Kmart Corporation announced Wednesday that the U.S. Bankruptcy Court for the Northern District of Illinois has approved the Disclosure Statement filed in connection with the Company’s First Amended Joint Plan of Reorganization. The Bankruptcy Court also authorized the Company to begin soliciting approval from its creditors for its amended Plan of Reorganization. With this action, Kmart remains on schedule to complete its “fast-track” reorganization and emerge from Chapter 11 protection on or about April 30, 2003.

The First Amended Joint Plan of Reorganization and related Disclosure Statement — which has received the formal endorsement of the statutory creditors committees in Kmart’s Chapter 11 cases, as well as the support of ESL Investments, Inc. and Third Avenue Value Fund as “plan investors” — amends the prior documents filed with the Court on January 24, 2003, to reflect the comments of certain parties in interest and certain other negotiated terms.

At a hearing Tuesday in Chicago, the Honorable Susan Pierson Sonderby ruled that the Company’s Disclosure Statement contained adequate information for the purposes of soliciting creditor approval for the amended Plan. A confirmation hearing for the Court to consider approval of the Plan has been scheduled for April 14 and 15, 2003. By March 7, 2003, Kmart will mail notice of the proposed confirmation hearing and begin the process of soliciting approvals for the Plan from qualified claim holders. Assuming that the requisite approvals are received and the Court confirms the Plan under the current timetable, Kmart presently intends to emerge from Chapter 11 reorganization on or about April 30, 2003.

Kmart President and Chief Executive Officer Julian Day said, “Our momentum continues to build as we move ever closer to concluding our reorganization and emerging from Chapter 11 in a stronger and more financially stable position. We are very pleased to have received the support of our statutory creditors committees, the Plan Investors and the prepetition banks for our amended Plan of Reorganization.”

Amendments To Proposed Plan of Reorganization

As previously reported, Kmart’s proposed Plan of Reorganization calls for a substantial investment by two Plan Investors — ESL Investments, Inc. and Third Avenue Value Fund — in furtherance of Kmart’s financial and operational restructuring. Under the terms of an Investment Agreement entered into with the Company, the Plan Investors will invest at least $140 million in exchange for shares of stock in the reorganized Kmart. Kmart also has a call right, and ESL has an option, in the Investment Agreement for up to an additional $60 million of convertible unsecured note financing from ESL subject to the terms of the Investment Agreement. In addition, ESL has agreed that the cash that it would receive under the Plan of Reorganization as a holder of Kmart’s prepetition bank debt, approximately $152 million, will be used to purchase additional equity.

Pursuant to the Plan, holders of Kmart’s prepetition bank debt (other than ESL) would receive 40 cents for each dollar of debt they hold. Holders of prepetition notes and debentures issued by Kmart and trade creditors, service providers and landlords with lease rejection claims will share in the stock of reorganized Kmart, other than the shares allocated to the Plan Investors. As is defined further in the amended Plan of Reorganization, holders of prepetition notes and debentures will receive approximately 29% of the stock of reorganized Kmart to be outstanding immediately following the effective date of the Plan, while trade creditors, service providers and landlords with lease rejection claims will receive approximately 37% of the stock.

The amended Disclosure Statement contains a number of revisions and additions to the document filed in January. Among other items, it provides an update of the Stewardship Review being conducted under the direction of the Audit Committee of the Kmart Board of Directors.

Solicitation Timetable

    The solicitation timetable authorized by the Court is as follows:

  • February 18, 2003 is the Record Date. Holders of claims as of this date will receive the mailing from Kmart and be entitled to vote on the Plan.
  • March 7, 2003 is the last day for Kmart to mail its solicitation.
  • March 14, 2003 is the last day for Kmart to file objections to claims that would prevent a claimholder from voting on the Plan unless the claimholder obtains temporary allowance of the claim with the Court.
  • March 28, 2003 is the deadline by which creditors must file motions to seek temporary allowance of claims (for voting purposes only) that have been objected to by Kmart or must otherwise be temporarily allowed in order to be permitted to vote on the Plan.
  • March 28 is also the date by which all exhibits to the Disclosure Statement will be filed.
  • April 4, 2003 is the Voting and Objection Deadline. This is the deadline for receipt of ballots on the Plan of Reorganization and the filing of objections in the Court to confirmation of the Plan.
  • April 14 and 15, 2003 are the dates on which the Confirmation Hearing for the Plan has been scheduled.
  • April 30, 2003 is the date targeted for Kmart’s emergence from Chapter 11.

Other Matters

At Tuesday’s monthly omnibus hearing, the Court approved a motion seeking to extend the periods in which Kmart has the exclusive right to file and solicit acceptances of a plan of reorganization. The Court also entered an order approving a commitment fee and expense reimbursement in connection with the agreement between Kmart and the Plan Investors.