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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) December 20, 1995
----------------------
KMART CORPORATION
(Exact Name of Registrant as Specified in its Charter)
MICHIGAN
(State or Other Jurisdiction of Incorporation)
1-327 38-0729500
(Commission File Number) (I.R.S. Employer Identification No.)
3100 WEST BIG BEAVER ROAD, TROY, MICHIGAN 48084
(Address of Principal Executive Offices) (Zip Code)
(810) 643-1000
(Registrant's Telephone Number, Including Area Code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS
Kmart Corporation has entered into the attached agreements on December 20,
1995, dated as of December 18, 1995, regarding amendments to certain terms and
conditions of its existing revolving credit facilities and certain real estate
obligations.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KMART CORPORATION
(Registrant)
By: /s/ Martin E. Welch
---------------------------
Martin E. Welch
Senior Vice President
and Chief Financial Officer
Date: December 20, 1995
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December 18, 1995
Kmart Corporation
3100 West Big Beaver Road
Troy, Michigan 48084
Ladies and Gentlemen:
Reference is made to the following agreements: (a) that certain Loan
Agreement dated as of January 21, 1992 and amended as of January 21, 1992,
February 14, 1992 and December 20, 1994, among Kmart Corporation ("Kmart") and
certain other entities, the financial institutions signatory thereto and [ ],
as Managing Agent, (b) that certain Loan Agreement dated as of August 7, 1992
and amended as of December 20, 1994, among Kmart and certain other entities,
the financial institutions signatory thereto and [ ], as Agent, (c) that certain
Three Year Credit Agreement dated as of October 7, 1994 among Kmart, the
financial institutions party thereto and [ ], as Documentation Agent, (d) that
certain Warehouse Facility Credit Agreement dated as of October 7, 1994, among
Kmart and certain other entities, the financial institutions signatory thereto
and [ ], as Documentation Agent, (e) that certain 364 Day Credit Agreement
dated as of October 5, 1995 among Kmart, the financial institutions party
thereto and [ ], as Documentation Agent, and (f) that certain Seasonal Credit
Agreement dated as of October 5, 1995 among Kmart, the financial institutions
party thereto and [ ], as Documentation Agent (collectively, the "Credit
Agreements").
Each of [ ] hereby (a) acknowledges that it, in its individual
capacity, approves the terms and conditions of the proposed amendments to the
Credit Agreements set forth in the attached Summary of Indicative Terms (the
"Term Sheet"), subject to documentation satisfactory to it in all respects, and
(b) agrees that it will seek the concurrence of the other financial
institutions party to the Credit Agreements with the terms and conditions set
forth in the Term Sheet.
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December 18, 1995
Page 2
Please execute a copy of this letter and return it to the undersigned
to acknowledge your approval of the Term Sheet and the terms and conditions set
forth herein.
Very truly yours,
[ ]
By: __________________________
Title: _______________________
[ ]
By: __________________________
Title: _______________________
Acknowledged and agreed
as of this 18th day of
December, 1995:
KMART CORPORATION
By: ________________________
Title: _____________________
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12/17/95
Summary of Indicative Terms
The following is a summary of the principal terms of proposed
amendments to the six bank facilities (the "Facilities") extended to Kmart
Corporation ("Kmart") and/or its real estate development affiliates
(capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the agreements governing the Facilities):
1. Maturities
- amend maturities of Seasonal, Big Beaver I (by Banks with at least 85%
of the obligations thereunder) and Big Beaver II facilities to
February 28, 1997 and eliminate ratings-based defaults; other
Facilities will mature on October 3, 1997
2. Interest Rates
- change interest rates for Facilities as follows: 350 basis points over
LIBOR or 250 basis points over prime for Seasonal, Big Beaver I
and Big Beaver II facilities and 200 basis points over LIBOR or 100
basis points over prime for other Facilities, in each case at Kmart's
option; the CD Rate option will be eliminated
3. Additional Borrowings and Principal Repayments
- after December 22, 1995 (the "Agreement Date"), additional borrowings
in excess of paydowns will be conditioned on the approval of
the Required Banks
- no principal repayments (other than third party prepayment obligations
under the Big Beaver I and II and Warehouse credit facilities)
required under any Facility until the termination thereof (whether
upon maturity or otherwise)
- letters of credit may be issued under the Three Year Credit Facility
to the extent of paydowns thereunder (except paydowns otherwise
required hereunder) after the Agreement Date, so long as no default
exists thereunder or would be caused thereby and without compliance
with conditions to borrowing other than delivery mechanics to be
determined; provided, that the Required Banks, at their discretion,
may refuse to accept additional paydowns and be required to issue
letters of credit
- ratable mandatory payments of the Big Beaver I and II and Warehouse
credit facilities triggered by payments of the
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puttable debt will be accomplished by Kmart's replacement as
lender of existing loans to non-Kmart borrowers in such amount
4. Deposits and Setoff Provisions
- Kmart to maintain at all times cash and short-term investments ("Cash
and Cash Equivalents") in deposits on account with the Banks of
at least $400 million (the "Deposit Threshold"); provided, that if
Kmart has less than $400 million outstanding in Cash and Cash
Equivalents at any time, then such lesser amount outstanding shall be
maintained with the Banks; provided, further, that all amounts
maintained with non-Bank depository institutions in store depository
accounts as required by Kmart's business operations in the normal
course consistent with past practices shall be excluded from the
calculation of "Cash and Cash Equivalents"
- any deposits held by Banks in excess of the Deposit Threshold (as such
threshold may increase pursuant to the terms hereof) will be
made subject to a sharing arrangement with the holders of the puttable
debt on a pro rata basis
- concurrent with any pledge of collateral permitted hereunder to the
noteholders (except for the pre-existing single store collateral
substitution obligation pending from store closing in September 1995)
which results in a net increase in value, the Deposit Threshold will
be increased on a ratable basis to the extent of such increased value
(based on appraisals satisfactory to the agents) if the Banks are not
granted a lien on collateral with a ratably equivalent increased value
- set off provisions under the Facilities are to be revised to allow
each Bank to setoff against any amount deposited therewith,
even if greater than such Bank's outstanding obligations under the
Facilities, such amount to be shared with other Banks under all
Facilities on a ratable basis; in addition, among the Banks, they may
set off ratably among obligations owed to them outside the Facilities
and aggregate obligations of all Banks under all Facilities
5. Modification of Covenants
- prohibition against grant of liens by Kmart and its subsidiaries except
(i) liens on non-current assets and/or sale proceeds to secure
new indebtedness (Kmart to provide a specific list of assets to be
sold or to serve as collateral for new indebtedness); (ii) exceptions
set
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forth in paragraphs (a) through (d) of current lien limitation
provision; and (iii) collateral substitutions permitted under
the puttable debt documents as in effect on the date hereof,
except for a substitution arising from an existing store "going
dark" (other than the substitution referenced in paragraph 4),
which shall be prohibited
- prohibition against declaration or payment of common stock
dividends and making of other "restricted payments" by Kmart,
other than payment of previously declared 1995 common stock
dividends; provided, that dividends as to existing preferred
stock may only be declared or paid until such time as Kmart
declines any bona fide offer from the holders of its currently
outstanding preferred stock to enter into a definitive agreement
to convert such preferred stock
- prohibition against debt principal payments (other than
mandatory principal payments identified on a schedule) by Kmart
through February 28, 1997; upon making of scheduled payments to
noteholders, Banks to receive pro rata paydowns and permanent
reductions of Facilities
- Kmart to deliver to the Banks a comprehensive 1996 business plan
by January 23, 1996
- Kmart shall not enter into amendments of its puttable debt
documents (a) with respect to any increase in interest rates or
fees or (b) to provide for clarification of mortgagee's,
tenant's and landlord's rights and obligations under the
Bankruptcy Code with respect to ground leases or similar
arrangements, in each case without the consent of the Required
Banks under each of the Facilities (unless, in connection with
any amendment under clause (a), the Banks receive an equal basis
point increase per annum in the interest rate spreads payable
under the Facilities)
- Facilities to have "most favored nation status" as to new
covenants and defaults and enhancements of existing covenants
and defaults in puttable debt documents, with such status to
take effect as of the date hereof
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6. Fees and Expenses
- payment to consenting Banks of 1% amendment fee based on
outstandings under Seasonal, Big Beaver I and Big Beaver II
facilities, such fees to be payable upon execution of amendments
by noteholders, by all Banks under Seasonal facility, by 85% of
Banks under Big Beaver I facility and by Required Banks under
other Facilities
- Kmart to pay all expenses (including legal expenses) of [
] and [ ], as agents under the Facilities;
Banks to maintain existing contractual rights to receive payment
of expenses in respect of the Facilities
7. Modification of Defaults
- principal payments by Kmart or its affiliates to the noteholders
under transactions 1 through 7 which are not accompanied by a
ratable permanent reduction of the obligations under the
Facilities will create a default under the Facilities
- the cross acceleration provision under each Facility will be
modified to add a default upon the maturity of any of the
repurchase obligations under transactions 1 through 7
- a breach of any covenant contained in the documentation
governing any new financing which is not waived or amended by
the holders thereof within 45 days after the occurrence thereof
creates a matured event of default (after the giving of any
applicable notice and the expiration of any applicable cure
period) shall be added as a default
- a default shall occur if Kmart has incurred an aggregate
unreimbursed loss exceeding $15 million under the circumstances
described in paragraph 8 of the puttable debt term sheet,
without giving effect to (a) any change in the basket or time
periods specified therein or (b) any waiver thereof by the
noteholders
8. Conditions to Effectiveness
- approval by insurance companies of amendments to puttable debt
documents which conform to the term sheet dated December 17,
1995
- payment of fees
- approval by Banks under all Facilities in accordance with terms
of each of the agreements for the Facilities
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AGREEMENT IN PRINCIPLE
KMART CORPORATION
3100 WEST BIG BEAVER ROAD
TROY, MICHIGAN 48084-3163
As of December 18, 1995
To Each of the Persons Listed
on Exhibit A Hereto:
Pursuant to the terms of various documents and instruments referred to
on Exhibit B hereto (collectively, the "REPURCHASE DOCUMENTS"), as well as
certain other documents and instruments relating thereto and/or executed in
connection therewith (collectively, with the Repurchase Documents, the
"TRANSACTION DOCUMENTS") each of you (collectively, the "BONDHOLDERS") has
informed Kmart Corporation (the "COMPANY") that you are the direct or
beneficial holder of certain promissory notes, bonds and/or mortgage
pass-through certificates issued pursuant to the Transaction Documents
(collectively, the "OBLIGATIONS"). As owners of the Obligations, you assert the
right, following the occurrence of certain events set forth in the Transaction
Documents, which events may differ from document to document (collectively, a
"TRIGGERING EVENT"), and subject to various procedures, conditions and
restrictions contained in the Transaction Documents, to tender the Obligations
to the Company, and the Company, in turn, has the obligation to purchase the
Obligations (such rights being referred to herein as the "REPURCHASE RIGHTS").
Attached hereto as Exhibit C is a term sheet entitled "Kmart
Corporation Restructuring Concepts Re: Put Bonds" (the "TERM SHEET"). This
agreement and the Term Sheet together summarize the principal terms and
conditions relating to the proposed restructuring of the Repurchase Rights and
the related Transaction Documents (the "PROPOSED RESTRUCTURING").
To evidence (i) your agreement in principle to the terms of this
agreement and the Term Sheet, (ii) your agreement, subject to the terms of this
agreement, the Term Sheet and the nonoccurrence of a Termination Event (as
defined below), to forbear from exercising the Repurchase Rights, or to direct
any applicable Trustee on your behalf to forbear from such exercise, as the
case may be, and (iii) your agreement, subject to the satisfaction of the
Closing Conditions (as defined below) and the nonoccurrence of a Termination
Event, to execute and deliver appropriate documentation to effectuate the
Proposed Restructuring, please execute two copies of this agreement and return
one fully-executed counterpart to the Company.
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As used herein, the "CLOSING CONDITIONS" shall mean and include the
acceptable completion and satisfaction of all of the following, as determined by
the Bondholders, the Company and their respective counsel:
(i) the approval, authorization, execution and delivery of
documentation by each of the Bondholders, the Company, and any issuer of
the Obligations if applicable, which reflects and implements the Term
Sheet and this agreement with respect to each such person, and which is
in form, scope and substance satisfactory to each of the Bondholders,
the Company and their respective counsel;
(ii) the payment by the Company of all fees and expenses
incurred by the Bondholders in connection with the Proposed
Restructuring, including payment of attorneys' fees as provided in the
Term Sheet;
(iii) the delivery of an opinion of counsel from one or more
of the counsel to the Company in favor of the Bondholders with respect
to (a) the legal existence and good standing of the Company, (b) the
authority of the Company to enter into the Proposed Restructuring, (c)
the due execution and delivery of the documentation effectuating the
Proposed Restructuring, (d) the obligations of the Company under the
Transaction Documents, as modified, being legal, valid, binding and
enforceable in accordance with their terms (subject to customary
exceptions to be discussed), (e) the compliance of the Proposed
Restructuring with applicable securities laws and other laws, rules and
regulations applicable to the Company, and (f) such other customary
matters to be discussed concerning the Proposed Restructuring and the
amended Transaction Documents as the Bondholders may reasonably request;
(iv) the prior or substantially simultaneous closing of the
modification of the Bank Loans (as defined below) in accordance with the
terms of the bank term sheet attached hereto as Exhibit D; and
(v) the mutually satisfactory resolution of those items in
the Term Sheet which are designated as unresolved or to be discussed, if
any.
For purposes of this agreement and the Term Sheet, the "BANK LOANS"
shall mean those certain loans to the Company, or affiliates of the Company, as
the case may be, made pursuant to and as evidenced by: (i) the 364-Day Credit
Agreement dated as of October 5, 1995, with [ ], as agent, pursuant
to which the Company held an initial commitment of up to $700,000,000, (ii) the
Warehouse Facility Credit Agreement dated as of October 7, 1994, with [
], as agent, pursuant to which the Company held an initial
commitment of up to $500,000,000, (iii) the Three-Year Credit Agreement dated as
of October 7, 1994, with [ ], as agent, pursuant to which the
Company held an initial commitment of up to $1,465,000,000, (iv) the Loan
Agreement dated as of January 21, 1992, with [ ], as agent,
pursuant to which the Company held an initial commitment of up to $200,000,000
("BIG BEAVER I"), (v) the Loan Agreement dated as of August 7, 1992, with
[ ], as agent, pursuant to which the Company held an initial
commitment of up to $200,000,000 ("BIG BEAVER II"), (vi) the Seasonal Credit
Agreement dated as of October 5, 1995, with [ ], as agent, pursuant
to which the Company held an initial commitment of
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up to $300,000,000 and (vii) such other loan agreements as may amend, restate,
replace or supersede the foregoing agreements.
As used herein, a "TERMINATION EVENT" shall mean the occurrence of any
of the following events, unless waived by the Bondholders that hold 90% of the
Obligations held by all Bondholders, in their sole and absolute discretion:
(i) any Closing Conditions remain unsatisfied on February
29, 1996;
(ii) any material misrepresentation by the Company or its
representatives regarding any of the information provided by the Company
or such representatives in connection with the discussions and
negotiations regarding the Proposed Restructuring;
(iii) at any time prior to the date of the closing of the
Proposed Restructuring, the Company makes (a) any payment on exercised
put rights under Big Beaver I or Big Beaver II, or (b) any payment on
exercised Repurchase Rights in transactions 1 through 7;
(iv) any event or the existence of any condition arising or
developing after the date hereof (other than a down-grade in the
Company's credit rating or a decline in the Company's stock price) which
has a material adverse effect on the business, financial condition,
operations, assets or prospects of the Company, or the Company and its
subsidiaries, taken as a whole, or on the Company's ability to perform
its obligations arising out of the documents and agreements to be
delivered in connection with the Proposed Restructuring; or
(v) the Company fails to act in accordance with paragraphs
2(a), 3(a), 4 or 8 of the Term Sheet as if the Proposed Restructuring
had been effective as of the date hereof.
Upon the occurrence of a Termination Event this agreement shall
terminate. Upon the termination of this agreement, at the sole and exclusive
option of the Bondholders (each of which may act independently), and provided a
Triggering Event shall have previously occurred, (i) the Obligations of such
Bondholder(s) shall be deemed to be tendered to the Company for purchase, (ii)
the applicable Repurchase Rights shall be deemed to have been fully exercised
in all respects, (iii) any and all amounts payable by the Company in respect
thereof shall be immediately due and payable, and (iv) all procedures,
conditions, restrictions, demands and presentment otherwise applicable
thereto, including any notice obligations, shall be deemed to have been waived
by the Company (and are hereby waived by the Company, effective upon the
occurrence of any Termination Event). Upon the termination of this agreement,
if no Triggering Event shall have previously occurred, the rights of each
Bondholder with respect to the subsequent occurrence of any Triggering Event
shall be governed by each Bondholder's respective Transaction Documents.
Except as specifically provided herein, neither this agreement nor the
occurrence of a Termination Event hereunder shall have the effect of amending,
modifying or waiving in any respect any of the terms of the Transaction
Documents, or any other documents or agreements between or among the Company
and any of the Bondholders, or any rights or remedies of the
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Bondholders thereunder which are hereby expressly reserved. Each of said
agreements and documents shall remain in full force and effect in accordance
with their respective terms unless and until modified or superseded by the
execution and delivery of the definitive restructuring documentation
contemplated in clause (i) of the Closing Conditions.
Until the earlier to occur of a Termination Event or the closing of the
Proposed Restructuring, no Bondholder shall sell, assign, or otherwise transfer
any or all of its interest in its Repurchase Rights unless and until the
purchaser, assignee or transferee shall agree in writing (in form reasonably
acceptable to the Company and the other Bondholders) to be bound by the terms
and conditions of this agreement and that certain Confidentiality Agreement
among the Company and the Bondholders.
The Company hereby acknowledges that this agreement has been executed
by each of the Put Bondholders in express reliance upon information furnished
by the Company, which information is hereby certified to the best of the
Company's knowledge based on due inquiry to be true and correct in all material
respects.
The foregoing notwithstanding, the Bondholders recognize that much of
the financial information that the Company or its representatives disclosed (or
may subsequently disclose) to the Bondholders consists of internally generated
analyses prepared solely for the purpose of evaluating, among other things, the
financial aspects of the Company's operations. Such information is not prepared
in accordance with generally accepted accounting principles and has not
undergone the review procedures that would typically accompany a formal audit
process. Further, while the Company has provided you with certain information
in response to your request, there can be no assurance that the Company has
provided the Bondholders with all of the information that you might consider
materially relevant to the consideration of the matters set forth in this
agreement and the Term Sheet. Further, the information provided to the
Bondholders with respect to anticipated performance will necessarily reflect
assumptions (some of which may not be stated) by the Company which are
inherently subject to significant economic, competitive and other uncertainties
and contingencies beyond the Company's control and that may or may not prove to
be accurate.
If the amendments to the Transaction Documents contemplated hereby are
deemed to be the offering of securities to the Bondholders, the Company intends
to avail itself of the exemption from registration provided in Section 4(2) of
the Securities Act of 1933, as amended.
This agreement may be executed in any number of identical counterparts,
each of which for all purposes shall be deemed an original, but all of which
shall constitute collectively one agreement. No party to this agreement shall
be bound until a counterpart of this agreement shall have been executed and
delivered by such party.
Subject to the terms and conditions hereof and of the Term Sheet, each
party hereto or person or entity subject hereto shall do and perform, or cause
to be done and performed, all such further acts and things and shall execute
and deliver all such other agreements, certificates, instruments and documents
as any other party hereto, or person or entity subject hereto may reasonably
request in order to carry out the intent and accomplish the purposes of this
agreement and the consummation of the Proposed Restructuring.
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THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CHOICE OF
LAW PRINCIPLES THEREOF.
Very truly yours,
KMART CORPORATION
By:______________________
Name:
Title:
[ ]
5
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EXHIBIT A
BONDHOLDERS
[ ]
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EXHIBIT B
REPURCHASE DOCUMENTS
TRANSACTION REPURCHASE DOCUMENT
- --------------------------------------------------------------------------------
No. 1 - Greensboro ($37.68 MM) NPA Note Purchase Agreement dated as of
May 29, 1992, [ ]
No. 2 - [ ] 11 Properties Trust Indenture dated as of January
($71.418 MM) NPA 1, 1992, [ ]
No. 3 - Hawaii/California ($42 MM) NPA Trust Indenture dated as of May 28,
1993, [ ]
No. 4 - [ ] 4 Kmart Stores Note Purchase Agreement dated as of
($64.523 MM) NPA January 21, 1993, [ ]
No. 5A - [ ] Sheffield Note Purchase Agreement dated as of
($8.555 MM) NPA December 1, 1992, [ ]
No. 5B - [ ] 3 Kmart Stores Note Purchase Agreement dated as of
($13.060 MM) NPA December 1, 1992, [ ]
No. 6 - [ ] 10 Properties Indenture dated as of December 28,
($100.505 MM) Sale/Leaseback 1992, [ ]
Bond Put Agreement dated as of
December 22, 1992, [ ]
No. 7 - Utica Park ($31.9 MM) Trust Agreement dated as of July 1,
Sale/Leaseback 1992, [ ]
Note Put Agreement dated as of July
1, 1992, [ ]
B-1
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EXHIBIT C
TERM SHEET
December 17, 1995
KMART CORPORATION
RESTRUCTURING CONCEPTS
RE: PUT BONDS
1. REPURCHASE OBLIGATION AND TERM. The existing note maturities and
payment schedules, inclusive of amortization, will remain in
place, but the put obligations with respect to deals 1 through 7,
inclusive of the put price premium (collectively, the "Repurchase
Obligations"), will be direct non-contingent claims against Kmart. The
Repurchase Obligations will be due and payable upon the first to occur
of (i) October 3, 1997, (ii) acceleration of any of the 6 bank lines,
(iii) a payment default (which may be waived only with the consent of
the holders of 100% of the Repurchase Obligations) or any other event
of default under the restructuring documentation (which may be waived
only with the consent of the holders of 51% of the Repurchase
Obligations), or (iv) a voluntary bankruptcy filing by Kmart, or an
involuntary bankruptcy filing against Kmart if not dismissed within 90
days (the first date on which the Repurchase Obligations are payable
being referred to herein as the "Payment Date"). The occurrence of a
debt rating decline will be eliminated as a triggering event and the
repurchase price will be calculated on the Payment Date based upon
present coupon rates and the then remaining maturities of the
underlying notes. The new structure will not modify existing rights, if
any, which may be available under Bankruptcy Code Section 555 to
liquidate securities contracts in the event of bankruptcy.
2. REDUCTIONS AND PAY-DOWN TRUST ACCOUNT. Except as provided below, the
Repurchase Obligations shall become immediately due and payable
if Kmart makes or permits a reduction of amounts presently outstanding
under the 6 bank lines totalling approximately $2.69 billion (to be
verified as of December 22, 1995). These restrictions would be
eliminated if and when the banks were to enter into a mutually
satisfactory "true-up" agreement with the Bondholders.
(a) If, at any time, Kmart makes any reduction in the indebtedness
currently outstanding under any of the bank lines
(excluding the two Big Beaver facilities and the Warehouse
facility) totalling approximately $2.144 billion (to be
verified as of December 22, 1995) (the "Current Line Debt"),
then Kmart shall make a pro rata payment to the Bondholders
payable upon the expiration of ten business days (which will be
applied as a credit against the Repurchase Obligations at par,
and not as a principal prepayment of the existing notes and
bonds). For purposes hereof, reductions in the Current Line
Debt will include (i) LC payments or LC roll-offs, (ii)
refinancing of any Current Line Debt unless such debt is at
least equal in amount to the Current Line Debt, is unsecured
(unless otherwise permitted by the Negative Pledge provisions),
and has a term equal to or longer than the existing maturity of
the bank line(s) being refinanced, and (iii) any other source
which causes a reduction in the Current Line Debt, but
will exclude (a) any reductions which are replaced with a new
unsecured borrowing (unless otherwise permitted by the Negative
Pledge provisions) or a new unsecured LC (unless otherwise
permitted by the Negative Pledge provisions) under such bank
lines within ten business days following such reduction, or (b)
any reductions which do not exceed, in the aggregate, the pro
rata portion of the Current Line Debt allocable to the
principal amortization of the existing notes and bonds or the
reduction of
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the Repurchase Obligations received by the Bondholders between
the date of closing and the date of determination.
(b) If, at any time prior to October 3, 1997, a reduction is made in
the indebtedness currently outstanding under either of the Big
Beaver facilities or the Warehouse facility (whether at maturity
or otherwise) totaling approximately $545 million (to be
verified as of December 22, 1995) (the "Current Real Estate
Debt", and collectively with the Current Line Debt, the "Current
Bank Debt"), Kmart shall deposit a pro rata sum into a pay-down
trust account to be held by an independent trustee for the equal
and ratable benefit of the holders of the Repurchase Obligations
as their interests may appear from time to time. At such time as
(i) Kmart makes a subsequent funding request under either of the
Big Beaver facilities or the Warehouse facility which complies
with the applicable lending conditions, and (ii) the banks
advance their pro rata share in response thereto, the trustee
will release to Kmart a pro rata share of such funding request
of the funds then on deposit in the Pay-Down Trust Account.
(c) The trustee shall distribute monies in the trust account to the
Bondholders ratably based upon the par amount of their
Repurchase Obligations upon the following events in the
following proportions: (i) at such time as there is a
termination or reduction of any portion of the unfunded
commitments below the Current Real Estate Debt under Big Beaver
I, Big Beaver II or the Warehouse facility, the trustee shall
distribute an equal percentage amount of the trust funds, and
(ii) upon a Payment Date, the Trustee shall distribute the full
amount of the trust funds. Any such distribution will be applied
as a credit against the Repurchase Obligations at par, and not
as a principal prepayment of the existing notes and bonds.
(d) For purposes of this paragraph 2, the pro rata calculations
shall be based upon outstanding balances from time to time
(after giving effect to permitted reductions) of (i) in the case
of banks, the Current Bank Debt, and (ii) in the case of
Bondholders, the par amount of the aggregate Repurchase
Obligations.
(e) All required reductions of the Repurchase Obligations made
pursuant to the provisions of this Term Sheet shall be at par,
provided, however, that the applicable put premium or make-whole
premium shall be due and payable with respect to (i) elective
reductions of the Repurchase Obligations, (ii) prepayments in
whole of the Repurchase Obligations, and (iii) principal
prepayments on the existing notes and bonds.
3. NEGATIVE PLEDGE/SETOFF SHARING.
(a) Negative pledge extending to all assets of Kmart and its
subsidiaries. Carve-outs from the negative pledge will include
(i) the ordinary course carve-outs contained in the existing
bank negative pledge, (ii) carve-outs for liens on non-current
assets and/or sale proceeds to the extent of new credit extended
by any party over and above the Current Bank Debt, and (iii)
carve-outs for the setoff rights of the banks in accordance with
the term sheet (entitled "Summary of Indicative Terms" set forth
in Exhibit D to the Agreement in Principle, the "Bank Term
Sheet"). Kmart to provide a more specific list of assets which
are for sale or could serve as collateral for new money (the
"Proposed Asset Sales"). The negative pledge in favor of the
Bondholders will be subject to amendment or waiver only upon the
affirmative vote of the Bondholders holding 51% of the
Repurchase Obligations.
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<PAGE> 19
(b) Mutually acceptable setoff sharing agreement with the banks in
favor of the Bondholders concerning setoff rights relating to
all deposits maintained by Kmart with its line banks exceeding
the "Deposit Threshold" as defined in the Bank Term Sheet (such
agreement to be in form, scope and substance satisfactory to the
Bondholders and the banks). Setoff sharing will be ratable based
upon Current Bank Debt and the par amount of the Repurchase
Obligations.
4. COVENANTS. Financial covenants and negative covenants to be the same as
provided in the existing bank lines (subject to modification to (i)
conform to the Negative Pledge provisions hereof, and (ii) permit the
Proposed Asset Sales), with "most favored nation status" with Current
Bank Debt as to any new covenants or defaults, enhancements of existing
covenants or defaults, or covenants or new or enhanced defaults in any
refinancing of Current Bank Debt (but not to covenants or defaults
relating to any new credit over and above Current Bank Debt) with such
status to take effect as of the date hereof. The restructuring shall
include a default upon (a) the payment of common dividends other than
previously declared 1995 common stock dividends, (b) the payment of
dividends as to existing preferred stock after such time as Kmart
declines any bona fide offer from the holders of its currently
outstanding preferred stock to enter into a definitive agreement to
convert such preferred stock, or (c) a breach of any covenant contained
in the documentation governing any new financing in excess of the
Current Bank Debt which is not waived or amended by the holders thereof
within 45 days after the occurrence thereof creates a matured Event of
Default (after the giving of any applicable notice and the expiration of
any applicable cure periods) (with the Bondholders having no vote as to
such amendment or waiver). Financial reporting requirements to be
discussed, but Bondholders will, at a minimum, receive (x) any financial
information, projections and business plans as and when provided to the
banks, and (y) a comprehensive 1996 business plan not later than January
23, 1996. The covenants in favor of the Bondholders will be subject to
amendment or waiver only upon the affirmative vote of the Bondholders
holding 51% of the Repurchase Obligations.
5. PRICING. Kmart will pay a one-time restructuring fee equal to 100 basis
points on the par value of the Repurchase Obligations. In addition,
Kmart will make quarterly extension-fee payments in an amount equal to
75 basis points per annum on the par value of the Repurchase
Obligations. If, as a result of any paydowns of the Repurchase
Obligations made pursuant to Paragraph 2 above, the effective rate of
interest received on the existing bonds is greater than the existing
coupon rate on such bonds, Kmart shall receive a credit for such excess
against future payments. Amounts held, but not yet distributed to the
Bondholders, in the Pay-Down Trust Account shall not reduce the
Repurchase Obligations for purposes of calculating the quarterly
extension fee.
6. COLLATERAL SUBSTITUTION. Except for the pre-existing single-store
substitution obligation in Deal 2 pending from a store closing in
September, 1995, Kmart's mandatory collateral substitution obligations
arising from an existing store "going dark" will be suspended until the
Payment Date. All other collateral substitution requirements, if any,
will trigger a proportional increase in the banks' "Deposit Threshold"
for the incremental improvement in value caused by the substitution. The
Bondholders' existing rights to any proceeds of any casualty or
condemnation will be unaffected by the restructuring.
7. TRANSACTIONS 6 AND 7. Deal 6 will be restructured to sever the
collateral into two segments comprised of Kmart properties and non-Kmart
properties. The segments will not be cross-collateralized and will each
secure only that portion of the debt which is allocable to the
properties in the relevant segment, such that the bonds secured by the
non-Kmart properties will be independently saleable at the option of
each of the
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<PAGE> 20
respective Bondholders. If requested in writing by the Bondholders in
Deal 7, Kmart will reasonably cooperate with the Bondholders and the
equity owner in Deal 7 to expeditiously create a suitable real estate
vehicle in order to implement a structure similar to that described for
Deal 6. Any Bondholder which retains its interest in the non-Kmart
segment of Deal 6 or 7 will continue to have the benefit of the
Repurchase Obligations with respect thereto. If any Bondholder sells
such interest, such sale shall be made free of the associated Repurchase
Obligations (inclusive of put price premium) which will thereupon be
automatically extinguished. Kmart will have no obligation to purchase
any such bonds which may be offered or sold.
8. TRANSACTIONS 8 THROUGH 11. If any or all of the Bondholders in
Deals 8 through 11 exercise their respective puts against
Kmart, Kmart shall (i) timely honor the exercise thereof and pay to such
holder or holders the amount required to purchase the tendered
securities as required under the applicable existing agreements
(inclusive of any put premium, the "Purchase Amount"), and (ii) promptly
sell the tendered securities and seek reimbursement from the applicable
spin-off tenants for the difference between the Purchase Amount and the
net proceeds realized upon sale of the tendered securities. If, within
one hundred twenty days after honoring the exercise of the put, Kmart
has incurred an aggregate unreimbursed loss exceeding $15 million, the
Repurchase Obligations will be due and payable in full within 10 days
thereafter (basket amount and time periods are subject to increase only
upon the mutual agreement of Kmart and Bondholders holding 51% of the
Repurchase Obligations; and subject to decrease only upon the mutual
agreement of Kmart and Bondholders holding 100% of the Repurchase
Obligations).
9. EXPENSES. Kmart agrees to pay all reasonable fees and expenses of Hebb &
Gitlin, as group counsel to the Bondholders, incurred in connection with
the negotiation and documentation and closing of related definitive
documentation, any post-closing monitoring or evaluation of the rights
of the Bondholders with respect to the matters contemplated by the
restructuring, and any further amendment or waiver requests related
thereto.
Kmart also agrees to pay all reasonable fees and expenses of (i) [
], as counsel to [
], and the Bondholders in Deal 2, (ii) [
], as counsel to [ ], (iii)
[ ], as counsel to [
], and (iv) [ ], as counsel to [
], incurred in connection with the negotiation,
documentation and closing of this Term Sheet and related definitive
documentation. With respect to any future counsel fees of the individual
Bondholders, Kmart will pay fees and expenses of counsel only in
accordance with the provisions of the existing documentation, unless
otherwise agreed.
10. RESTRUCTURING OF BANK LINES. Outstandings under the existing bank lines
shall remain outstanding without reductions except as described in
paragraph 2 hereof, and shall be restructured in accordance with the
Bank Term Sheet. Without the affirmative vote of the Bondholders holding
51% of the Repurchase Obligations, Kmart will not modify or amend any of
the agreements relating to any of the existing bank lines with respect
to any increase in interest rates or fees charged on the Current Bank
Debt (unless, in connection therewith, the Bondholders receive an equal
basis point increase per annum in the quarterly extension fee payable on
the Repurchase Obligations).
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<PAGE> 21
Exhibit D 12/17/95
Bank Term Sheet
Summary of Indicative Terms
The following is a summary of the principal terms of proposed
amendments to the six bank facilities (the "Facilities") extended to Kmart
Corporation ("Kmart") and/or its real estate development affiliates
(capitalized terms not otherwise defined herein shall have the meanings
ascribed thereto in the agreements governing the Facilities):
1. Maturities
- amend maturities of Seasonal, Big Beaver I (by Banks with at least
85% of the obligations thereunder) and Big Beaver II facilities
to February 28, 1997 and eliminate ratings-based defaults; other
Facilities will mature on October 3, 1997
2. Interest Rates
- change interest rates for Facilities as follows: 350 basis points
over LIBOR or 250 basis points over prime for Seasonal, Big
Beaver I and Big Beaver II facilities and 200 basis points over
LIBOR or 100 basis points over prime for other Facilities, in each
case at Kmart's option; the CD Rate option will be eliminated
3. Additional Borrowings and Principal Repayments
- after December 22, 1995 (the "Agreement Date"), additional
borrowings in excess of paydowns will be conditioned on the
approval of the Required Banks
- no principal repayments (other than third party prepayment
obligations under the Big Beaver I and II and Warehouse credit
facilities) required under any Facility until the termination
thereof (whether upon maturity or otherwise)
- letters of credit may be issued under the Three Year Credit
Facility to the extent of paydowns thereunder (except paydowns
otherwise required hereunder) after the Agreement Date, so long
as no default exists thereunder or would be caused thereby and
without compliance with conditions to borrowing other than
delivery mechanics to be determined; provided, that the Required
Banks, at their discretion, may refuse to accept additional
paydowns and be required to issue letters of credit
- ratable mandatory payments of the Big Beaver I and II and
Warehouse credit facilities triggered by payments of the
<PAGE> 22
puttable debt will be accomplished by Kmart's replacement as
lender of existing loans to non-Kmart borrowers in such amount
4. Deposits and Setoff Provisions
- Kmart to maintain at all times cash and short-term investments
("Cash and Cash Equivalents") in deposits on account with the
Banks of at least $400 million (the "Deposit Threshold");
provided, that if Kmart has less than $400 million outstanding in
Cash and Cash Equivalents at any time, then such lesser amount
outstanding shall be maintained with the Banks; provided, further,
that all amounts maintained with non-Bank depository institutions
in store depository accounts as required by Kmart's business
operations in the normal course consistent with past practices
shall be excluded from the calculation of "Cash and Cash
Equivalents"
- any deposits held by Banks in excess of the Deposit Threshold (as
such threshold may increase pursuant to the terms hereof) will
be made subject to a sharing arrangement with the holders of the
puttable debt on a pro rata basis
- concurrent with any pledge of collateral permitted hereunder to
the noteholders (except for the preexisting single store
collateral substitution obligation pending from store closing in
September 1995) which results in a net increase in value, the
Deposit Threshold will be increased on a ratable basis
to the extent of such increased value (based on appraisals
satisfactory to the agents) if the Banks are not granted a lien on
collateral with a ratably equivalent increased value
- set off provisions under the Facilities are to be revised to allow
each Bank to setoff against any amount deposited therewith,
even if greater than such Bank's outstanding obligations under the
Facilities, such amount to be shared with other Banks under all
Facilities on a ratable basis; in addition, among the Banks, they
may set off ratably among obligations owed to them outside the
Facilities and aggregate obligations of all Banks under all
Facilities
5. Modification of Covenants
- prohibition against grant of liens by Kmart and its subsidiaries
except (i) liens on non-current assets and/or sale proceeds to
secure new indebtedness (Kmart to provide a specific list of
assets to be sold or to serve as collateral for new indebtedness);
(ii) exceptions set
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<PAGE> 23
forth in paragraphs (a) through (d) of current lien limitation
provision; and (iii) collateral substitutions permitted under
the puttable debt documents as in effect on the date hereof,
except for a substitution arising from an existing store "going
dark" (other than the substitution referenced in paragraph 4),
which shall be prohibited
- prohibition against declaration or payment of common stock
dividends and making of other "restricted payments" by Kmart,
other than payment of previously declared 1995 common stock
dividends; provided, that dividends as to existing preferred
stock may only be declared or paid until such time as Kmart
declines any bona fide offer from the holders of its currently
outstanding preferred stock to enter into a definitive agreement
to convert such preferred stock
- prohibition against debt principal payments (other than
mandatory principal payments identified on a schedule) by Kmart
through February 28, 1997; upon making of scheduled payments to
noteholders, Banks to receive pro rata paydowns and permanent
reductions of Facilities
- Kmart to deliver to the Banks a comprehensive 1996 business plan
by January 23, 1996
- Kmart shall not enter into amendments of its puttable debt
documents (a) with respect to any increase in interest rates or
fees or (b) to provide for clarification of mortgagee's,
tenant's and landlord's rights and obligations under the
Bankruptcy Code with respect to ground leases or similar
arrangements, in each case without the consent of the Required
Banks under each of the Facilities (unless, in connection with
any amendment under clause (a), the Banks receive an equal basis
point increase per annum in the interest rate spreads payable
under the Facilities)
- Facilities to have "most favored nation status" as to new
covenants and defaults and enhancements of existing covenants
and defaults in puttable debt documents, with such status to
take effect as of the date hereof
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<PAGE> 24
6. Fees and Expenses
- payment to consenting Banks of 1% amendment fee based on
outstandings under Seasonal, Big Beaver I and Big Beaver II
facilities, such fees to be payable upon execution of amendments
by noteholders, by all Banks under Seasonal facility, by 85% of
Banks under Big Beaver I facility and by Required Banks under
other Facilities
- Kmart to pay all expenses (including legal expenses) of [
], as agents under the Facilities; Banks
to maintain existing contractual rights to receive payment of
expenses in respect of the Facilities
7. Modification of Defaults
- principal payments by Kmart or its affiliates to the noteholders
under transactions 1 through 7 which are not accompanied by a
ratable permanent reduction of the obligations under the
Facilities will create a default under the Facilities
- the cross acceleration provision under each Facility will be
modified to add a default upon the maturity of any of the
repurchase obligations under transactions 1 through 7
- a breach of any covenant contained in the documentation
governing any new financing which is not waived or amended by
the holders thereof within 45 days after the occurrence thereof
creates a matured event of default (after the giving of any
applicable notice and the expiration of any applicable cure
period) shall be added as a default
- a default shall occur if Kmart has incurred an aggregate
unreimbursed loss exceeding $15 million under the circumstances
described in paragraph 8 of the puttable debt term sheet,
without giving effect to (a) any change in the basket or time
periods specified therein or (b) any waiver thereof by the
noteholders
8. Conditions to Effectiveness
- approval by insurance companies of amendments to puttable debt
documents which conform to the term sheet dated December 17,
1995
- payment of fees
- approval by Banks under all Facilities in accordance with terms
of each of the agreements for the Facilities
-4-
