EXHIBIT 4.2
FIRST AMENDMENT TO REVOLVING CREDIT AND
GUARANTY AGREEMENT
FIRST AMENDMENT, dated as of February 15, 2002 (the "Amendment"), to
the REVOLVING CREDIT AND GUARANTY AGREEMENT, dated as of January 22, 2002, among
KMART CORPORATION, a Michigan corporation (the "Borrower"), a debtor and
debtor-in-possession under Chapter 11 of the Bankruptcy Code, the Guarantors
named therein (the "Guarantors"), JPMORGAN CHASE BANK, a New York banking
corporation ("JPMorgan Chase"), each of the other financial institutions party
thereto (together with JPMorgan Chase, the "Banks") and JPMORGAN CHASE BANK, as
Agent for the Banks (in such capacity, the "Agent"):
WITNESSETH:
WHEREAS, the Borrower, the Guarantors, the Banks and the Agent are
parties to that certain Revolving Credit and Guaranty Agreement, dated as of
January 22, 2002, (as the same may be amended, modified or supplemented from
time to time, the "Credit Agreement"); and
WHEREAS, the Borrower and the Guarantors have requested that from and
after the Effective Date (as hereinafter defined) of this Amendment, the Credit
Agreement be amended subject to and upon the terms and conditions set forth
herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. As used herein, all terms that are defined in the Credit
Agreement shall have the same meanings herein.
2. Section 1.01 of the Credit Agreement is hereby amended by
inserting the following new definitions in appropriate alphabetical order:
"Adjusted Eligible Inventory Amount" shall be equal to (a) the
Eligible Inventory Amount less (b) the Inventory Reserves.
"Appraisal Inventory Value" shall be equal to (i) Gross
Inventory Value per the stockledger, plus (ii) scan-based
trading, less, to the extent included therein, (iii)
in-transit from vendors, miscellaneous and wholesaler freight
fees, and consigned inventory, and (iv) plus or minus any
other reconciling items, calculated in a manner consistent
with the initial appraisal performed in January - February
2002.
"DC" shall mean any distribution center owned or leased and
operated by the Borrower or any Guarantor.
"Effective Advance Rate" shall be stated as a percentage equal
to the Net Available Inventory Amount divided by the Gross
Inventory Value.
"Eligible Inventory Amount" shall mean, on the last day of any
fiscal week, without duplication, the Gross Inventory Value of
Inventory held for sale to third party customers of the
Borrower and the Guarantors at the time of such determination
that is not ineligible for inclusion in the calculation of the
Borrowing Base pursuant to any of clauses (a) through (r)
below. Without limiting the foregoing, to qualify as "Eligible
Inventory Amount" no Person other than the Borrower or the
Guarantors, as applicable, shall have any direct or indirect
ownership, interest or title to such Inventory and no Person
other than the Borrower and the Guarantors, as applicable,
shall be indicated on any purchase order or invoice with
respect to such Inventory as having or purporting to have an
interest therein. Unless otherwise from time to time approved
in writing by the Agent, no Inventory shall be deemed included
in the Eligible Inventory Amount if, without duplication:
(a) the Borrower or the Guarantors do not have sole
and good, valid and unencumbered title thereto (except for
Liens expressly permitted by Section 6.01 (iii) or (vi) or
Liens for taxes not yet due or which are being contested in
good faith by appropriate proceedings and with respect to
which adequate reserves or other appropriate provisions are
being maintained in accordance with GAAP); or
(b) it is not located in the United States, Puerto
Rico or U.S. Virgin Islands; or is located in Guam; or
(c) it is not located at property owned or leased by
the Borrower or the Guarantors (except to the extent such
Inventory is in transit between such locations) or is located
at a third party warehouse or is located at a closed Store
(except pursuant to clause (f)) or is located at a closed DC;
or
(d) it is identified as accrued Inventory without a
receiver in the Borrower's or Guarantors' stockledger; or
(e) it is not subject to a valid and perfected first
priority Lien in favor of the Agent for the benefit of the
Agent and the Banks; or
(f) it is Inventory located at a Store which is being
closed; provided however that such Inventory will be deemed
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eligible for the first four (4) weeks after the commencement
of the Store Closure Sale for that Store; or
(g) it is consigned from a vendor or is at a customer
location but still accounted for in the Borrower's or the
Guarantors' inventory balance, or is scanned-based trading
(such as greeting cards); or
(h) it is in-transit from a vendor, and has not yet
been received into a DC or Store; or
(i) it is identified in the stockledger of the
Borrower or any Guarantor as any of the following departments
or consists of Inventory which is ordinarily classified by the
Borrower or such Guarantor consistent with its historical
practices as the following: bakery; dairy; deli; digital
imaging, photofinishing and 1 hour lab; floral; gasoline; home
fragrances and party supplies; live plants; meat;
miscellaneous or other as classified on the Borrower's or such
Guarantor's stockledger; produce; books; magazines; restaurant
operations; or seafood; or
(j) it is Inventory that is packed-away and stored at
a DC or a Store for future sale; or
(k) from and after the delivery by the Borrower of
the first weekly Borrowing Base Certificate after a specified
holiday or event has occurred, any Inventory (other than
seasonal apparel) identified as seasonal per the Borrower's
and the Guarantors' stockledger for sale for such specific
holiday or event; or
(l) it is identified as wholesaler freight fees; or
(m) from and after any date that is more than four
(4) weeks past a specified selling season, any Inventory that
is seasonal apparel and that the Borrower or the Guarantors
have identified, in accordance in all material respects with
the Borrower's and Guarantors' current or historical
accounting practices, as related to such specific selling
season; or
(n) it is identified per the Borrower's and the
Guarantors' stockledger as candy, provided that it will only
be considered ineligible to the extent that the Inventory
Value thereof is greater than 2% of Gross Inventory Value; or
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(o) it is identified per the Borrower's and the
Guarantors' stockledger as Inventory on layaway, or a third
party has placed a deposit on the specific Inventory; or
(p) it is identified by the Borrower and the
Guarantors as Inventory in a vending machine based on their
reasonable estimate of the Inventory Value of such Inventory
from time to time; or
(q) it is identified per the Borrower's and the
Guarantors' stockledger as Inventory that is in a leased
department; or
(r) it is otherwise deemed ineligible by the Agent in
its reasonable discretion acting with the consent of the
Co-Collateral Monitors on at least five (5) Business Days'
notice to the Borrower.
"Gross Available Inventory Amount" shall be equal to (a)
Adjusted Eligible Inventory Amount multiplied by (b) the
advance rate of 60%, which may be modified from time to time
at the Agent's reasonable discretion acting with the consent
of the Co-Collateral Monitors on at least five (5) Business
Days' notice to the Borrower.
"Gross Inventory Value" shall mean, at any week end, the
Inventory Value of the Inventory for Stores and DCs per the
Borrower's and the Guarantors' stockledger.
"Inventory" shall mean (a) as of any date of determination,
"inventory", as defined in the Uniform Commercial Code as in
effect in the State of New York and (b) all finished goods,
xxxx and merchandise, finished or unfinished parts,
components, assemblies held for sale to third party customers
based on stockledgers or perpetual inventory reports, defined
and classified by the Borrower and the Guarantors on a basis
consistent in all material respects with current and
historical accounting practice in accordance with GAAP.
"Inventory Reserves" shall mean the following:
(a) a reserve for shrink, or discrepancies that arise
between Inventory quantities on hand per the Borrower's or the
Guarantors' unit inventory system, and physical counts of the
Inventory which will be equal to the greater of (i)
$75,000,000; (ii) the mathematical average of the shrink
results from the past three
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year's physical inventories expressed as a percent of sales,
multiplied by sales for the relevant year-to-date period and
adjusted for the cost complement for the relevant year-to-date
period; but only to the extent such amount exceeds reserves
already netted out of the Gross Inventory Value per the
stockledger; or (iii) an amount determined by the Agent in its
reasonable discretion acting with the consent of the
Co-Collateral Monitors on five (5) Business Days' notice to
the Borrower (such reserve for shrink to be recalculated by
the tenth day after each month end and reflected on each
Borrowing Base Certificate delivered by the Borrower after
such date until the amount of such reserve is recalculated
pursuant hereto); and
(b) a reserve for intracompany profit, equal to the
most recent three (3) fiscal months of capitalized cost of the
foreign buying offices owned and operated by the Borrower or
any Guarantor, with the time frame subject to change on five
(5) Business Days' notice to the Borrower based on Inventory
performance, or the Agent's reasonable discretion acting with
the consent of the Co-Collateral Monitors (such reserve for
intercompany profit to be recalculated by the tenth day after
each month end and reflected on each Borrowing Base
Certificate delivered by the Borrower after such date until
the amount of such reserve is recalculated pursuant hereto);
and
(c) a general reserve which may be modified on five
(5) Business Days' notice to the Borrower at the Agent's
reasonable discretion acting with the consent of the
Co-Collateral Monitors including but not limited to a reserve,
without duplication, for (i) POS markdowns, calculated as (a)
the rolling six month average of POS markdowns to sales
expressed as a percentage less (b) 5% multiplied by (c) 50% of
the Eligible Inventory Amount until further notice given by
the Agent in its reasonable discretion acting with the consent
of the Co-Collateral Monitors (such reserve for POS markdowns
to be recalculated by the 10th day after each month end and to
be reflected on each Borrowing Base Certificate delivered by
the Borrower after such date until the amount of such reserve
is recalculated pursuant hereto); (ii) hard (permanent)
markdowns; (iii) seasonal merchandise; (iv) discontinued and
clearance merchandise; (v) change in product mix of
merchandise; (vi) change in pricing strategy or markon
percentages; (vii) damaged merchandise; (viii) price changes;
or (ix) other adjustments as deemed appropriate; and
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(d) a reserve for Inventory returned (other than as a
result of reclamations) to either the return goods center
("RGC"), the vendor, given to charity, or otherwise considered
non-saleable, whether defective or non-defective. This reserve
is to be calculated as the monthly average for the most recent
rolling 12 fiscal month period of return (other than as a
result of reclamations) activity to the vendors, the RGC,
given to charity, or otherwise considered non-saleable,
whether defective or non-defective, both from the Stores and
DCs, and is subject to change on five (5) Business Days'
notice to the Borrower at the Agent's reasonable discretion
acting with the consent of the Co-Collateral Monitors; and
such reserve to be recalculated by the 10th day after each
month-end and to be reflected on each Borrowing Base
Certificate delivered by the Borrower after such date until
the amount of such reserve is recalculated pursuant hereto.
"Inventory Value" shall mean, with respect to any Inventory of
the Borrower and the Guarantors, the value of such Inventory
valued at cost on a basis consistent with the Borrower's
current and historical accounting practice per the stockledger
(without giving effect to LIFO reserves and general ledger
reserves for discontinued inventory, markdowns, intercompany
profit, rebates and discounts, any cut off adjustments,
revaluation adjustments, purchase price adjustments or
adjustments with respect to the capitalization of buying,
occupancy, distribution and other overhead costs reflected on
the balance sheet of the Borrower and the Guarantors in
respect of Inventory). The value of the Inventory as set forth
above will, without duplication for any Inventory Reserves, be
calculated net of the reserve established by the Borrower or
any Guarantor on a basis consistent with the Borrower's
current and historical practice in respect of lost, misplaced
or stolen Inventory at such time.
"Kmart Gift Card Liability Reserve" shall mean, at any fiscal
week end or month end, as the case may be, a reserve equal to
the total value of all gift cards and cash cards outstanding
(such reserve to be reported on a monthly basis until the
delivery of the first Borrowing Base Certificate in August
2002, from which time such reserve will be reported weekly).
"Xxxxxx Xxxxxxx Reserve" shall mean, at any fiscal week end, a
reserve equal to the sum of (a) the current unpaid royalty
earned for Xxxxxx Xxxxxxx merchandise sold plus (b) (i) the
retail value of all Inventory identified as Xxxxxx Xxxxxxx
multiplied by (ii) the royalty rate of 2.73% or the rate
currently in effect multiplied by
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(iii) the cost complement plus (c) a reserve for exclusive
contracts, royalties or other such agreements as deemed
necessary by the Agent in its reasonable discretion acting
with the consent of the Co-Collateral Monitors on five (5)
Business Days' notice to the Borrower plus (d) any additional
amount determined by the Agent in its reasonable discretion
acting with the consent of the Co-Collateral Monitors on five
(5) Business Days' notice to the Borrower.
"Net Available Inventory Amount" shall be equal to (a) the
Gross Available Inventory Amount, less (b) the sum of the
following reserves: (i) the Xxxxxx Xxxxxxx Reserve, (ii) the
Kmart Gift Card Liability Reserve, and (iii) any other reserve
that the Agent deems necessary in the Agent's reasonable
discretion acting with the consent of the Co-Collateral
Monitors on five (5) Business Days' notice to the Borrower.
"Recovery Rate" shall, at the time of any determination
thereof, be stated as a percentage equal to, as the case may
be, (x) until the conclusion of the first round of Store
Closure Sales undertaken by the Borrower after the date hereof
involving 10% or more of the total number of Stores of the
Borrower and the Guarantors as of the Filing Date (the "First
Round") and the completion of the analysis conducted
immediately following the First Round that is required by
Section 5.09 (the "First Round Analysis"), (i) the estimated
net recovery stated in dollars as determined on a net orderly
liquidation basis by the most recent analysis conducted by
outside inventory consultants/appraisers retained or approved
by the Agent and the Co-Collateral Monitors and disclosed to
the Borrower on at least five (5) Business Days' prior notice
divided by (ii) Appraisal Inventory Value as of the date of
such most recent analysis (both subclause (i) and (ii) of this
clause (x) to be calculated in a manner consistent with the
initial appraisal performed in January- February 2002); or (y)
following the conclusion of the First Round and the completion
of the First Round Analysis, and until clause (z) of this
definition becomes applicable, (i) the estimated net recovery
stated in dollars as determined on a net orderly liquidation
basis by the First Round Analysis and disclosed to the
Borrower on at least five (5) Business Days' prior notice
divided by (ii) Appraisal Inventory Value as of the date of
the First Round Analysis (both subclause (i) and (ii) of this
clause (y) to be calculated in a manner consistent with the
First Round Analysis); or (z) following the conclusion after
the First Round of any subsequent round of Store Closure Sales
undertaken by the Borrower involving 5% or more of the
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total number of Stores of the Borrower and the Guarantor as of
the commencement of such subsequent round (each a "Subsequent
Round") and the completion of the analysis conducted
immediately following such Subsequent Round that is required
by Section 5.09 (each, a "Subsequent Round Analysis"), the
lesser of (A) (i) the estimated net recovery stated in dollars
as determined on a net orderly liquidation basis by the most
recent Subsequent Round Analysis divided by (ii) Appraisal
Inventory Value as of the date of such Subsequent Round
Analysis (calculated in a manner consistent with such
Subsequent Round Analysis) and (B) provided that the Inventory
mix in the Stores that are closed in such Subsequent Round is
materially consistent with the Inventory mix in the other
Stores of the Borrower and the Guarantors (as determined by
the Agent in its reasonable discretion acting with the consent
of the Co-Collateral Monitors), the actual net recovery
yielded on Inventory sold during such Subsequent Round
calculated in a manner consistent with subclause (A) of this
clause (z). Notwithstanding anything to the contrary set forth
in this definition, the Agent (acting with the consent of the
Co-Collateral Monitors and on five (5) Business Days' notice
to the Borrower) shall at all times have the right to fix, for
purposes of the calculations required hereby, "estimated net
recovery stated in dollars as determined on a net orderly
liquidation basis" in reliance on the most-recently concluded
evaluations and appraisals of the assets included in the
Borrowing Base that are conducted from time to time pursuant
to Section 5.09 rather than in reliance on the initial
appraisal performed in January-February 2002, the First Round
Analysis or any Subsequent Round Analysis.
"Store" shall mean any store owned or leased and operated by
the Borrower or any Guarantor.
"Store Closure Sale" shall mean a store closure sale that is
properly advertised and professionally managed over a defined
period that is anticipated by the Borrower not to exceed 12
weeks (on average) from the date of the sale commencement.
3. The definition of the term "Borrowing Base" set forth in
Section 1.01 of the Credit Agreement is hereby amended in its entirety to read
as follows:
"Borrowing Base" shall mean on any date the amount (calculated
based on the most recent Borrowing Base Certificate delivered
pursuant to this Agreement) that is equal to (i) (A) if and
only if the Effective Advance Rate is equal to or greater than
the percentage equal to 75% of the Recovery Rate, 75%
multiplied by
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the Recovery Rate multiplied by the Gross Inventory Value or
(B) if and only if the Effective Advance Rate is less than the
percentage equal to 75% of the Recovery Rate, the Net
Available Inventory Amount less (ii) (x) a reserve equal to
the sum of $200,000,000 on account of pari passu cash
management claims granted pursuant to Section 2.23(a) and
permitted by Section 6.03(vii), (y) a reserve equal to
$25,000,000 and (z) other availability reserves established by
the Agent in its reasonable discretion acting with the consent
of the Co-Collateral Monitors. Borrowing Base standards
(including availability reserves) may be established and
revised from time to time solely by the Agent in its
reasonable discretion acting with the consent of the
Co-Collateral Monitors with any changes in such standards to
be effective five (5) Business Days after delivery of notice
thereof to the Borrower.
4. The definition of the term "Borrowing Base Certificate" set
forth in Section 1.01 of the Credit Agreement is hereby amended in its entirety
to read as follows:
"Borrowing Base Certificate" shall mean a certificate
substantially in the form of Exhibit E hereto (with such
changes therein as may be required by the Agent in its
reasonable discretion acting with the consent of the
Co-Collateral Monitors to reflect the components of and
reserves against the Borrowing Base as provided for hereunder
from time to time), executed and certified by a Financial
Officer of the Borrower, which shall include appropriate
exhibits, schedules and collateral reporting requirements as
referred to therein and as provided for in Section 5.08.
5. Section 2.02 of the Credit Agreement is hereby amended by
deleting the words "upon which the Final Order shall have been entered by the
Bankruptcy Court" appearing in the fourth and fifth lines thereof and inserting
in lieu thereof the words "upon which the Borrowing Base Amendment shall have
been executed and delivered."
6. Section 2.13 of the Credit Agreement is hereby amended by
deleting clause (b) thereof in its entirety and inserting in lieu thereof the
following:
"(b) Upon the sale or other disposition (including as
a result of casualty loss or condemnation occurring after the
occurrence and continuation of an Event of Default) of any
leasehold interests or fixed assets (other than (1) ordinary
course sales of fixtures and equipment (that are not in
connection with any Store Closure Sales) (2) transfers
permitted pursuant to Section 6.11(iii), (3) sale/leasebacks
of new stores referred to in Section 6.01(v)(x) or (4) sales
or other dispositions of the Borrower's aircraft referred to
9
in paragraph 1 of Schedule 6.11) of the Borrower or the
Guarantors (including, without limitation, the termination or
assignment of leases), at such times as the cumulative Net
Proceeds thereof exceed $150,000,000 in the aggregate, the
Borrower shall apply 50% of the Net Proceeds thereof received
thereafter (each, a "Prepayment Amount") to the prepayment of
the Loans. Upon any such prepayment, the Total Commitment
shall be automatically and permanently reduced in an amount
equal to the amount so prepaid and (in the event that there
are no Loans outstanding at the time of the receipt of a
Prepayment Amount by the Borrower or a Guarantor or a
Prepayment Amount is in excess of the outstanding principal
amount of the Loans at the time of such receipt) shall be
further automatically and permanently reduced to the extent
that such Prepayment Amount exceeds the outstanding principal
amount of the Loans at the time of the receipt of such
Prepayment Amount."
7. Section 5.07 of the Credit Agreement is hereby amended by
deleting the words "of the Closing Date" appearing in the first and second lines
thereof and inserting in lieu thereof the words "following the date upon which
the Agent shall have provided a draft of a blocked account agreement to the
Borrower."
8. Section 5.08 of the Credit Agreement is hereby amended in
its entirety to read as follows:
"SECTION 5.08 BORROWING BASE CERTIFICATE. Furnish to
the Agent and the Co-Collateral Monitors as soon as available
and in any event (i) on or before the fifth Business Day (with
supporting documentation to be so furnished no later than the
sixth Business Day) following the end of each fiscal week, a
weekly Borrowing Base Certificate as of the last day of the
immediately preceding fiscal week, (ii) if requested by the
Co-Collateral Monitors at any other time when the
Co-Collateral Monitors reasonably believe that the then
existing Borrowing Base Certificate is materially inaccurate,
or at any time following the occurrence and continuation of an
Event of Default, as soon as reasonably available, but in no
event later than two (2) Business Days after such request, a
Borrowing Base Certificate showing the Borrowing Base as of
the date so requested (or as the date of the most recent
Borrowing Base Certificate in the case of an inaccuracy), in
each case with supporting documentation (including, without
limitation, the documentation described on Schedule 1 to
Exhibit E) and (iii) such other supporting documentation and
additional reports with respect to the
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Borrowing Base as the Co-Collateral Monitors shall reasonably
request."
9. Section 5.09 of the Credit Agreement is hereby amended by
inserting the following immediately after the words "the assets included in the
Borrowing Base" appearing in the sixth line thereof:
"(including, without limitation, immediately following the
First Round and each Subsequent Round of Store Closure Sales
that are referred to in the definition of the term "Recovery
Rate" herein)"
10. Section 6.01(iv) of the Credit Agreement is hereby amended
by deleting the reference to "Section 6.03(iv)" appearing therein and inserting
in lieu thereof a reference to "Section 6.03(v)."
11. Section 6.03 of the Credit Agreement is hereby amended by
deleting clause (v) thereof in its entirety and inserting in lieu thereof the
following:
"(v) Indebtedness incurred subsequent to the Filing Date
secured by purchase money Liens or Capitalized Leases in an
aggregate amount not to exceed $50,000,000;"
12. Section 6.05 of the Credit Agreement is hereby amended in
its entirety to read as follows:
"SECTION 6.05 EBITDA
(a) Permit cumulative EBITDA for the
Borrower and the Guarantors for each fiscal period beginning
on February 1, 2002 and ending on or about each of the dates
listed below to be less than the amount specified opposite
such date (provided that such cumulative EBITDA shall not be
tested as of June 30, 2002 or July 31, 2002 unless the Unused
Total Commitment on either of such dates is less than
$1,000,000,000):
Period Ending EBITDA
------------- ------
June 30, 2002 $(100,000,000)
July 31, 2002 $(100,000,000)
August 31, 2002 $(100,000,000)
September 30, 2002 $(100,000,000)
October 31, 2002 $(100,000,000)
November 30, 2002 $ 50,000,000
December 31, 2002 $450,000,000
January 31, 2003 $450,000,000
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(b) Permit cumulative EBITDA for the
Borrower and the Guarantors for each rolling twelve (12)
fiscal month period ending on or about each of the dates
listed below to be less than the amount specified opposite
such date:
February 28, 2003 $500,000,000
March 31, 2003 $500,000,000
April 30, 2003 $600,000,000
May, 31, 2003 $600,000,000
June 30, 2003 $600,000,000
July 31, 2003 $600,000,000
August 31, 2003 $625,000,000
September 30, 2003 $625,000,000
October 31, 2003 $625,000,000
November 30, 2003 $625,000,000
December 31, 2003 $650,000,000
January 31, 2004 $650,000,000
February 29, 2004 $650,000,000
March 31, 2004 $650,000,000
13. Section 6.10 of the Credit Agreement is hereby amended by
deleting the parenthetical clause appearing in clause (v) thereof. In addition,
Exhibit A hereto is hereby added to the Credit Agreement as Schedule 6.10
thereto.
14. Section 7.01(m) of the Credit Agreement is hereby amended
by deleting the parenthetical clause appearing in the third and fourth lines
thereof. In addition, Exhibit B hereto is hereby added to the Credit Agreement
as Schedule 7.01(m) thereto.
15. Section 7.01(m) of the Credit Agreement is hereby further
amended by deleting the second parenthetical clause set forth therein and
inserting in lieu thereof the following:
"(excluding (i) payments on reclamation claims in an amount
not in excess of $200,000,000 in the aggregate, (ii) payments
on claims in respect of consigned inventory, (iii) cure
payments in respect of the assumption of leases and other
contracts and the application of proceeds of collateral to
validly perfected secured pre-petition claims, (iv) payments
in an aggregate amount, not in excess of $35,000,000 per
fiscal quarter, for other secured pre-petition claims, and (v)
other Pre-Petition Payments in an amount not in excess of
$200,000,000 in the aggregate)"
16. Section 10.10(a) of the Credit Agreement is hereby amended
by (x) inserting the designation "(1)" immediately following the words "written
consent of" appearing in the seventh line thereof and (y) deleting the words ";
and, provided, further, that no such
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modification or amendment shall without the written consent of" appearing in the
eleventh and twelfth lines thereof and inserting in lieu thereof the following:
", or (2) Banks holding Loans representing at least 75% of the
aggregate principal amount of the Loans outstanding, or if no
Loans are outstanding, Banks having Commitments representing
at least 75% of the Total Commitment, increase the Total
Commitment, or (3)"
17. Section 10.10(a) of the Credit Agreement is hereby further
amended by deleting the reference to "Section 6.03(vi)" appearing in the second
sentence thereof and inserting in lieu thereof a reference to "Section
6.03(vii)."
18. The Credit Agreement is hereby amended by including a new
Exhibit E thereto in the form of Schedule I hereto.
19. This Amendment shall not become effective until the date
(the "Effective Date") on which this Amendment shall have been executed by the
Borrower, the Guarantors and the Initial Banks, and the Agent shall have
received evidence satisfactory to it of such execution.
20. Except to the extent hereby amended, the Credit Agreement
and each of the Loan Documents remain in full force and effect and are hereby
ratified and affirmed.
21. The Borrower agrees that its obligations set forth in
Section 10.05 of the Credit Agreement shall extend to the preparation, execution
and delivery of this Amendment, including the reasonable fees and disbursements
of special counsel to the Agent and respective counsel to the Initial Banks.
22. This Amendment shall be limited precisely as written and
shall not be deemed (a) to be a consent granted pursuant to, or a waiver or
modification of, any other term or condition of the Credit Agreement or any of
the instruments or agreements referred to therein or (b) to prejudice any right
or rights which the Agent or the Banks may now have or have in the future under
or in connection with the Credit Agreement or any of the instruments or
agreements referred to therein. Whenever the Credit Agreement is referred to in
the Credit Agreement or any of the instruments, agreements or other documents or
papers executed or delivered in connection therewith, such reference shall be
deemed to mean the Credit Agreement as modified by this Amendment.
23. This Amendment may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together shall constitute but one and the same instrument.
24. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and the year first written.
BORROWER:
KMART CORPORATION
By:
-------------------------------------
Title:
GUARANTORS:
BIG BEAVER DEVELOPMENT CORPORATION
By:
-------------------------------------
Title:
BIG BEAVER OF CAGUAS
DEVELOPMENT CORPORATION
By:
-------------------------------------
Title:
BIG BEAVER OF FLORIDA DEVELOPMENT, LLC
By:
-------------------------------------
Title:
BIG BEAVER OF GUAYNABO
DEVELOPMENT CORPORATION
By:
-------------------------------------
Title:
XXXXXXXXX.XXX LLC
By:
-------------------------------------
Title:
14
KMART HOLDINGS, INC.
By:
------------------------------------
Title:
KMART MICHIGAN PROPERTY SERVICES, L.L.C.
By:
------------------------------------
Title:
KMART OF AMSTERDAM, NY DISTRIBUTION
CENTER, INC.
By:
------------------------------------
Title:
KMART OF MICHIGAN, INC.
By:
------------------------------------
Title:
KMART OF NORTH CAROLINA LLC
By:
------------------------------------
Title:
KLC, INC.
By:
------------------------------------
Title:
KMART CORPORATION OF ILLINOIS, INC.
By:
------------------------------------
Title:
15
XXXXXXXXX.XXX, INC.
By:
------------------------------------
Title:
KMART STORES OF INDIANA, INC.
By:
------------------------------------
Title:
KMART STORES OF TNCP, INC.
By:
------------------------------------
Title:
TC GROUP I LLC
By:
------------------------------------
Title:
XXXX CMBS PROPERTY, L.L.C.
By:
------------------------------------
Title:
KMART OVERSEAS CORPORATION
By:
------------------------------------
Title:
JAF, INC.
By:
------------------------------------
Title:
16
VTA, INC.
By:
------------------------------------
Title:
BIG BEAVER OF CAGUAS DEVELOPMENT
CORPORATION II
By:
------------------------------------
Title:
BIG BEAVER OF CAROLINA DEVELOPMENT
CORPORATION
By:
------------------------------------
Title:
KMART PHARMACIES, INC.
By:
------------------------------------
Title:
KMART PHARMACIES OF MINNESOTA, INC.
By:
------------------------------------
Title:
BUILDERS SQUARE, INC.
By:
------------------------------------
Title:
17
KMART CMBS FINANCING, INC.
By:
------------------------------------
Title:
KMART INTERNATIONAL SERVICES, INC.
By:
------------------------------------
Title:
PMB, INC.
By:
------------------------------------
Title:
SOURCING & TECHNICAL SERVICES, INC.
By:
------------------------------------
Title:
ILJ, INC.
By:
------------------------------------
Title:
STI MERCHANDISING, INC.
By:
------------------------------------
Title:
KBL HOLDING INC.
By:
------------------------------------
Title:
18
KMART OF INDIANA
By:
------------------------------------
Title:
KMART OF PENNSYLVANIA LP
By:
------------------------------------
KMART OF TEXAS L.P.
By:
------------------------------------
Title:
19
JPMORGAN CHASE BANK,
INDIVIDUALLY AND AS AGENT
By:
------------------------------------
Title:
FLEET RETAIL FINANCE INC.
By:
------------------------------------
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
------------------------------------
Title:
CREDIT SUISSE FIRST BOSTON, CAYMAN
ISLANDS BRANCH
By:
------------------------------------
Title:
By:
------------------------------------
Title:
20
EXHIBIT A
TO FIRST AMENDMENT
SCHEDULE 6.10
INVESTMENTS, LOANS AND ADVANCES
Arc Light Systems LLC
Burbank Joint Venture
Xxxxxx Xxxxxxx Living Omnimedia, Inc.
Meldisco Corporations
Naple Joint Venture
Red Road Joint Venture
Penske Auto Centers LLC
Plaza Guaynabo L.P.
Troy CMBS LLC
Woodridge Joint Venture
Worldwide Retail Exchange LLC
3016269 Nova Scotia Co.
21
EXHIBIT B
TO FIRST AMENDMENT
Schedule 7.01(m)
PAYMENTS OF PREPETITION CLAIMS PURSUANT TO THE FIRST-DAY ORDERS
1. Motion for an Order Pursuant to 11 U.S.C. Sections 105(a), 365 and
507(a)(6) Authorizing Continuation of Certain Customer Practices and
Payment of Certain Customer Service Providers
Type of Expenditure Permitted Amount
------------------- ----------------
a. Gift Certificates: actual (no limit)
b. Warranties: actual (no limit)
c. Layaway Program: actual (no limit)
d. Returns, Refunds and Exchanges: actual (no limit)
e. Rain Checks: actual (no limit)
f. Customer Service Providers: $ 70 million
(defined as certain individuals or
entities, who (a) provide services
to the Debtors' customers on behalf
of the Debtors under licenses or other
agreements (including, without
limitation, internet service providers),
(b) have direct contact with the Debtors'
customers or take possession of
customers' goods or property, (c) are
perceived by customers to be employees
of the Debtors, and/or (d) are compensated
by the Debtors, who, in turn, receive
customer payments for those services)
g. Coupons, Rebates and Certificates: actual (no limit)
2. Motion for Order (I) Authorizing the Debtors To Pay Prepetition Wages,
Salaries, and Employee Benefits; (II) Authorizing the Debtors to Continue
The Maintenance of Employee Benefit Programs In the Ordinary Course; and
(III) Directing All Banks to Honor Prepetition Checks for Payment of
Prepetition Employee Obligations
Type of Expenditure Permitted Amount
------------------- ----------------
a. Wages, Salaries, and
Commissions: Actual (no limit)
b. Other Compensation: Vacation,
Personal, Sick Time, Bonus,
Business Expenses, and
Severance Payments: Actual (no limit)
c. Employee Benefit Plans: Actual (no limit)
d. Savings and Retirement Plans: Actual (no limit)
e. Workers' Compensation: Actual (no limit)
f. Other Benefits: Actual (no limit)
g. Social Security, Income
Taxes, and Other Withholding: Actual (no limit)
h. Administration of
Employee Benefit: Actual (no limit)
3. Motion for an Order Pursuant to 11 U.S.C. Sections 105(a), 541, and
507(a)(8) Authorizing the Debtors to Pay Prepetition Sales, Use, Trust Fund
and Other Taxes and Related Obligations
Type of Expenditure Permitted Amount
------------------- ----------------
a. State and Local
Sales and Use Tax: Actual (no limit)
b. Other "Trust Fund" Taxes
Including with respect to
Liquor Sales, Fishing Licenses,
Postage and Lottery Tickets: Actual (no limit)
4. Motion for Entry of Order Pursuant to 11 U.S.C. Sections 105(a), 366, 503,
and 507 of the Bankruptcy Code (I) Prohibiting Utilities from Altering,
Refusing or Discontinuing Services on Account of Prepetition Invoices and
(II) Establishing Procedures for Determining Requests for Additional
Assurance
Type of Expenditure Permitted Amount
------------------- ----------------
a. Utility Deposits: Actual (no limit)
5. Motion for an Order Pursuant to 11 U.S.C. Section 105 Authorizing Payment
of Prepetition Claims of Consignment Vendors and Customer Service Providers
and Approving Procedures Concerning Consigned Goods
Type of Expenditure Permitted Amount
------------------- ----------------
a. Consignment Vendors: Actual (no limit, but
estimated at $135
million for goods sold
Prepetition)
b. Customer Service Providers $ 70 million (same as
(defined as certain item 1f above)
individuals or entities,
who: (a) provide services to
the Debtors' customers on
behalf of the Debtors under
licenses or other
agreements, (b) have direct
contact with the Debtors'
customers or take possession
of customers' goods or
property, (c) are perceived
by customers to be employees
of the Debtors, and/or (d)
are compensated by the
Debtors, who, in turn,
receive customer payments
for those services; e.g.,
Footstar, Inc., auto service
and repair providers,
greeting card companies,
film developers, food
service providers, ticket
service providers and cash
transfer service providers)
6. Motion for Order under 11 U.S.C. Section 105(a) Authorizing the Payment of
Prepetition Claims of Certain Critical Trade Vendors
Type of Expenditure Permitted Amount
------------------- ----------------
x. Xxxxxxx Companies, Inc.: $ 76.0 million
x. Xxxxxxxxx Company: $ 64.0 million
c. Egg and Dairy Vendors: $ 25 million
d. Advertising Vendors: $ 135 million
(Defined as parties necessary to
the continuation of the
entire circular advertising program,
including circular layout and
development, commodity paper
procurement, circular printing,
and newspaper placement and
distribution)
7. Motion for an Order Pursuant to 11 U.S.C. Section 105(a) Authorizing
Payment of Certain Shipping and Delivery Charges
Type of Expenditure Permitted Amount
------------------- ----------------
a. Shippers Actual (no limit)
(Defined as approximately 200
regional, domestic and foreign
commercial common carriers,
movers, shippers, freight
forwarders/consolidators, customers
brokers, shipping auditing services,
deconsolidators, distributors and
certain other third-party
service providers)
b. Armored Car Carriers: Actual (no limit)
8. Motion Pursuant to 11 U.S.C. Sections 105, 362, 503 and 546 for Entry of
Interim and Final Orders (I) Providing Administrative Expense Treatment for
Certain Holders of Valid Reclamation Claims and (II) Establishing
Procedures for Resolution and Payment of Reclamation Claims
Type of Expenditure Permitted Amount
------------------- ----------------
a. Reclamation Claims Actual (no limit)
9. Motion for an Order Pursuant to 11 U.S.C. Sections 105(a), 503(b) and
546(b) Authorizing Payment of Contractors and Service Providers in
Satisfaction of Liens
Type of Expenditure Permitted Amount
------------------- ----------------
a. Mechanics' Liens Actual (no limit)
b. Service Providers Actual (no limit)
(defined as vendors who repair
and maintain Debtors' equipment
and may have a possessory lien
upon the Debtors' property in
their possession).
10. Motion for an Order Pursuant to 11 U.S.C.Sections 105(a) and 363
Authorizing Payment of Prepetition Obligations Necessary to Obtain Imported
Merchandise
Type of Expenditure Permitted Amount
------------------- ----------------
a. Foreign Vendors $ 20 million (estimated)
11. Motion for an Order Pursuant to 11 U.S.C. Sections 363 and 546(g)*
Authorizing Debtors to Implement a Vendor Return Program and Granting
Related Relief
Type of Expenditure Permitted Amount
------------------- ----------------
a. Vendor Return Program Actual (no limit)
(defined as the return
of goods to vendors who extend
the Debtors postpetition trade
terms for a credit against such
vendors' pre-petition claims)
12. Motion for Entry of Interim and Final Orders (I) Providing Administrative
Expense Treatment for PACA and PASA Trust Claims and (II) Establishing
Procedures for Resolution and Payment of PACA and PASA Claims
Type of Expenditure Permitted Amount
------------------- ----------------
a. PACA/PASA Claims Actual (no limit)
(defined as prepetition claims under
the Perishable Agricultural Commodities
Act of 1930 and Packers and Stockyards
Act of 1921)
SCHEDULE 1 TO
FIRST AMENDMENT
EXHIBIT E
Page 1 of 3
KMART CORPORATION
FORM OF WEEKLY BORROWING BASE CERTIFICATE*
FOR THE WEEK ENDED _________
SECTION I. CALCULATION OF EXCESS AVAILABILITY
A. Net Available Inventory Amount
(from Section II, line I)
-----------
B. Effective Advance Rate (from Section II, line J)
-----------
C. Recovery Rate
X 75%
----------
D. If line B is less than line C, enter amount from
line A and leave line E blank
-----------
E. If line B is greater than or equal to line C,
leave line D blank and multiply line C
----------
by Gross Inventory Value per stockledger
(see Section II, line A)
----------
F. Reserve for pari passu cash management claims of
$200MM plus $25MM
-----------
G. Other availability reserves
-----------
H. Borrowing Base (either line D or line E,
as applicable, minus line F minus line G)
-----------
I. Total Commitment
-----------
J. Lesser of line H or line I
-----------
K. Line J x 95% (per Section 2.01(c)
of Agreement)
-----------
L. Letters of Credit Outstanding $
---------
M. Outstanding principal amount of all Loans $
---------
N. Total Commitment Usage (lines L + M) $
-----------
O. Excess availability/(overadvance) (line K - line N) $
-----------
OFFICER'S CERTIFICATION:
Pursuant to the Revolving
Credit and Guaranty Agreement dated as of January 22,
2002, as amended (capitalized terms and categories used herein shall have the
meanings assigned to such terms and categories in the Agreement), the
undersigned certifies solely on behalf of the Borrower and in his/her capacity
as an officer thereof that the information provided in this certificate to the
JPMorgan Chase Bank, as Administrative Agent and Co-Collateral Monitor, is
accurate and complete based on the accounting records of
Kmart Corporation.
KMART CORPORATION
BY:
----------------------------------------- ----------------
Signature & Title Date
* The Borrowing Base Certificate is to be accompanied by the documentation
outlined in Schedule 1 to Exhibit E.
**Borrowing Base Certificates are to be submitted weekly, 5 business days
subsequent to each fiscal week end.
EXHIBIT E
Page 2 of 3
KMART CORPORATION
FORM OF WEEKLY BORROWING BASE CERTIFICATE*
FOR THE WEEK ENDED _________
SECTION II. CALCULATION OF NET AVAILABLE INVENTORY AMOUNT
Current Week
------------
Inventory Value of Inventory at Stores per ILR report
---------------
Inventory Value of Inventory at DCs per stockledger
---------------
X. Xxxxx Inventory Value (a)
---------------
B. Less Inventory Value of ineligibles:
Accrued Inventory without a receiver
---------------
Closed store inventory
---------------
Consigned
---------------
In-transit from vendors
---------------
Guam
---------------
Bakery
---------------
Candy (in excess of 2% of Gross Inventory Value)
---------------
Dairy
---------------
Deli
---------------
Digital imaging, photofinishing and 1 hour lab
---------------
Floral
---------------
Gasoline
---------------
Home fragrances and party supplies
---------------
Live plants
---------------
Meat
---------------
Produce
---------------
Reader's market - books and magazines
---------------
Restaurant operations
---------------
Seafood
---------------
Packaway
---------------
Seasonal (other than apparel)
---------------
Seasonal apparel
---------------
Vending machine inventory
---------------
Wholesaler freight fees
---------------
No perfected security interest
---------------
Not solely owned
---------------
Layaway (b)
---------------
Leased departments
---------------
Greeting cards (b)
---------------
Not located at a Store or DC
---------------
Other (per terms of Agreement, as amended)
---------------
B. Total ineligibles
---------------
C. Eligible Inventory Amount (before
Inventory Reserves) (line A - line B)
---------------
(continued on page 3 of 3)
(a) Must agree to Section III Weekly Inventory Rollforward end of fiscal week
Inventory per stockledger at cost.
(b) To the extent included in Gross Inventory Value.
* The Borrowing Base Certificate is to be accompanied by the documentation
outlined in Schedule 1 to Exhibit E. **Borrowing Base Certificates are to be
submitted weekly, 5 business days subsequent to each fiscal week end.
EXHIBIT E
Page 3 of 3
KMART CORPORATION
FORM OF WEEKLY BORROWING BASE CERTIFICATE*
FOR THE WEEK ENDED __________
C. Eligible Inventory Amount (before Inventory Reserves)
(from page 2 of 3)
---------------
D. Less Inventory Reserves:
Shrink reserve
---------------
Intracompany profit reserve
---------------
General reserve
---------------
RTV and charity reserve
---------------
E. Adjusted Eligible Inventory Amount
(line C minus line D)
---------------
F. Advance rate 60%
X. Xxxxx Available Inventory Amount (line E
multiplied by line F)
---------------
H. Less additional reserves:
Xxxxxx Xxxxxxx Reserve
---------------
Kmart Gift Card Liability Reserve
---------------
Other reserves
---------------
---------------
I. Net Available Inventory Amount (line G minus line H)
---------------
J. Effective Advance Rate (line I divided by line A)
---------------
---------------
SECTION III. WEEKLY INVENTORY ROLLFORWARD
Retail Cost
------ ----
Store DC Store DC
------------------ -----------------
Prior fiscal week's ending Inventory per prior week's $ $
------------------ -----------------
Borrowing Base Certificate
------------------ -----------------
Reconciling items (provide description) $ $
------------------ -----------------
Beginning of current fiscal week Inventory per stockledger $ $
------------------ -----------------
Plus: Purchases
------------------ -----------------
Plus: Markups N/A
------------------
Plus: Invoice and receiver accruals N/A
------------------
Plus: other (provide description) N/A
------------------
Less: Sales N/A
------------------
Less: POS markdowns N/A
------------------
Less: Permanent/hard markdowns N/A
------------------
Less: Markup cancellations N/A
------------------
Less: Shrink/waste actual N/A
------------------
Less: Shrink/waste accrual N/A
------------------
Less: Other (provide description) N/A
------------------
End of current fiscal week Inventory per stockledger $ $
------------------ -----------------
Less: Reconciling items - activity after Friday of current
fiscal week (provide description) $ $
------------------ -----------------
Ending inventory per ILR report as of Friday of current
fiscal week $ $
------------------ -----------------
$ $
------------------ -----------------
* The Borrowing Base Certificate is to be accompanied by the documentation
outlined in Schedule 1 to Exhibit E.
**Borrowing Base Certificates are to be submitted weekly, 5 business days
subsequent to each fiscal week end.
SCHEDULE 1
TO EXHIBIT E
KMART CORPORATION
COLLATERAL MONITORING REPORTING REQUIREMENTS
DOCUMENTS TO BE SUBMITTED TO THE BANK
UNLESS OTHERWISE NOTED, the following information is to be submitted on a weekly
or monthly basis for the
Kmart Corporation by the 5th business day subsequent to
each fiscal week end or the 10th business day subsequent to each fiscal month
end:
o WEEKLY BORROWING BASE CERTIFICATE IN FORM OF EXHIBIT E INCLUDING:
o SECTION I - CALCULATION OF EXCESS AVAILABILITY
o SECTION II - CALCULATION OF NET AVAILABLE INVENTORY AMOUNT
o SECTION III - WEEKLY INVENTORY ROLLFORWARD (INCLUDING A DESCRIPTION OF
RECONCILING ITEMS)
o Supporting documentation (system-generated extract report where
applicable) for the Inventory balances, ineligibles and reserves per the
Agreement and Borrowing Base Certificate, the Weekly Inventory Rollforward,
and calculated amounts (TO BE SUBMITTED BY THE 6TH BUSINESS DAY SUBSEQUENT
TO EACH FISCAL WEEK END.)
o INVENTORY (WEEKLY): (TO BE SUBMITTED BY THE 6TH BUSINESS DAY SUBSEQUENT TO
EACH FISCAL WEEK END)
1) Makoro Key Inventory Statistics report from stockledger by division, and
reconciliation from stockledger to Makoro (containing the information
available on such report as of the Closing Date, and, if such Key Inventory
Statistics reports are not available or no longer contain such information,
other reports containing such information) for total company and by
division, detailing sales, ending inventory at retail, ending inventory at
cost, markon %, POS and hard (permanent) markdowns, gross margin in dollars
and as a percent of sales both before and after shrink and allowances, and
inventory turns.
2) Reconciliation between the prior fiscal week's ending inventory balance per
the prior week's Borrowing Base Certificate and the current fiscal week's
beginning inventory balance per the stockledger.
3) Total page per ILR report; reconciliation between the ILR report and the
stockledger .
4) Inventory by location per stockledger - in aggregate for stores,
distribution centers and geographic region.
5) Supporting documentation and analysis for accrued invoices.
6) Inventory by division (at cost and retail).
7) Listing of closed stores including date store was closed and inventory
(product mix) by division (at cost and retail), or for stores in process of
closing, date Store Closure Sale begins and inventory (product mix) by
division (at cost and retail).
8) Inventory balance at cost and retail for Xxxxxx Xxxxxxx inventory on hand.
9) Import 2000 in-transit inventory report at cost.
10) Discontinued inventory report at retail.
11) Seasonal apparel aging inventory report at retail.
o INVENTORY (MONTHLY):
1) Reconciliation of inventory balance at cost per stockledger to general
ledger and balance sheet.
2) Inventory by location per stockledger - detailed by store, distribution
center and geographic region.
3) Consigned inventory at cost and retail by vendor.
4) Return to vendor and RGC from stores and DCs at cost and retail.
5) Physical test count results and comparison to accruals.
6) List of open and closed stores by geographic region.
7) Plan to actual results by merchandising division.
o OTHER (WEEKLY UNLESS OTHERWISE NOTED):
1) Total aged accounts payable balances.
2) Top twenty five vendor payable balances (including terms and product
supplied).
3) Cash/gift card liabilities (provided monthly until August 2002 then
weekly).
4) Net profit reports for the top ten and bottom ten performing stores based
on store contribution. (monthly)
5) Results of GOB sales.
6) DC operating statements and performance statistics.(monthly)
7) Comparable stores sales % (monthly).
8) Financial statements (monthly).
9) Detail listing of accrued expenses and expenses paid to date pursuant to
Section 2.23 of the Agreement (monthly).
10) Fiscal week accounting calendar (annually).
11) Cash at Stores
12) Other cash available
13) Trade payable disbursements
SUBMIT TO: JPMorgan
Collateral Agent Services Group
000 Xxxx Xxxxxx, 00xx xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxx
Telephone: (000) 000-0000
Fax: (000) 000-0000 (or 6229)
E-mail: xxxxx.xxxxxx@xxxxxxxx.xxx
