agree that to the
extent any provision of the Plan relating to the Plan Investors conflicts with
any provision of this Agreement, the provisions of this Agreement shall control.
[SIGNATURE PAGES TO FOLLOW]
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IN WITNESS WHEREOF, each of the undersigned has caused the
foregoing Agreement to be executed as of the date first above written.
COMPANY:
KMART CORPORATION
By:
------------------------------------------------
Name:
Title:
PLAN INVESTORS:
ESL INVESTMENTS, INC.
By:
------------------------------------------------
Name:
Title:
THIRD AVENUE TRUST, on behalf of the Third Avenue
Value Fund Series
By:
------------------------------------------------
Name:
Title:
THIRD AVENUE TRUST, on behalf of the Third Avenue
Small-Cap Value Fund Series
By:
------------------------------------------------
Name:
Title:
THIRD AVENUE TRUST, on behalf of the Third Avenue
Real Estate Value Fund Series
By:
------------------------------------------------
Name:
Title:
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