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EXHIBIT 4(i)
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FIRST SUPPLEMENTAL INDENTURE
between
Kmart Corporation
and
The Bank of New York
Dated as of _______ __, 1996
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TABLE OF CONTENTS
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ARTICLE I
DEFINITIONS
SECTION 1.1. Definition of Terms . . . . . . . . . . . . . . . . . . 2
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE CONVERTIBLE DEBENTURES
SECTION 2.1. Designation and Principal Amount . . . . . . . . . . . . 4
SECTION 2.2. Maturity . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.3. Form and Payment . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.4. Global Debenture . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.5. Interest . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III
REDEMPTION OF THE CONVERTIBLE DEBENTURES
SECTION 3.1. Special Event Redemption . . . . . . . . . . . . . . . . 9
SECTION 3.2. Optional Redemption by Company . . . . . . . . . . . . . 10
SECTION 3.3. Option to Elect Redemption Upon a
Fundamental Change . . . . . . . . . . . . . . . . . . . 10
SECTION 3.4. Deposit of Funds for Redemption . . . . . . . . . . . . . 11
SECTION 3.5. No Sinking Fund . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1. Extension of Interest Payment Period . . . . . . . . . . 12
SECTION 4.2. Notice of Extension . . . . . . . . . . . . . . . . . . . 12
SECTION 4.3. Limitation of Transactions . . . . . . . . . . . . . . . 13
ARTICLE V
EXPENSES
SECTION 5.1. Payment of Expenses . . . . . . . . . . . . . . . . . . . 14
Section 5.2. Payment Upon Resignation or Removal . . . . . . . . . . . 14
ARTICLE VI
COVENANT TO LIST ON EXCHANGE
SECTION 6.1. Listing on an Exchange . . . . . . . . . . . . . . . . . . 15
ARTICLE VII
CONVERSION OF CONVERTIBLE DEBENTURES
SECTION 7.1. Conversion Rights . . . . . . . . . . . . . . . . . . . . 15
SECTION 7.2. Conversion Procedures . . . . . . . . . . . . . . . . . . 15
SECTION 7.3. Conversion Price Adjustments . . . . . . . . . . . . . . . 17
SECTION 7.4. Reclassification, Consolidation, Merger
or Sale of Assets . . . . . . . . . . . . . . . . . . . . 22
SECTION 7.5. Notice of Adjustments of Conversion
Price. . . . . . . . . . . . . . . . . . . . . . . . . . 23
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SECTION 7.6. Prior Notice of Certain Events . . . . . . . . . . . . . 24
SECTION 7.7. Dividend or Interest Reinvestment
Plans . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 7.8. Certain Additional Rights . . . . . . . . . . . . . . . 25
SECTION 7.9. Trustee Not Responsible for Determining
Conversion Price or Adjustments . . . . . . . . . . . . 26
ARTICLE VIII
FORM OF CONVERTIBLE DEBENTURE
SECTION 8.1. Form of Convertible Debenture . . . . . . . . . . . . . 27
ARTICLE IX
ORIGINAL ISSUE OF CONVERTIBLE DEBENTURES
SECTION 9.1. Original Issue of Convertible Deben-
tures . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Ratification of Indenture . . . . . . . . . . . . . . . 36
SECTION 10.2. Trustee Not Responsible for Recitals . . . . . . . . . . 36
SECTION 10.3. Governing Law . . . . . . . . . . . . . . . . . . . . . 36
SECTION 10.4. Separability . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 10.5. Counterparts . . . . . . . . . . . . . . . . . . . . . . 37
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FIRST SUPPLEMENTAL INDENTURE, dated as of ____________, 1995 (the "First
Supplemental Indenture"), between Kmart Corporation, a Michigan corporation
(the "Company"), and The Bank of New York, as trustee (the "Trustee") under the
Indenture dated as of ________, 1996 between the Company and the Trustee (the
"Indenture").
WHEREAS, the Company executed and delivered the Indenture to the Trustee
to provide for the future issuance of the Company's unsecured junior
subordinated debt securities to be issued from time to time in one or more
series as might be determined by the Company under the Indenture, in an
unlimited aggregate principal amount which may be authenticated and delivered
as provided in the Indenture;
WHEREAS, pursuant to the terms of the Indenture, the Company desires to
provide for the establishment of a new series of its Securities to be known as
its ___% Convertible Junior Subordinated Debentures due 20[ ] (the
"Convertible Debentures"), the form and substance of such Convertible
Debentures and the terms, provisions and conditions thereof to be set forth as
provided in the Indenture and this First Supplemental Indenture;
WHEREAS, Kmart Financing [I], [II], [III] and [IV], a Delaware statutory
business trust ( the "Trust"), has offered to the public $___ million aggregate
liquidation amount of its ___% Convertible Trust Originated Preferred
Securities (the "Convertible Preferred Securities"), representing undivided
beneficial interests in the assets of the Trust and proposes to invest the
proceeds from such offering, together with the proceeds of the issuance and
sale by the Trust to the Company of $___ million aggregate liquidation amount
of its ___% Convertible Trust Common Securities, in $____ million aggregate
principal amount of the Convertible Debentures; and
WHEREAS, the Company has requested that the Trustee execute and deliver
this First Supplemental Indenture and all requirements necessary to make this
First Supplemental Indenture a valid instrument in accordance with its terms,
and to make the Convertible Debentures, when executed by the Company and
authenticated and delivered by the Trustee, the valid obligations of the
Company, have been performed, and the execution and delivery of this First
Supplemental Indenture has been duly authorized in all respects:
NOW THEREFORE, in consideration of the purchase and acceptance of the
Convertible Debentures by the Holders thereof, and for the purpose of setting
forth, as provided in the Indenture, the form and substance of the Convertible
Debentures and the terms, provisions and conditions thereof, the Company
covenants and agrees with the Trustee as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.1. Definition of Terms.
Unless the context otherwise requires:
(a) a term defined in the Indenture has the same meaning when used in this
First Supplemental Indenture;
(b) a term defined anywhere in this First Supplemental Indenture has the
same meaning throughout;
(c) the singular includes the plural and vice versa;
(d) a reference to a Section or Article is to a Section or Article of this
First Supplemental Indenture;
(e) headings are for convenience of reference only and do not affect
interpretation;
(f) the following terms have the meanings given to them in the
Declaration: (i) Business Day; (ii) Clearing Agency; (iii) Delaware Trustee;
(iv) Depositary; (v) Dissolution Tax Opinion; (vi) No-Recognition Opinion;
(vii) Convertible Preferred Security Certificate; (viii) Pricing Agreement;
(ix) Institutional Trustee; (x) Regular Trustees; (xi) Special Event; and (xii)
Tax Event; and (xiii) Underwriting Agreement;
(g) the following terms have the meanings given to them in this Section
1.1(g):
"Additional Interest" shall have the meaning set forth in Section 2.5.
"Applicable Price" means (i) in the event of a Fundamental Change in which
the holders of the Common Stock receive only cash, the amount of cash received
by the holder of one share of Common Stock and (ii) in the event of any other
Fundamental Change, the average of the last reported executed trade price
(regular way) for the Common Stock during the ten trading days on the relevant
stock exchange prior to the record date for the determination of the holders of
Common Stock entitled to receive cash, securities, property or other assets in
connection with such Fundamental Change, or, if no such record date exists, the
date upon which the holders of the Common Stock shall have the right to receive
such cash, securities, property or other assets in connection with the
Fundamental Change.
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Convertible Preferred Securities" has the meaning set forth in the
recitals to this First Supplemental Indenture.
"Declaration" means the Amended and Restated Declaration of Trust of Kmart
Financing [I], [II], [III] and [IV], a Delaware statutory business trust, dated
as of _________, 1995.
"Deferred Interest" shall have the meaning set forth in Section 4.1.
"Dissolution Event" means that, as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance
with the Declaration, and the Conve-
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rtible Debentures held by the Institutional Trustee are to be distributed
to the holders of the Trust Securities issued by the Trust pro rata in
accordance with the Declaration.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
["Extended Maturity Date" means, if the Company elects to extend the
Maturity Date in accordance with Section 2.2(b), the date selected by the
Company which is after the Scheduled Maturity Date but before October __,
20 .]
"Fundamental Change" means the occurrence of any transaction or events in
connection with which all or substantially all the Common Stock shall be
exchanged for, converted into, acquired for or constitute the right to receive
consideration (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise) which is not all or substantially all common stock which is (or, upon
consummation of or immediately following such transaction or event, will be)
listed on a United States national securities exchange or approved for quotation
on Nasdaq National Market or any similar United States system of automated
dissemination of quotations of securities prices.
"Global Debenture" shall have the meaning set forth in Section 2.4.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of a nationally recognized independent counsel to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority on or after
the first date of the Prospectus Supplement relating to the Convertible
Preferred Securities (a "Change in 1940 Act Law"), there is more than an
insubstantial risk that the Trust is or will be considered an "investment
company" which is required to be registered under the Investment Company Act of
1940, as amended (the "1940 Act").
"Maturity Date" means the date on which the Convertible Debentures mature
and on which the principal shall be due and payable together with all accrued
and unpaid interest thereon including Compounded Interest and Additional
Interest, if any.
"Non Book-Entry Convertible Preferred Securities" shall have the meaning
set forth in Section 2.4.
"Optional Redemption Price" shall have the meaning set forth in Section
3.2.
"Reference Market Price" shall initially mean $_____ which is equal to 66
2/3% of the price of the Common Stock on the date hereof initially and in the
event of any adjustment to the conversion rate, the Reference Market Price shall
be adjusted so that the Reference Market Price after giving effect to any such
adjustment shall equal the Reference Market Price multiplied by a fraction, the
numerator of which is the conversion rate prior to such adjustment and the
denominator of which is the conversion rate after such adjustment.
["Scheduled Maturity Date" means October __, 20 .]
"Senior Debt" means, with respect to the Company, (i) the principal,
premium, if any, and interest in respect of (A) indebtedness of such obligor
for money borrowed and (B) indebtedness evidenced by securities, debentures,
bonds or other similar instruments issued by such obligor; (ii) all capital
lease obligations of such obligor; (iii) all obligations of such obligor issued
or assumed as the deferred purchase price of property, all conditional sale
obligations of such obligor and all obligations of such obligor under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such obligor for the
reimbursement on any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction; (v) all obligations of the type
referred to in clauses (i) through (iv) of other Persons for the payment of
which such obligor is responsible or liable as obligor, guarantor or otherwise;
and (vi) all obligations of the type referred to in clauses (i) through (v) of
other Persons secured by any lien on any property or asset of such obligor
(whether or not such obligation is assumed by such obligor), except for (1) any
such indebtedness that is by its terms subordinated to or pari passu with the
Convertible Debentures, and (2) any debt securities and guarantees in respect
of those debt securities, issued to (y) any other Kmart Trust or (z) any other
trust, or a trustee of such trust,
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partnership or other entity affiliated with the Company which is a financing
vehicle of the Company (a "Financing Entity") in connection with the issuance
by such Financing Entity of preferred securities or other similar securities.
"Special Event" means a Tax Event or an Investment Company Event.
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE CONVERTIBLE DEBENTURES
SECTION 2.1. Designation and Principal Amount.
There is hereby authorized a series of Securities designated the "___%
Convertible Junior Subordinated Debentures due 20[ ]", limited in aggregate
principal amount to $___ million, which amount shall be as set forth in any
written order of the Company for the authentication and delivery of Convertible
Debentures pursuant to Section ___ of the Indenture.
SECTION 2.2. Maturity. [Select appropriate option]
[USE OPTION 1 IF MATURITY IS FIXED -- The Maturity is ________ , 20 ___]
[USE OPTION 2 IF MATURITY MAY BE EXTENDED -- (a) The Maturity Date will be
either:
(i) the Scheduled Maturity Date; or
(ii) if the Company elects to extend the Maturity Date beyond the
Scheduled Maturity Date in accordance with Section 2.2(b), the Extended
Maturity Date;
(b) the Company may at any time before the day which is 90 days before the
Scheduled Maturity Date, elect to extend the Maturity Date only once to the
Extended Maturity Date provided that the following conditions in this Section
2.2(b) are satisfied both at the date the Company gives notice in accordance
with Section 2.2(c) of its election to extend the Maturity Date and at the
Scheduled Maturity Date:
(i) the Company is not in bankruptcy or otherwise insolvent;
(ii) the Company is not in default on any Securities issued to any
Kmart Trust or any trustee of such Kmart Trust in connection with the
issuance of Trust Securities by such Kmart Trust;
(iii) the Company has made timely payments on the Convertible
Debentures for the immediately preceding six quarters without deferrals;
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(iv) the Trust is not in arrears on payments of Distributions on the
Trust Securities issued by it; and
(v) the Convertible Debentures are rated Investment grade or the
equivalent by Standard & Poor's Corporation, ▇▇▇▇▇'▇ Investors Service,
Inc., Fitch Investor Services, Duff & ▇▇▇▇▇▇ Credit Rating Company or
any other nationally recognized statistical rating organization; and
(c) if the Company elects to extend the Maturity Date in accordance with
Section 2.2(b), the Company shall give notice to registered holders of the
Convertible Debentures, the Institutional Trustee and the Trust of the
extension of the Maturity Date and the Extended Maturity Date at least 90 days
before the Scheduled Maturity Date.]
SECTION 2.3. Form and Payment.
Except as provided in Section 2.4, the Convertible Debentures shall be
issued in fully registered certificated form without interest coupons.
Principal and interest on the Convertible Debentures issued in certificated
form will be payable, the transfer of such Convertible Debentures will be
registrable and such Convertible Debentures will be exchangeable for
Convertible Debentures bearing identical terms and provisions at the office or
agency of the Trustee; provided, however, that payment of interest may be made
at the option of the Company by check mailed to the Holder at such address as
shall appear in the Security Register. Notwithstanding the foregoing, so long
as the Holder of any Convertible Debentures is the Institutional Trustee, the
payment of the principal of and interest (including Compounded Interest and
Additional Interest, if any) on such Convertible Debentures held by the
Institutional Trustee will be made at such place and to such account as may be
designated by the Institutional Trustee.
SECTION 2.4. Global Debenture.
(a) In connection with a Dissolution Event,
(i) the Convertible Debentures in certificated form may be presented
to the Trustee by the Institutional Trustee in exchange for a global
Debenture in an aggregate principal amount equal to the aggregate
principal amount of all outstanding Convertible Debentures (a "Global
Debenture"), to be registered in the name of the Depositary, or its
nominee, and delivered by the Trustee to the Depositary for crediting to
the accounts of its participants pursuant to the instructions of the
Regular Trustees. The Company upon any such presentation shall execute a
Global Debenture in such aggregate principal amount and deliver the same to
the Trustee for authentication and delivery in accordance
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with the Indenture and this First Supplemental Indenture. Payments on
the Convertible Debentures issued as a Global Debenture will be made to the
Depositary; and
(ii) if any Convertible Preferred Securities are held in non book-
entry certificated form, the Convertible Debentures in certificated form
may be presented to the Trustee by the Institutional Trustee and any
Convertible Preferred Security Certificate which represents Convertible
Preferred Securities other than Convertible Preferred Securities held by
the Clearing Agency or its nominee ("Non Book-Entry Convertible Preferred
Securities") will be deemed to represent beneficial interests in
Convertible Debentures presented to the Trustee by the Institutional
Trustee having an aggregate principal amount equal to the aggregate
liquidation amount of the Non Book-Entry Convertible Preferred Securities
until such Convertible Preferred Security Certificates are presented to the
Security Registrar for transfer or reissuance at which time such
Convertible Preferred Security Certificates will be cancelled and a
Debenture, registered in the name of the holder of the Convertible
Preferred Security Certificate or the transferee of the holder of such
Convertible Preferred Security Certificate, as the case may be, with an
aggregate principal amount equal to the aggregate liquidation amount of the
Convertible Preferred Security Certificate cancelled, will be executed by
the Company and delivered to the Trustee for authentication and delivery in
accordance with the Indenture and this First Supplemental Indenture. On
issue of such Convertible Debentures, Convertible Debentures with an
equivalent aggregate principal amount that were presented by the
Institutional Trustee to the Trustee will be deemed to have been cancelled.
(b) A Global Debenture may be transferred, in whole but not in part, only
to another nominee of the Depositary, or to a successor Depositary selected or
approved by the Company or to a nominee of such successor Depositary.
(c) If at any time the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary or if at any time the Depositary
for such series shall no longer be registered or in good standing under the
Securities Exchange Act of 1934, as amended, or other applicable statute or
regulation, and a successor Depositary for such series is not appointed by the
Company within 90 days after the Company receives such notice or becomes aware
of such condition, as the case may be, the Company will execute, and, subject
to Article Three of the Indenture, the Trustee, upon written notice from the
Company, will authenticate and deliver the Convertible Debentures in definitive
registered form without coupons, in authorized denominations, and in an
aggregate principal amount equal to the principal amount of
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the Global Debenture in exchange for such Global Debenture. In addition, the
Company may at any time determine that the Convertible Debentures shall no
longer be represented by a Global Debenture. In such event the Company will
execute, and subject to Section 3.3 of the Indenture, the Trustee, upon receipt
of an Officers Certificate evidencing such determination by the Company, will
authenticate and deliver the Convertible Debentures in definitive registered
form without coupons, in authorized denominations, and in an aggregate principal
amount equal to the principal amount of the Global Debenture in exchange for
such Global Debenture. Upon the exchange of the Global Debenture for such
Convertible Debentures in definitive registered form without coupons, in
authorized denominations, the Global Debenture shall be cancelled by the
Trustee. Such Convertible Debentures in definitive registered form issued in
exchange for the Global Debenture shall be registered in such names and in such
authorized denominations as the Depositary, pursuant to instructions from its
direct or indirect participants or otherwise, shall instruct the Trustee. The
Trustee shall deliver such Securities to the Depositary for delivery to the
Persons in whose names such Securities are so registered.
SECTION 2.5. Interest.
(a) Each Convertible Debenture will bear interest at the rate of ___% per
annum (the "Coupon Rate") from the original date of issuance until the principal
thereof becomes due and payable, and on any overdue principal and (to the extent
that payment of such interest is enforceable under applicable law) on any
overdue installment of interest at the Coupon Rate, compounded quarterly,
payable (subject to the provisions of Article Four) quarterly in arrears on
January 1, April 1, July 1 and October 1 of each year (each, an "Interest
Payment Date," commencing on __________, 1996), to the Person in whose name such
Convertible Debenture or any predecessor Convertible Debenture is registered, at
the close of business on the regular record date for such interest installment,
which, in respect of (i) Convertible Debentures of which the Institutional
Trustee is the Holder and the Convertible Preferred Securities are in book-entry
only form or (ii) a Global Debenture, shall be the close of business on the
Business Day next preceding that Interest Payment Date. Notwithstanding the
foregoing sentence, if (i) the Convertible Debentures are held by the
Institutional Trustee and the Convertible Preferred Securities are no longer in
book-entry only form or (ii) the Convertible Debentures are not represented by a
Global Debenture, the Company may select a regular record date for such interest
installment which shall be any date at least one Business Day before an Interest
Payment Date.
(b) The amount of interest payable for any period will be computed on the
basis of a 360-day year of twelve 30-day months. Except as provided in the
following sentence, the amount
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of interest payable for any period shorter than a full quarterly period
for which interest is computed, will be computed on the basis of the actual
number of days elapsed in such a 30-day period. In the event that any date on
which interest is payable on the Convertible Debentures is not a Business Day,
then payment of interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.
(c) If, at any time while the Institutional Trustee is the Holder of any
Convertible Debentures, the Trust or the Institutional Trustee is required to
pay any taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) imposed by the United States, or any other
taxing authority, then, in any case, the Company will pay as additional
interest ("Additional Interest") on the Convertible Debentures held by the
Institutional Trustee, such additional amounts as shall be required so that the
net amounts received and retained by the Trust and the Institutional Trustee
after paying such taxes, duties, assessments or other governmental charges will
be equal to the amounts the Trust and the Institutional Trustee would have
received had no such taxes, duties, assessments or other government charges
been imposed.
ARTICLE III
REDEMPTION OF THE CONVERTIBLE DEBENTURES
SECTION 3.1. Special Event Redemption.
If a Special Event has occurred and is continuing and:
(a) the Company has received a Redemption Tax Opinion; or
(b) after receiving a Dissolution Tax Opinion, the Regular Trustees shall
have been informed by tax counsel rendering the Dissolution Tax Opinion that
a No-Recognition Opinion cannot be delivered to the Trust,
then, notwithstanding Section 3.2(a) but subject to Section 3.2(b), the Company
shall have the right upon not less than 30 days nor more than 60 days notice to
the Holders of the Convertible Debentures to redeem the Convertible Debentures,
in whole or in part, for cash within 90 days following the occurrence of such
Tax Event (the "90-Day Period") at a redemption price equal to 100% of the
principal amount to be redeemed plus any accrued and unpaid interest thereon to
the date of such redemption (the
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"Redemption Price"), provided that if at the time there is available to the
Company the opportunity to eliminate, within the 90-Day Period, the Tax Event by
taking some ministerial action ("Ministerial Action"), such as filing a form or
making an election, or pursuing some other similar reasonable measure which has
no adverse effect on the Company, the Trust or the Holders of the Trust
Securities issued by the Trust, the Company shall pursue such Ministerial Action
in lieu of redemption, and, provided, further, that the Company shall have no
right to redeem the Convertible Debentures while the Trust is pursuing any
Ministerial Action pursuant to its obligations under the Declaration. The
Redemption Price shall be paid prior to 12:00 noon, New York time, on the date
of such redemption or such earlier time as the Company determines, provided that
the Company shall deposit with the Trustee an amount sufficient to pay the
Redemption Price by 10:00 a.m., New York time, on the date such Redemption Price
is to be paid.
SECTION 3.2. Optional Redemption by Company.
(a) Subject to the provisions of Section 3.2(b) and to the provisions of
Article XI of the Indenture, except as otherwise may be specified in this First
Supplemental Indenture, the Company shall have the right to redeem the
Convertible Debentures, in whole or in part, from time to time, on or after
April 1, 1999, or at any time in certain circumstances upon the occurrence of a
Special Event. Any redemption pursuant to this paragraph will be made upon not
less than 30 days nor more than 60 days notice to the Holder of the Convertible
Debentures, at the following prices (expressed as percentages of the principal
amount of the Convertible Debentures) (the "Optional Redemption Price") together
with accrued and unpaid interest, including Additional interest to, but
excluding, the redemption date, if redeemed during the 12-month period beginning
April 1:
Year Redemption Price
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1999
2000
2001
2002
2003
2004
2005
2006 and thereafter
The proceeds from the redemption of any of the Convertible Debentures will
be used to redeem Convertible Preferred Securities.
If the Convertible Debentures are only partially redeemed pursuant to this
Section 3.2, the Convertible Debentures will be redeemed pro rata or by lot or
by any other method utilized by the Trustee; provided, that if at the time of
redemption the Convertible Debentures are registered as a Global Debenture, the
Depositary shall determine, in accordance with its procedures, the principal
amount of such Convertible Debentures held by each Holder of Debenture to be
redeemed. The Optional Redemption Price shall be paid prior to 12:00 noon, New
York time, on the date of such redemption or at such earlier time as the Company
determines provided that the Company shall deposit with the Trustee an amount
sufficient to pay the Optional Redemption Price by 10:00 a.m., New York time, on
the date such Optional Redemption Price is to be paid.
(b) If a partial redemption of the Convertible Debentures would result in
the delisting of the Convertible Preferred Securities issued by the Trust from
any national securities exchange or other organization on which the Convertible
Preferred Securities are then listed, the Company shall not be permitted to
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effect such partial redemption and may only redeem the Convertible Debentures
in whole.
SECTION 3.3 Option to Elect Redemption Upon a Fundamental Change.
(a) If a Fundamental Change shall occur at any time, each Holder shall
have the right, at such Holder's option, to require the Company to redeem all
(and not less than all) of such Holder's Convertible Debentures in cash on the
date (the "Repurchase Date") that is 45 days after the date of the Company's
notice of such Fundamental Change. In such event, the Kmart Trust shall redeem
the Convertible Preferred Securities at a price per Convertible Debenture
equal to (i)$____ if the Repurchase Date is during the 12-month period beginning
April 1, 1996, (ii) $ if the Repurchase Date is during the 12-month period
beginning ▇▇▇▇▇ ▇, ▇▇▇▇, (▇▇▇) $____ if the Repurchase Date is during the
12-month period beginning April 1, 1998 and (iv) thereafter at the redemption
price which would be applicable to a redemption at the option of the Company on
the Repurchase Date; provided that if the Applicable Price is less than the
Reference Market Price, the Company shall redeem such Convertible Debentures at
a price equal to the foregoing redemption price multiplied by the fraction
obtained by dividing the Applicable Price by the Reference Market Price. In
each case, the Company shall also pay accrued interest on the redeemed
Convertible Debentures on the Repurchase Date; provided that if such Repurchase
Date is an interest payment date, then the interest payable on such date shall
be paid to the Holder of record of the Convertible Debentures on the relevant
record date. The Company shall give ordinary notice of the occurrence of a
Fundamental Change and of the repayment right arising as a result thereof on or
before the tenth day after the occurrence of such Fundamental Change. The
Company shall promptly furnish the Trustee a copy of such notice. The Company
and the Trust will comply with the requirements to the extent applicable of Rule
13e-4 under the Exchange Act and other securities laws and regulations in
connection with the redemption rights of Holders of Convertible Preferred
Securities in the event of a Fundamental Change.
(b) For a Convertible Debenture to be so repaid at the option of the
Holder, the Company must receive at the office or agency of the Company
maintained for that purpose in New York City such Convertible Debenture with the
form entitled "Option to Elect Redemption Upon a Fundamental Change" on the
reverse thereof duly completed, together with such Convertible Debenture duly
endorsed for transfer, on or before the 43rd day after the date of such notice
(or if such 43rd day is not a New York Business Day, the immediately preceding
New York Business Day). Such form of notice duly received shall be irrevocable
and the Holder of such Convertible Debenture shall thereafter have no right to
effect a Share Exchange of such Convertible Debenture (unless the Holder
defaults in making the payment due upon the Repurchase Date). All questions as
to the validity, eligibility (including time of receipt) and acceptance of any
Convertible Debenture for redemption shall be determined by the Holder, whose
determination shall be final and binding.
SECTION 3.4 Deposit of Funds for Redemption.
No later than 10:00 a.m. New York City time on the last New York Business
Day prior to the date any Convertible Debenture is required to be paid pursuant
to Section ____, the Company will deposit with the Trustee or with one or more
Paying Agents (or, if the Company is acting as its own Paying Agent, set aside,
segregate and hold in trust as provided in Section ____) an amount of money
sufficient to repay on the applicable Repurchase Date all the Convertible
Debentures to be redeemed on such date as the appropriate repayment price,
together with accrued interest to the date fixed for repayment.
SECTION 3.5. No Sinking Fund.
The Convertible Debentures are not entitled to the benefit of any sinking
fund.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1. Extension of Interest Payment Period.
The Company shall have the right, at any time and from time to time during
the term of the Convertible Debentures, to defer payments of interest by
extending the interest payment period of such Convertible Debentures for a
period not exceeding 20 consecutive quarters (the "Extended Interest Payment
Period"), during which Extended Interest Payment Period no interest shall be
due and payable; provided that no Extended Interest Payment Period may extend
beyond the Maturity Date. To the extent permitted by applicable law, interest,
the payment of which has been deferred because of the extension of the interest
payment period pursuant to this Section 4.1, will bear interest thereon at the
Coupon Rate compounded quarterly for each quarter of the Extended Interest
Payment Period ("Compounded Interest"). At the end of the Extended Interest
Payment Period, the Company shall pay all interest accrued and unpaid on the
Convertible Debentures, including any Additional Interest and Compounded
Interest (together, "Deferred Interest") that shall be payable to the Holders
of the Convertible Debentures in whose names the Convertible Debentures are
registered in the Security Register on the first record date after the end of
the Extended Interest Payment Period. Before the termination of any Extended
Interest Payment Period, the Company may further extend such period, provided
that such period together with all such further extensions thereof shall not
exceed 20 consecutive quarters, or extend beyond the maturity date of the
Convertible Debentures. Upon the termination of any Extended Interest Payment
Period and upon the payment of all Deferred Interest then due, the Company may
commence a new Extended Interest Payment Period, subject to the foregoing
requirements. No interest shall be due and payable during an Extended Interest
Payment Period, except at the end thereof, but the Company may prepay at any
time all or any portion of the interest accrued during an Extended Interest
Payment Period.
SECTION 4.2. Notice of Extension.
(a) If the Institutional Trustee is the only registered Holder of the
Convertible Debentures at the time the Company selects an Extended Interest
Payment Period, the Company
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shall give written notice to the Regular Trustees, the Institutional Trustee
and the Trustee of its selection of such Extended Interest Payment Period one
Business Day before the earlier of (i) the next succeeding date on which
Distributions on the Trust Securities issued by the Trust are payable, or
(ii) the date the Trust is required to give notice of the record date, or the
date such Distributions are payable, to the New York Stock Exchange or other
applicable self-regulatory organization or to holders of the Convertible
Preferred Securities issued by the Trust, but in any event at least one Business
Day before such record date.
(b) If the Institutional Trustee is not the only Holder of the Convertible
Debentures at the time the Company selects an Extended Interest Payment Period,
the Company shall give the Holders of the Convertible Debentures and the
Trustee written notice of its selection of such Extended Interest Payment
Period at least 10 Business Days before the earlier of (i) the next succeeding
Interest Payment Date, or (ii) the date the Company is required to give notice
of the record or payment date of such interest payment to the New York Stock
Exchange or other applicable self-regulatory organization or to Holders of the
Convertible Debentures.
(c) The quarter in which any notice is given pursuant to paragraphs (a) or
(b) of this Section 4.2 shall be counted as one of the 20 quarters permitted in
the maximum Extended Interest Payment Period permitted under Section 4.1.
SECTION 4.3. Limitation of Transactions.
If (i) the Company shall exercise its right to defer payment of interest
as provided in Section 4.1, or (ii) there shall have occurred any Event of
Default, as defined in the Indenture, then (a) the Company shall not declare or
pay any dividend on, make any distributions with respect to, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock (other than (i) purchases or acquisitions of shares of its common
stock in connection with the satisfaction by the Company of its obligations
under any employee benefit plans or the satisfaction by the Company of its
obligations pursuant to any contract or security requiring the Company to
purchase shares of its common stock, (ii) as a result of a reclassification of
its capital stock or the exchange or conversion of one class or series of its
capital stock for another class or series of its capital stock or, (iii) the
purchase of fractional interests in shares of its capital stock pursuant to the
conversion or exchange provisions of such capital stock or security being
converted or exchanged) or make any guarantee payment with respect thereto and
(b) the Company shall not make any payment of interest, principal or premium,
if any, on or repay, repurchase or redeem any debt securities issued by the
Company which rank pari passu with or junior to the Convertible
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Debentures; provided, however, the Company may declare and pay a stock
dividend where the dividend stock is the same stock as that on which the
dividend is being paid.
ARTICLE V
EXPENSES
SECTION 5.1. Payment of Expenses.
In connection with the offering, sale and issuance of the Convertible
Debentures to the Institutional Trustee and in connection with the sale of the
Trust Securities by the Trust, the Company, in its capacity as borrower with
respect to the Convertible Debentures, shall:
(a) pay all costs and expenses relating to the offering, sale and issuance
of the Convertible Debentures, including commissions to the underwriters
payable pursuant to the Underwriting Agreement and the Pricing Agreement and
compensation of the Trustee under the Indenture in accordance with the
provisions of Section 6.5 of the Indenture;
(b) pay all costs and expenses of the Trust (including, but not limited
to, costs and expenses relating to the organization of the Trust, the fees and
expenses of the Institutional Trustee and the Delaware Trustee, the costs and
expenses relating to the operation of the Trust, including without limitation,
costs and expenses of accountants, attorneys, statistical or bookkeeping
services, expenses for printing and engraving and computing or accounting
equipment, paying agent(s), registrar(s), transfer agent(s), duplicating,
travel and telephone and other telecommunications expenses and costs and
expenses incurred in connection with the acquisition, financing, and
disposition of Trust assets);
(c) be primarily liable for any indemnification obligations arising with
respect to the Declaration; and
(d) pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and
expenses with respect to such taxes of the Trust.
Section 5.2. Payment Upon Resignation or Removal.
Upon termination of this First Supplemental Indenture or the Indenture or
the removal or resignation of the Trustee pursuant to this Section 6.10, the
Company shall pay to the Trustee all amounts accrued to the date of such
termination, removal or resignation. Upon termination of the Declaration or
the removal or resignation of the Delaware Trustee or the Institutional
Trustee, as the case may be, pursuant to Section 5.6 of
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the Declaration, the Company shall pay to the Delaware Trustee or the
Institutional Trustee, as the case may be, all amounts accrued to the date of
such termination, removal or resignation.
ARTICLE VI
COVENANT TO LIST ON EXCHANGE
SECTION 6.1. Listing on an Exchange.
If the Convertible Debentures are to be issued as a Global Debenture in
connection with the distribution of the Convertible Debentures to the holders
of the Convertible Preferred Securities issued by the Trust upon a Dissolution
Event, the Company will use its best efforts to list such Convertible
Debentures on the New York Stock Exchange, Inc. or on such other exchange as
the Convertible Preferred Securities are then listed.
ARTICLE VII
CONVERSION OF CONVERTIBLE DEBENTURES
SECTION 7.1. Conversion Rights.
Subject to and upon compliance with the provisions of this Article, the
Convertible Debentures are convertible, at the option of the Holder, at any
time on or before redemption as provided below or the close of business at
their [Scheduled Maturity] [Maturity Date], into fully paid and nonassessable
shares of Common Stock of the Company at an initial conversion rate of _______
shares of Common Stock for each $__ in aggregate principal amount of
Convertible Debentures (equal to a conversion price of $_____ per share of
Common Stock), subject to adjustment as described in this Article Seven. A
Holder of Convertible Debentures may convert any portion of the principal
amount of the Convertible Debentures into that number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) obtained by dividing the principal amount of the
Convertible Debentures to be converted by such conversion price. In case a
Convertible Debenture or portion thereof is called for redemption, such
conversion right in respect of the Convertible Debenture or portion so called
shall expire at the close of business on the corresponding Redemption Date,
unless the Company defaults in making the payment due upon redemption.
SECTION 7.2. Conversion Procedures.
(i) In order to convert all or a portion of the Convertible Debentures,
the Holder thereof shall deliver to the Conversion Agent an irrevocable Notice
of Conversion setting
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forth the principal amount of Convertible Debentures to be converted, together
with the name or names, if other than the Holder, in which the shares of Common
Stock should be issued upon conversion and, if such Convertible Debentures are
definitive Convertible Debentures, surrender to the Conversion Agent the
Convertible Debentures to be converted, duly endorsed or assigned to the Company
or in blank. In addition, a holder of Convertible Preferred Securities may
exercise its right under the Declaration to convert such Convertible Preferred
Securities into Common Stock by delivering to the Conversion Agent an
irrevocable Notice of Conversion setting forth the information called for by the
preceding sentence and directing the Conversion Agent (i) to exchange such
Convertible Preferred Security for a portion of the Convertible Debentures held
by the Trust (at an exchange rate of $__ principal amount of Convertible
Debentures for each Convertible Preferred Security) and (ii) to immediately
convert such Convertible Debentures, on behalf of such holder, into Common Stock
of the Company pursuant to this Article Seven and, if such Convertible Preferred
Securities are in definitive form, surrendering such Convertible Preferred
Securities, duly endorsed or assigned to the Company or in blank. So long as
any Convertible Preferred Securities are outstanding, the Trust shall not
convert any Convertible Debentures except pursuant to a Notice of Conversion
delivered to the Conversion Agent by a holder of Convertible Preferred
Securities.
If a Notice of Conversion is delivered on or after the Regular Record
Date and prior to the subsequent Interest Payment Date, the Holder will be
entitled to receive the interest payable on the subsequent Interest Payment Date
on the portion of Convertible Debentures to be converted notwithstanding the
conversion thereof prior to such Interest Payment Date. Except as otherwise
provided in the immediately preceding sentence, in the case of any Convertible
Debenture which is converted, interest whose [Scheduled Maturity] [Maturity
Date] is after the date of conversion of such Convertible Debenture shall not be
payable, and the Company shall not make nor be required to make any other
payment, adjustment or allowance with respect to accrued but unpaid interest on
the Convertible Debentures being converted, which shall be deemed to be paid in
full. Each conversion shall be deemed to have been effected immediately prior
to the close of business on the day on which the Notice of Conversion was
received (the "Conversion Date") by the Conversion Agent from the Holder or from
a holder of the Convertible Preferred Securities effecting a conversion thereof
pursuant to its conversion rights under the Declaration, as the case may be.
The Person or Persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such Common Stock as of the Conversion Date. As promptly as practicable on or
after the Conversion Date, the Company shall issue and deliver at the office of
the Conversion Agent, unless otherwise directed by the Holder in the Notice of
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Conversion, a certificate or certificates for the number of full shares of
Common Stock issuable upon such conversion, together with the cash payment, if
any, in lieu of any fraction of any share to the Person or Persons entitled to
receive the same. The Conversion Agent shall deliver such certificate or
certificates to such Person or Persons.
(ii) The Company's delivery upon conversion of the fixed number of shares
of Common Stock into which the Convertible Debentures are convertible (together
with the cash payment, if any, in lieu of fractional shares) shall be deemed to
satisfy the Company's obligation to pay the principal amount at Maturity of the
portion of Convertible Debentures so converted and any unpaid interest
(including Compounded Interest and Additional Interest) accrued on such
Convertible Debentures at the time of such conversion.
(iii) No fractional shares of Common Stock will be issued as a result of
conversion, but in lieu thereof, the Company shall pay to the Conversion Agent
a cash adjustment in an amount equal to the same fraction of the current market
price of such fractional interest on the date on which the Convertible
Debentures or Convertible Preferred Securities, as the case may be, were duly
surrendered to the Conversion Agent for conversion, or, if such day is not a
Trading Day, on the next Trading Day, and the Conversion Agent in turn will
make such payment, if any, to the Holder of the Convertible Debentures or the
holder of the Convertible Preferred Securities so converted.
(iv) In the event of the conversion of any Convertible Debenture in part
only, a new Convertible Debenture or Convertible Debentures for the unconverted
portion thereof will be issued in the name of the Holder thereof upon the
cancellation thereof [in accordance with Section ___ of the Indenture].
(v) In effecting the conversion transactions described in this Section,
the Conversion Agent is acting as agent of the holders of Convertible Preferred
Securities (in the exchange of Convertible Preferred Securities for Convertible
Debentures) and as agent of the Holders of Convertible Debentures (in the
conversion of Convertible Debentures into Common Stock), as the case may be,
directing it to effect such conversion transactions. The Conversion Agent is
hereby authorized (i) to exchange Convertible Debentures held by the Trust from
time to time for Convertible Preferred Securities in connection with the
conversion of such Convertible Preferred Securities in accordance with this
Article Seven and (ii) to convert all or a portion of the Convertible Debentures
into Common Stock and thereupon to deliver such shares of Common Stock in
accordance with the provisions of this Article Seven and to deliver to the Trust
a new Convertible Debenture or Convertible Debentures for any resulting
unconverted principal amount.
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SECTION 7.3. Conversion Price Adjustments.
The Conversion Price shall be adjusted from time to time as follows:
(a) In case the Company shall, while any of the Convertible Debentures are
outstanding, (i) pay a dividend or make a distribution with respect to its
Common Stock in shares of Common Stock, (ii) subdivide its outstanding shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares or (iv) issue by reclassification of its shares of
Common Stock any shares of capital stock of the Company, the conversion
privilege and the Conversion Price for each series of Convertible Debentures in
effect immediately prior to such action shall be adjusted so that the Holder of
any Convertible Debenture thereafter surrendered for conversion shall be
entitled to receive the number of shares of capital stock of the Company which
he would have owned immediately following such action had such Convertible
Debenture been converted immediately prior thereto. An adjustment made
pursuant to this subsection (a) shall become effective immediately after the
record date in the case of a dividend or other distribution and shall become
effective immediately after the effective date in case of a subdivision,
combination or reclassification (or immediately after the record date if a
record date shall have been established for such event). If, as a result of an
adjustment made pursuant to this subsection (a), the Holder of any Convertible
Debenture thereafter surrendered for conversion shall become entitled to
receive shares of two or more classes or series of capital stock of the
Company, the Board of Directors (whose determination shall be conclusive and
shall be described in a Board Resolution file with the Trustee) shall determine
the allocation of the adjusted Conversion Price for each series of Convertible
Debentures between or among shares of such classes or series of capital stock.
(b) In case the Company shall, while any of the Convertible Debentures are
outstanding, issue rights or warrants to all holders of its Common Stock
entitling them (for a period expiring within 45 days after the record date
mentioned below) to subscribe for or purchase shares of Common Stock at a price
per share less than the current market price per share of Common Stock (as
determined pursuant to subsection (f) below) on the record date mentioned
below, the Conversion Price for the Convertible Debentures shall be adjusted so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to the date of issuance of such rights or
warrants by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the total
number of shares so offered [for subscription or purchase] would purchase at
such
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current market price, and of which the denominator shall be the number of
shares of Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase. Such adjustment shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such rights or warrants. To the extent that shares of Common Stock are not so
delivered after the expiration of such rights or warrants, the Conversion Price
shall be readjusted to the Conversion Price which would then be in effect if
such date fixed for the determination of stockholders entitled to receive such
rights or warrants had not been fixed. For the purposes of this subsection, the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company. The Company shall not issue any
rights or warrants in respect of shares of Common Stock held in the treasury of
the Company. In case any rights or warrants referred to in this subsection in
respect of which an adjustment shall have been made shall expire unexercised
within 45 days after the same shall have been distributed or issued by the
Company, the Conversion Price shall be readjusted at the time of such expiration
to the Conversion Price that would have been in effect if no adjustment had been
made on account of the distribution or issuance of such expired rights or
warrants.
(c) Subject to the last sentence of this subparagraph, in case the Company
shall, by dividend or otherwise, distribute to all holders of its Common Stock
evidences of its indebtedness, shares of any class or series of capital stock,
cash or assets (including securities, but excluding any rights or warrants
referred to in subparagraph (b), any dividend or distribution paid exclusively
in cash and any dividend or distribution referred to in subparagraph (a) of
this Section 7.3), the conversion price shall be reduced so that the same shall
equal the price determined by multiplying the conversion price in effect
immediately prior to the effectiveness of the conversion price reduction
contemplated by this subparagraph (c) by a fraction of which the numerator
shall be the current market price per share (determined as provided in
subparagraph (f)) of the Common Stock on the date fixed for the payment of such
distribution (the "Reference Date") less the fair market value (as determined
in good faith by the Board of Directors, whose determination shall be
conclusive and described in a resolution of the Board of Directors), on the
Reference Date, of the portion of the evidences of indebtedness, shares of
capital stock, cash and assets so distributed applicable to one share of Common
Stock and the denominator shall be such current market price per share of the
Common Stock, such reduction to become effective immediately prior to the
opening of business on the day following the Reference Date. In the event that
such dividend or distribution is not so paid or made, the conversion price
shall again be adjusted to be the conversion price which would then be in
effect if such
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dividend or distribution had not occurred. If the Board of Directors
determines the fair market value of any distribution for purposes of this
subparagraph (c) by reference to the actual or when issued trading market for
any securities comprising such distribution, it must in doing so consider the
prices in such market over the same period used in computing the current market
price per share of Common Stock (determined as provided in subparagraph (f)).
For purposes of this subparagraph (c), any dividend or distribution that
includes shares of Common Stock or rights or warrants to subscribe for or
purchase shares of Common Stock shall be deemed instead to be (1) a dividend or
distribution of the evidences of indebtedness, shares of capital stock, cash or
assets other than such shares of Common Stock or such rights or warrants (making
any conversion price reduction required by this subparagraph (c)) immediately
followed by (2) a dividend or distribution of such shares of Common Stock or
such rights or warrants (making any further conversion price reduction required
by subparagraph (a) or (b)), except (A) the Reference Date of such dividend or
distribution as defined in this subparagraph shall be substituted as (a) "the
record date in the case of a dividend or other distribution," and (b) "the
record date for the determination of stockholders entitled to receive such
rights or warrants" and (c) "the date fixed for such determination" within the
meaning of subparagraphs (a) and (b) and (B) any shares of Common Stock included
in such dividend or distribution shall not be deemed outstanding for purposes of
computing any adjustment of the conversion price in subparagraph (a).
(d) In case the Company shall pay or make a dividend or other distribution
on its Common Stock exclusively in cash (excluding all regular cash dividend if
the annualized amount thereof per share of Common Stock does not exceed 15% of
the current market price per share determined as provided in subparagraph (f))
of the Common Stock on the Trading Day next preceding the date of declaration
of such dividend, the conversion price shall be reduced so that the same shall
equal the price determined by multiplying the conversion price in effect
immediately prior to the effectiveness of the conversion price reduction
contemplated by this subparagraph by a fraction of which the numerator shall be
the current market price per share (determined as provided in subparagraph (f))
of the Common Stock on the date fixed for the payment of such distribution less
the amount of cash so distributed and not excluded as provided applicable to
one share of Common Stock and the denominator shall be such current market
price per share of the Common Stock, such reduction to become effective
immediately prior to the opening of business on the day following the date
fixed for the payment of such distribution; provided, however, that in the
event the portion of the cash so distributed applicable to one share of Common
Stock is equal to or greater than the current market price per share (as
defined in subparagraph (f)) of the Common Stock on the record date mentioned
above, in lieu of the foregoing adjust-
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ment, adequate provision shall be made so that each Holder of shares of
Convertible Debentures shall have the right to receive upon conversion the
amount of cash such Holder would have received had such Holder converted each
share of the Convertible Debentures immediately prior to the record date for the
distribution of the cash. In the event that such dividend or distribution is
not so paid or made, the conversion price shall again be adjusted to be the
conversion price which would then be in effect if such record date had not been
fixed.
(e) In case a tender or exchange offer (other than an odd-lot offer)
made by the Company or any Subsidiary of the Company for all or any portion of
the Company's Common Stock shall expire and such tender or exchange offer shall
involve the payment by the Company or such Subsidiary of consideration per share
of Common Stock having a fair market value (as determined in good faith by the
Board of Directors, whose determination shall be conclusive and described in a
resolution of the Board of Directors) at the last time (the "Expiration Time")
tenders or exchanges may be made pursuant to such tender or exchange offer (as
it shall have been amended) that exceeds 110% of the current market price per
share (determined as provided in subparagraph (f)) of the Common Stock on the
Trading Day next succeeding the Expiration Time, the conversion price shall be
reduced so that the same shall equal the price determined by multiplying the
conversion price in effect immediately prior to the effectiveness of the
conversion price reduction contemplated by this subparagraph (e) by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
(including any tendered or exchanged shares) at the Expiration Time multiplied
by the current market price per share (determined as provided in subparagraph
(f)) of the Common Stock on the Trading Day next succeeding the Expiration Time
and the denominator shall be the sum of (x) the fair market value (determined as
aforesaid) of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the tender or exchange
offer) of all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "Purchased Shares") and (y) the product of the number of
shares of Common Stock outstanding (less any Purchased Shares) at the Expiration
Time and the current market price per share (determined as provided in
subparagraph (f)) of the Common Stock on the Trading Day next succeeding the
Expiration Time, such reduction to become effective immediately prior to the
opening of business on the day following the Expiration Time.
(f) For the purpose of any computation under subparagraphs (b), (c), (d)
or (e), the current market price per share of Common Stock on any date in
question shall be deemed to be the average of the daily Closing Prices for the
five consecutive Trading Days selected by the Company commencing not more than
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Trading Days before, and ending not later than, the earlier of the day in
question and, if applicable, the day before the "ex" date with respect to the
issuance or distribution requiring such computation; provided, however, that if
another event occurs that would require an adjustment pursuant to subparagraph
(a) through (e), inclusive, the Board of Directors may make such adjustments to
the Closing Prices during such five Trading Day period as it deems appropriate
to effectuate the intent of the adjustments in this Section 7.3, in which case
any such determination by the Board of Directors shall be set forth in a Board
Resolution and shall be conclusive. For purposes of this paragraph, the term
"ex" date, (1) when used with respect to any issuance or distribution, means
the first date on which the Common Stock trades regular way on the New York
Stock Exchange or on such successor securities exchange as the Common Stock may
be listed or in the relevant market from which the Closing Prices were obtained
without the right to receive such issuance or distribution, and (2) when used
with respect to any tender or exchange offer means the first date on which the
Common Stock trades regular way on such securities exchange or in such market
after the Expiration Time of such offer.
(g) The Company may make such reductions in the conversion price, in
addition to those required by subparagraphs (a) through (e), as it considers to
be advisable to avoid or diminish any income tax to holders of Common Stock or
rights to purchase Common Stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such for income
tax purposes. The Company from time to time may reduce the conversion price by
any amount for any period of time if the period is at least twenty (20) days,
the reduction is irrevocable during the period, and the Board of Directors of
the Company shall have made a determination that such reduction would be in the
best interest of the Company, which determination shall be conclusive.
Whenever the conversion price is reduced pursuant to the preceding sentence,
the Company shall mail to holders of record of the Convertible Debentures a
notice of the reduction at least fifteen (15) days prior to the date the
reduced conversion price takes effect, and such notice shall state the reduced
conversion price and the period it will be in effect.
(h) No adjustment in the conversion price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
conversion price; provided, however, that any adjustments which by reason of
this subparagraph are not required to be made shall be carried forward and taken
into account in determining whether any subsequent adjustment shall be required.
(i) If any action would require adjustment of the conversion price
pursuant to more than one of the provisions described above, only one
adjustment shall be made and such
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adjustment shall be the amount of adjustment that has the highest absolute
value to the Holder of the Convertible Debentures.
SECTION 7.4. Reclassification, Consolidation, Merger or Sale of Assets.
In the event that the Company shall be a party to any transaction
(including without limitation (a) any recapitalization or reclassification of
the Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination of the Common Stock), (b) any consolidation of the Company with, or
merger of the Company into, any other Person, any merger of another Person into
the Company (other than a merger which does not result in a reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Company), (c) any sale or transfer of all or substantially all of the
assets of the Company or (d) any compulsory share exchange) pursuant to which
the Common Stock is converted into the right to receive other securities, cash
or other property, then lawful provision shall be made as part of the terms of
such transaction whereby the Holder of each Convertible Debenture then
outstanding shall have the right thereafter to convert such Convertible
Debenture only into the kind and amount of securities, cash and other property
receivable upon consummation of such transaction by a holder of the number of
shares of Common Stock of the Company into which such Convertible Debenture
could have been converted immediately prior to such transaction.
The Company or the Person formed by such consolidation or resulting from
such merger or which acquired such assets or which acquires the Company's
shares, as the case may be, shall make provision in its certificate or articles
of incorporation or other constituent document to establish such right. Such
certificate or articles of incorporation or other constituent document shall
provide for adjustments which, for events subsequent to the effective date of
such certificate or articles of incorporation or other constituent document,
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Article Seven. The above provisions shall similarly apply to
successive transactions of the foregoing type.
SECTION 7.5. Notice of Adjustments of Conversion Price.
Whenever the conversion price is adjusted as herein provided:
(i) the Company shall compute the adjusted conversion price and shall
prepare a certificate signed by the Chief Financial Officer or the Treasurer of
the Company setting forth the adjusted conversion price and showing in
reasonable detail the
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facts upon which such adjustment is based, and such certificate shall forthwith
be filed with the Trustee and the transfer agent for the Convertible Preferred
Securities and the Convertible Debentures; and
(ii) a notice stating the conversion price has been adjusted and setting
forth the adjusted conversion price shall as soon as practicable be mailed by
the Company to all record holders of Convertible Preferred Securities and the
Convertible Debentures at their last addresses as they appear upon the stock
transfer books of the Company and the Trust.
SECTION 7.6. Prior Notice of Certain Events.
In case:
(a) the Company shall (1) declare any dividend (or any other
distribution) on its Common Stock, other than (A) a dividend payable in shares
of Common Stock or (B) a dividend payable in cash that would not require an
adjustment pursuant to Section 7.3(c) or (d) or (2) authorize a tender or
exchange offer that would require an adjustment pursuant to Section 7.3(e);
(b) the Company shall authorize the granting to all holders of Common
Stock of rights or warrants to subscribe for or purchase any shares of stock of
any class or series or of any other rights or warrants;
(c) of any reclassification of Common Stock (other than a subdivision or
combination of the outstanding Common Stock, or a change in par value, or from
par value to no par value, or from no par value to par value), or of any
consolidation or merger to which the Company is a party and for which approval
of any stockholders of the Company shall be required, or of the sale or
transfer of all or substantially all of the assets of the Company or of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or other property; or
(d) of the voluntary or involuntary dissolution, liquidation or winding
up of the Company;
then the Company shall (a) if any Convertible Preferred Securities are
outstanding, cause to be filed with the transfer agent for the Convertible
Preferred Securities, and shall cause to be mailed to the holders of record of
the Convertible Preferred Securities, at their last addresses as they shall
appear upon the stock transfer books the Trust or (b) shall cause to be mailed
to all Holders at their last addresses as they shall appear in the Security
Register, at least fifteen days prior to the applicable record or effective
date hereinafter specified, a notice stating (x) the date on which a record (if
any) is to be taken for the
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purpose of such dividend, distribution, rights or warrants or, if a record
is not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distribution, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up (but no failure to mail such notice or
any defect therein or in the mailing thereof shall affect the validity of the
corporate action required to be specified in such notice).
SECTION 7.7. Dividend or Interest Reinvestment Plans.
Notwithstanding the foregoing provisions, the issuance of any shares of
Common Stock pursuant to any plan providing for the reinvestment of dividends
or interest payable on securities of the Company and the investment of
additional optional amounts in shares of Common Stock under any such plan, and
the issuance of any shares of Common Stock or options or rights to purchase
such shares pursuant to any employee benefit plan or program of the Company or
pursuant to any option, warrant, right or exercisable, exchangeable or
convertible security outstanding as of the date the Convertible Debentures were
first issued, shall not be deemed to constitute an issuance of Common Stock or
exercisable, exchangeable or convertible securities by the Company to which any
of the adjustment provisions described above applies. There shall also be no
adjustment of the conversion price in case of the issuance of any stock (or
securities convertible into or exchangeable for stock) of the Company except as
specifically described in this Article Seven.
SECTION 7.8. Certain Additional Rights.
In case the Company shall, by dividend or otherwise, declare or make a
distribution on its Common Stock referred to in Section 7.3 (c) or 7.3(d)
(including, without limitation, dividends or distributions referred to in the
last sentence of Section 7.3(e)), the Holder of the Convertible Debentures,
upon the conversion thereof subsequent to the close of business on the date
fixed for the determination of stockholders entitled to receive such
distribution and prior to the effectiveness of the conversion price adjustment
in respect of such distribution, shall also be entitled to receive for each
share of Common Stock into which the Convertible Debentures are converted, the
portion of the shares of Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash and assets so distributed
applicable to one share of Common Stock; provided,
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however, that, at the election of the Company (whose election shall be
evidenced by a resolution of the Board of Directors) with respect to all Holders
so converting, the Company may, in lieu of distributing to such Holder any
portion of such distribution not consisting of cash or securities of the
Company, pay such Holder an amount in cash equal to the fair market value
thereof (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board of
Directors). If any conversion of Convertible Debentures described in the
immediately preceding sentence occurs prior to the payment date for a
distribution to holders of Common Stock which the Holder of Convertible
Debentures so converted is entitled to receive in accordance with the
immediately preceding sentence, the Company may elect (such election to be
evidenced by a resolution of the Board of Directors) to distribute to such
Holder a due ▇▇▇▇ for the shares of Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash or assets to which such Holder is so
entitled, provided, that such due ▇▇▇▇ (i) meets any applicable requirements of
the principal national securities exchange or other market on which the Common
Stock is then traded and (ii) requires payment or delivery of such shares of
Common Stock, rights, warrants, evidences of indebtedness, shares of capital
stock, cash or assets no later than the date of payment or delivery thereof to
holders of shares of Common Stock receiving such distribution.
SECTION 7.9. Trustee Not Responsible for Determining Conversion Price or
Adjustments.
Neither the Trustee nor any Conversion Agent shall at any time be under
any duty or responsibility to any Holder of any Convertible Debenture to
determine whether any facts exist which may require any adjustment of the
conversion price, or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed, or herein or in
any supplemental indenture provided to be employed, in making the same.
Neither the Trustee nor any Conversion Agent shall be accountable with respect
to the validity or value (or the kind of account) of any shares of Common Stock
or of any securities or property, which may at any time be issued or delivered
upon the conversion of any Convertible Debenture; and neither the Trustee nor
any Conversion Agent makes any representation with respect thereto. Neither
the Trustee nor any Conversion Agent shall be responsible for any failure of
the Company to make any cash payment or to issue, transfer or deliver any
shares of Common Stock or stock certificates or other securities or property
upon the surrender of any Convertible Debenture for the purpose of conversion.
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ARTICLE VIII
FORM OF CONVERTIBLE DEBENTURE
SECTION 8.1. Form of Convertible Debenture.
The Convertible Debentures and the Trustee's Certificate of Authentication
to be endorsed thereon are to be substantially in the following forms:
[(FORM OF FACE OF Convertible Debenture)]
[IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, INSERT THE FOLLOWING - -
This Debenture is a Global Debenture within the meaning of the Indenture
hereinafter referred to and is registered in the name of a Depositary or a
nominee of a Depositary. This Debenture is exchangeable for Convertible
Debentures registered in the name of a person other than the Depositary or its
nominee only in the limited circumstances described in the Indenture, and no
transfer of this Debenture (other than a transfer of this Debenture as a whole
by the Depositary to a nominee of the Depositary or by a nominee of the
Depositary to the Depositary or another nominee of the Depositary) may be
registered except in limited circumstances.
Unless this Debenture is presented by an authorized representative of
The Depository Trust Company (55 ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇) to the
issuer or its agent for registration of transfer, exchange or payment, and any
Debenture issued is registered in the name of Cede & Co. or such other name as
requested by an authorized representative of The Depository Trust Company and
any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered
owner hereof, Cede & Co., has an interest herein.]
No. ______________
KMART CORPORATION
___% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURE
DUE 20[ ]
Kmart Corporation, a Michigan corporation (the "Company", which term
includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to, ______________ or
registered assigns, the principal sum of _____________ Dollars ($___________)
on _________, ____, and to pay interest on said principal sum from
____________, 1995, or from the most recent interest payment date
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(each such date, an "Interest Payment Date") to which interest has been paid
or duly provided for, quarterly (subject to deferral as set forth herein)
in arrears on [March 31, June 30, September 30 and December 31] of each year
commencing ___________, 1995, at the rate of ___% per annum until the principal
hereof shall have become due and payable, and on any overdue principal and
premium, if any, and (without duplication and to the extent that payment of
such interest is enforceable under applicable law) on any overdue installment
of interest at the same rate per annum compounded quarterly. The amount of
interest payable on any Interest Payment Date shall be computed on the basis of
a 360-day year of twelve 30-day months. In the event that any date on which
interest is payable on this Convertible Debenture is not a Business Day, then
payment of interest payable on such date will be made on the next succeeding
day that is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. The interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in the Indenture,
be paid to the person in whose name this Convertible Debenture (or one or more
Predecessor Securities, as defined in said Indenture) is registered at the
close of business on the regular record date for such interest installment.
[which shall be the close of business on the business day next preceding such
Interest Payment Date unless otherwise provided in the Indenture] [IF
PURSUANT TO THE PROVISIONS OF THE INDENTURE THE CONVERTIBLE DEBENTURES ARE NO
LONGER REPRESENTED BY A GLOBAL DEBENTURE -- which shall be the close of
business on the ____ business day next preceding such Interest Payment Date].
Any such interest installment not punctually paid or duly provided for shall
forthwith cease to be payable to the registered Holders on such regular record
date and may be paid to the Person in whose name this Convertible Debenture (or
one or more Predecessor Securities) is registered at the close of business on a
special record date to be fixed by the Trustee for the payment of such
defaulted interest, notice whereof shall be given to the registered Holders of
this series of Convertible Debentures not less than 10 days prior to such
special record date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Convertible Debentures may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in the Indenture. The principal
of (and premium, if any) and the interest on this Convertible Debenture shall
be payable at the office or agency of the Trustee maintained for that purpose
in any coin or currency of the United States of America that at the time of
payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the registered Holder at such address as shall
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appear in the Security Register. Notwithstanding the foregoing, so long as the
Holder of this Convertible Debenture is the Institutional Trustee, the payment
of the principal of (and premium, if any) and interest on this Convertible
Debenture will be made at such place and to such account as may be designated
by the Institutional Trustee.
The indebtedness evidenced by this Convertible Debenture is, to the extent
provided in the Indenture, subordinate and junior in right of payment to the
prior payment in full of all Senior Indebtedness, and this Convertible
Debenture is issued subject to the provisions of the Indenture with respect
thereto. Each Holder of this Convertible Debenture, by accepting the same, (a)
agrees to and shall be bound by such provisions, (b) authorizes and directs the
Trustee on his or her behalf to take such action as may be necessary or
appropriate to acknowledge or effectuate the subordination so provided and (c)
appoints the Trustee his or her attorney-in-fact for any and all such purposes.
Each Holder hereof, by his or her acceptance hereof, hereby waives all notice
of the acceptance of the subordination provisions contained herein and in the
Indenture by each holder of Senior Indebtedness, whether now outstanding or
hereafter incurred, and waives reliance by each such holder upon said
provisions.
This Convertible Debenture shall not be entitled to any benefit under the
Indenture hereinafter referred to, be valid or become obligatory for any
purpose until the Certificate of Authentication hereon shall have been signed
by or on behalf of the Trustee.
The provisions of this Convertible Debenture are continued on the reverse
side hereof and such continued provisions shall for all purposes have the same
effect as though fully set forth at this place.
IN WITNESS WHEREOF, the Company has caused this instrument to be executed.
Dated __________________
KMART CORPORATION
By: ________________________________
Name:
Title
Attest:
By: ____________________
Name:
Title:
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[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
This is one of the Convertible Debentures of the series of Convertible
Debentures described in the within-mentioned Indenture.
[ ]
or as Authentication Agent
By ______________________ By _______________________
Authorized Signatory Authorized Signatory
[FORM OF REVERSE OF DEBENTURE]
This Convertible Debenture is one of a duly authorized series of
Convertible Debentures of the Company (herein sometimes referred to as the
"Convertible Debentures"), specified in the Indenture, all issued or to be
issued in one or more series under and pursuant to an Indenture dated as of
_______, 1995, duly executed and delivered between the Company and
_________________, as Trustee (the "Trustee"), as supplemented by the First
Supplemented Indenture dated as of _______, 1995, between the Company and the
Trustee (the Indenture as so supplemented, the "Indenture"), to which Indenture
and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the Holders of the
Convertible Debentures. By the terms of the Indenture, the Convertible
Debentures are issuable in series that may vary as to amount, date of maturity,
rate of interest and in other respects as provided in the Indenture. This
series of Convertible Debentures is limited in aggregate principal amount as
specified in said First Supplemental Indenture.
Because of the occurrence and continuation of a Tax Event, in certain
circumstances, this Convertible Debenture may become due and payable at the
principal amount together with any interest accrued thereon (the "Redemption
Price"). The Redemption Price shall be paid prior to 12:00 noon, New York
time, on the date of such redemption or at such earlier time as the Company
determines. The Company shall have the right to redeem this Convertible
Debenture at the option of the Company, without premium or penalty, in whole or
in part at any time on or after ________, 2000 (an "Optional Redemption"), or
at any time in certain circumstances upon the occurrence of a Tax Event, at a
redemption price equal to 100% of the principal amount plus any
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accrued but unpaid interest, to the date of such redemption (the "Optional
Redemption Price"). Any redemption pursuant to this paragraph will be made
upon not less than 30 days nor more than 60 days notice, at the Optional
Redemption Price. If the Convertible Debentures are only partially redeemed by
the Company pursuant to an Optional Redemption, the Convertible Debentures will
be redeemed pro rata or by lot or by any other method utilized by the Trustee;
provided that if, at the time of redemption, the Convertible Debentures are
registered as a Global Debenture, the Depositary shall determine the principal
amount of such Convertible Debentures held by each Debentureholder to be
redeemed in accordance with its procedures.
In the event of redemption of this Convertible Debenture in part only, a
new Convertible Debenture or Convertible Debentures of this series for the
unredeemed portion hereof will be issued in the name of the Holder hereof upon
the cancellation hereof.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Convertible Debentures
may be declared, and upon such declaration shall become, due and payable, in
the manner, with the effect and subject to the conditions provided in the
Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in aggregate
principal amount of the Convertible Debentures of each series affected at the
time outstanding, as defined in the Indenture, to execute supplemental
indentures for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or of any
supplemental indenture or of modifying in any manner the rights of the Holders
of the Convertible Debentures; provided, however, that no such supplemental
indenture shall (i) extend the fixed maturity of any Convertible Debentures of
any series, or reduce the principal amount thereof, or reduce the rate or
extend the time of payment of interest thereon, or reduce any premium payable
upon the redemption thereof, without the consent of the Holder of each
Convertible Debenture so affected, or (ii) reduce the aforesaid percentage of
Convertible Debentures, the Holders of which are required to consent to any
such supplemental indenture, without the consent of the Holders of each
Convertible Debenture then outstanding and affected thereby. The Indenture
also contains provisions permitting the Holders of a majority in aggregate
principal amount of the Convertible Debentures of any series at the time
outstanding affected thereby, on behalf of all of the Holders of the
Convertible Debentures of such series, to waive any past default in the
performance of any of the covenants contained in the Indenture, or established
pursuant to the Indenture with respect to such series, and its consequences,
except a default in the payment of the principal of or premium,
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if any, or interest on any of the Convertible Debentures of such series.
Any such consent or waiver by the registered Holder of this Convertible
Debenture (unless revoked as provided in the Indenture) shall be conclusive and
binding upon such Holder and upon all future Holders and owners of this
Convertible Debenture and of any Convertible Debenture issued in exchange
herefor or in place hereof (whether by registration of transfer or otherwise),
irrespective of whether or not any notation of such consent or waiver is made
upon this Convertible Debenture.
No reference herein to the Indenture and no provision of this Convertible
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
premium, if any, and interest on this Convertible Debenture at the time and
place and at the rate and in the money herein prescribed.
The Company shall have the right at any time during the term of the Convertible
Debentures and from time to time to extend the interest payment period of such
Convertible Debentures for up to 20 consecutive quarters (an "Extended Interest
Payment Period"), at the end of which period the Company shall pay all interest
then accrued and unpaid (together with interest thereon at the rate specified
for the Convertible Debentures to the extent that payment of such interest is
enforceable under applicable law). Before the termination of any such Extended
Interest Payment Period, the Company may further extend such Extended Interest
Payment Period, provided that such Extended Interest Payment Period together
with all such further extensions thereof shall not exceed 20 consecutive
quarters. At the termination of any such Extended Interest Payment Period and
upon the payment of all accrued and unpaid interest and any additional amounts
then due, the Company may commence a new Extended Interest Payment Period.
As provided in the Indenture and subject to certain limitations therein
set forth, this Convertible Debenture is transferable by the registered Holder
hereof on the Security Register of the Company, upon surrender of this
Convertible Debenture for registration of transfer at the office or agency of
the Trustee in the City and State of New York accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company or
the Trustee duly executed by the registered Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Convertible Debentures of
authorized denominations and for the same aggregate principal amount and series
will be issued to the designated transferee or transferees. No service charge
will be made for any such transfer, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
relation thereto.
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Prior to due presentment for registration of transfer of this Convertible
Debenture, the Company, the Trustee, any paying agent and the Security
Registrar may deem and treat the registered holder hereof as the absolute owner
hereof (whether or not this Convertible Debenture shall be overdue and
notwithstanding any notice of ownership or writing hereon made by anyone other
than the Security Registrar) for the purpose of receiving payment of or on
account of the principal hereof and premium, if any, and interest due hereon
and for all other purposes, and neither the Company nor the Trustee nor any
paying agent nor any Security Registrar shall be affected by any notice to the
contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Convertible Debenture, or for any claim based hereon, or
otherwise in respect hereof, or based on or in respect of the Indenture,
against any incorporator, stockholder, officer or director, past, present or
future, as such, of the Company or of any predecessor or successor corporation,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the
issuance hereof, expressly waived and released.
The Holder of any Convertible Debenture has the right, exercisable at any
time prior to the close of business (New York time) on the date of the
Convertible Debenture's maturity, to convert the principal amount thereof (or
any portion thereof that is an integral multiple of $__) into shares of Common
Stock at the initial conversion price _______ shares of Common Stock for each
Convertible Debenture (equivalent to a conversion price of $______ per share of
Common Stock of the Company), subject to adjustment under certain
circumstances, except that if a Convertible Debenture is called for redemption,
the conversion right will terminate at the close of business on the Redemption
Date.
To convert a Convertible Debenture, a Holder must (1) complete and sign a
conversion notice substantially in the form attached hereto, (2) surrender the
Convertible Debenture to a Conversion Agent, (3) furnish appropriate
endorsements or transfer documents if required by the Conversion Agent and (4)
pay any transfer or similar tax, if required. Upon conversion, no adjustment
or payment will be made for interest or dividends, but if any Holder surrenders
a Convertible Debenture for conversion after the close of business on the
Regular Record Date for the payment of an installment of interest and prior to
the opening of business on the next Interest Payment Date, then,
notwithstanding such conversion, the interest payable on such Interest Payment
Date will be paid to the registered Holder of such Convertible Debenture on
such Regular Record Date. In such event, such Convertible Debenture, when
surrendered for conversion, need not be
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accompanied by payment of an amount equal to the interest payable on such
Interest Payment Date on the portion so converted. The number of shares
issuable upon conversion of a Convertible Debenture is determined by dividing
the principal amount of the Convertible Debenture converted by the conversion
price in effect on the Conversion Date. No fractional shares will be issued
upon conversion but a cash adjustment will be made for any fractional interest.
The outstanding principal amount of any Security shall be reduced by the
portion of the principal amount thereof converted into shares of Common Stock.
[The Convertible Debentures of this series are issuable only in registered
form without coupons in denominations of $__ and any integral multiple
thereof.] [This Global Debenture is exchangeable for Convertible Debentures in
definitive form only under certain limited circumstances set forth in the
Indenture. Convertible Debentures of this series so issued are issuable only
in registered form without coupons in denominations of $25 and any integral
multiple thereof.] As provided in the Indenture and subject to certain
limitations [herein and] therein set forth, Convertible Debentures of this
series [so issued] are exchangeable for a like aggregate principal amount of
Convertible Debentures of this series of a different authorized denomination,
as requested by the Holder surrendering the same.
All terms used in this Convertible Debenture that are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
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[FORM OF ELECTION TO CONVERT]
ELECTION TO CONVERT
To: Kmart Corporation
The undersigned owner of this Convertible Debenture hereby irrevocably
exercises the option to convert this Convertible Debenture, or the portion
below designated, into Common Stock of KMART CORPORATION in accordance with the
terms of the Indenture referred to in this Convertible Debenture, and directs
that the shares issuable and deliverable upon conversion, together with any
check in payment for fractional shares, be issued in the name of and delivered
to the undersigned, unless a different name has been indicated in the
assignment below. If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto.
Date: ____________, ____
in whole __
Portions of Security to be converted ($25
or integral multiples-thereof):
$_________________
____________________________________________
Signature (for conversion only)
Please Print or Typewrite Name and
Address, Including Zip Code, and Social
Security or Other Identifying Number
____________________________________________
____________________________________________
____________________________________________
Signature Guarantee:1 ______________________
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ARTICLE IX
ORIGINAL ISSUE OF CONVERTIBLE DEBENTURES
SECTION 9.1. Original Issue of Convertible Debentures.
Convertible Debentures in the aggregate principal amount of $___________
may, upon execution of this First Supplemental Indenture, be executed by the
Company and delivered to the Trustee for authentication, and the Trustee shall
thereupon authenticate and deliver said Convertible Debentures to or upon the
written order of the Company, signed by its Chairman, its Vice Chairman, its
President, or any Vice President and its Treasurer or an Assistant Treasurer,
without any further action by the Company.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. Ratification of Indenture.
The Indenture, as supplemented by this First Supplemental Indenture, is in
all respects ratified and confirmed, and this First Supplemental Indenture
shall be deemed part of the Indenture in the manner and to the extent herein
and therein provided.
SECTION 10.2. Trustee Not Responsible for Recitals.
The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
First Supplemental Indenture.
SECTION 10.3. Governing Law.
This First Supplemental Indenture and each Debenture shall be deemed to be
a contract made under the internal laws of the State of New York, and for all
purposes shall be construed in accordance with the laws of said State.
SECTION 10.4. Separability.
In case any one or more of the provisions contained in this First
Supplemental Indenture or in the Convertible Debentures shall for any reason be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions of this
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First Supplemental Indenture or of the Convertible Debentures, but this First
Supplemental Indenture and the Convertible Debentures shall be construed as if
such invalid or illegal or unenforceable provision had never been contained
herein or therein.
SECTION 10.5. Counterparts.
This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, on the date or dates indicated in the
acknowledgements and as of the day and year first above written.
KMART CORPORATION
By ______________________________
Name:
Title:
[Seal]
Attest:
By:______________________
The Bank of New York
as Trustee
By ______________________________
Name:
Title:
Attest:
By:___________________
1. Signature must be guaranteed by a commercial bank, trust company or
member firm of the New York Stock Exchange.
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