EXHIBIT 10.3
FIRST AMENDMENT TO
LETTER OF CREDIT AGREEMENT
This First Amendment to Letter of Credit Agreement (the "First Amendment")
is made as of the 4th day of October, 2004 by and among
KMART CORPORATION ("Kmart"), a corporation organized under the laws of the
State of Michigan having a place of business at 0000 Xxxx Xxx Xxxxxx Xxxx,
Xxxx, Xxxxxxxx 00000,
BANK OF AMERICA, NATIONAL ASSOCIATION ("BOA"), a national banking
association having a place of business at 000 Xxxxxxx Xxxxxx, Xxxxxx,
Xxxxxxxxxxxxx 00000;
FLEET NATIONAL BANK ("Fleet" and together with BOA, the "Issuing Banks"),
a national banking association having a place of business at 000 Xxxxxxx
Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000.
WITNESSETH
WHEREAS, Kmart and the Issuing Banks have entered into a Letter of Credit
Agreement dated as of August 13, 2004 (as amended and in effect, the "Credit
Agreement"); and
WHEREAS, Kmart and the Issuing Banks have agreed to amend certain
provisions of the Credit Agreement as set forth herein.
NOW THEREFORE, it is hereby agreed as follows:
1. Definitions: All capitalized terms used herein and not otherwise defined
shall have the same meaning herein as in the Credit Agreement.
2. Amendments to Article 1. The provisions of Article 1 of the Credit
Agreement are hereby amended as follows:
a. The definition of "Availability" is hereby deleted in its entirety
and the following substituted in its stead.
"Availability" means, at any time of determination, (i) except
as provided in clause (ii) below, (A) prior to January 7,
2005, $200,000,000, and (B) on and after January 7, 2005, an
amount equal to the difference between the amounts on deposit
in the Cash Collateral Account and 100.5% of the Letter of
Credit Outstandings, or (ii) if the Inventory Collateral
Election Effective
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Date has occurred, the difference between the Borrowing Base
and 100.5% of the Letter of Credit Outstandings.
b. The definition of "Collateral" is hereby deleted in its entirety and
the following substituted in its stead:
"Collateral" means (i) the Mortgaged Property, (ii) any and all
"Collateral" as defined in the Pledge and Security Agreement, and
(iii) if the Inventory Collateral Election Effective Date has
occurred, all Inventory and the proceeds thereof.
c. The definition of "Credit Documents" is hereby deleted in its
entirety and the following substituted in its stead:
"Credit Documents" means this Agreement, the Letters of Credit, each
letter of credit application, the Mortgage, the Pledge and Security
Agreement, and, if the Inventory Collateral Election Effective Date
has occurred, the Security Agreement, and any other instrument or
agreement now or hereafter executed and delivered in connection
herewith or therewith, each as amended and in effect from time to
time.
d. The definition of "Security Documents" is hereby deleted in its
entirety and the following substituted in its stead:
"Security Documents" means the Pledge and Security Agreement, the
Mortgage, and, if the Inventory Collateral Election Effective Date
occurs, the Security Agreement.
e. The definition of "Unused Commitment" is hereby deleted in its
entirety and the following substituted in its stead:
"Unused Commitment" shall mean, on any day, (a) (i) the balance in
the Cash Collateral Account divided by 100.5% minus (ii) the then
Letter of Credit Outstandings, or (b) if the Inventory Collateral
Election Effective Date has occurred, (i) the Commitment minus (ii)
the then Letter of Credit Outstandings.
f. The following new definitions are hereby added in appropriate
alphabetical order:
i. "Borrowing Base" shall mean the result of (i) the lesser of
(A) a percentage of the cost of Inventory, such percentage to
be determined upon completion of due diligence by the Issuing
Banks after receipt of an Inventory Election Notice from
Kmart, and (B) a percentage of the appraised liquidation value
of Inventory, such percentage to be determined
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upon completion of due diligence by the Issuing Banks after
receipt of an Inventory Election Notice from Kmart, minus (ii)
such reserves (including, without limitation on account of
Permitted Liens) as the Issuing Banks may establish from time
to time in their reasonable credit judgment, upon ten days
notice to Kmart (other than the initial Reserves which may be
established on the Inventory Collateral Election Effective
Date without furnishing such ten days notice).
ii. "Inventory" shall have the meaning given that term in the UCC,
including, without limitation, all: (a) goods which are held
by Kmart for sale or lease or to be furnished under a contract
of service, (b) goods which consist of raw materials, work in
process, or materials used or consumed in Kmart's business;
(c) goods of said description in transit; and (d) documents
which represent any of the foregoing.
iii. "Inventory Collateral Election Effective Date" shall mean the
date upon which each of the following conditions have been
satisfied:
a) The Issuing Banks have received an Inventory Election
Notice from Kmart.
b) The Issuing Banks have received the results of a
commercial finance examination of Kmart and its
subsidiaries, an appraisal of the Inventory, and other
due diligence, undertaken by such Persons and with
results as are reasonably satisfactory to the Issuing
Banks.
c) The Issuing Banks shall have entered into an
intercreditor agreement with the agent under the
Existing Financing Agreement (or any holder of
replacement financing therefor) on terms reasonably
acceptable to the Issuing Banks, if at the time of the
Inventory Collateral Election Effective Date, the
Existing Financing Agreement (or any replacement
therefor) continues to be in force and effect.
d) The Issuing Banks shall have received the duly executed
Security Agreement from Kmart.
e) All documents and instruments, including Uniform
Commercial Code financing statements, required by law or
reasonably requested by the Issuing Banks to be filed,
registered or recorded to create or perfect the liens
intended to be created under the Security Agreement and
all such documents and instruments shall have been so
filed, registered or recorded to the satisfaction of the
Issuing Banks. The liens of the Issuing Banks in the
Inventory
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shall be subject only to (i) Permitted Liens, and (ii)
to the extent the Existing Financing Agreement (or any
replacement therefor) continues to be in force and
effect on the Inventory Collateral Election Effective
Date, the liens of the agent under the Existing
Financing Agreement (or of any holder of replacement
financing therefor).
f) The Issuing Banks shall have received a favorable
written opinion of Kmart's counsel covering such matters
as the Issuing Banks shall reasonably request.
g) The Issuing Banks shall have received evidence
satisfactory to it that the Inventory is insured in such
amounts and against such casualties and contingencies as
the Issuing Banks shall reasonably require.
h) The Issuing Banks (or their counsel) shall have received
from each party hereto such other instruments documents
and agreements as the Issuing Banks may reasonably
require, including, without limitation, such further
amendments to this Agreement as the Issuing Banks
reasonably determine are necessary to insure a
successful syndication of the credit facility
established hereunder.
i) Kmart shall have provided to the Issuing Banks its
calculation of the Borrowing Base, which calculation
shall be acceptable to the Issuing Banks in their
reasonable discretion.
iv. "Inventory Election Notice" shall mean written notice from
Kmart to the Issuing Banks indicating that Kmart desires to
xxxxx x xxxx on its Inventory as substitute collateral for all
or any portion of the amount on deposit in the Cash Collateral
Account.
v. "LIBOR" means on any day of calculation, the rate appearing on
Page 3750 of the Telerate Service (or on any successor or
substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations
comparable to those currently provided on such page of such
Service, as determined by the Issuing Banks from time to time
for purposes of providing quotations of interest rates
applicable to dollar deposits in the London interbank market)
at approximately 11:00 a.m., London time, as the rate for
dollar deposits with a maturity comparable to the expiry of
such Letter of Credit. In the event that such rate is not
available at such time for any reason, then the "LIBOR Rate"
shall be the rate at which dollar deposits and for a maturity
comparable to expiry of
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such Letter of Credit are offered by the principal London
office of the Issuing Banks in immediately available funds in
the London interbank market at approximately 11:00 a.m.,
London time.
vi. "Permitted Liens" means the following Liens: (a) Liens for
taxes or assessments or other governmental charges not yet due
and payable, (b) carriers', warehousemen's or other similar
possessory Liens arising by operation of law in the ordinary
course of business, (c) landlords' Liens arising in the
ordinary course of business, (d) materialmen's and mechanics'
Liens arising in the ordinary course of business, (e) any
attachment or judgment Lien not constituting or relating to an
Event of Default under Section 7.01(l), (f) consignments and
claims under the Perishable Agricultural Commodities Act of
1930 and the Packers and Stockyard Act of 1921, (g) claims in
favor of the appropriate governmental authorities on the
proceeds from sales or services relating to hunting and
fishing licenses and/or the sale of lottery tickets, and (h)
claims in favor of Western Union in respect of proceeds from
sales or services with respect to money transfers through
Western Union.
vii. "Security Agreement" shall mean a security agreement granting
the Issuing Banks a lien on Kmart's Inventory and the proceeds
thereof to secure the Obligations, containing such
representations and covenants and otherwise reasonably
satisfactory in form and substance to the Issuing Banks.
3. Amendments to Article 2. The provisions of Section 2.08 of the Credit
Agreement are hereby amended by deleting clauses (a)(i) and (a)(ii) and
substituting the following in their stead:
i. Standby Letters of Credit: At a per annum rate equal to 0.20%
unless the Inventory Election Effective Date has occurred, in
which event at a per annum rate equal to LIBOR plus 3.00%.
ii. Commercial Letters of Credit: At a per annum rate equal to 0%
unless the Inventory Election Effective Date has occurred, in
which event at a per annum rate equal to LIBOR plus 3.00%.
4. Amendments to Article 5. The provisions of Article 5 of the Credit
Agreement are hereby amended as follows:
a. The provisions of Sections 5.05 and 5.06 are hereby amended by
adding the following at the beginning thereof:
Subject to the provisions of Section 5.11 hereof,
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b. The following new Section is added at the end of Article 5:
5.11 Inventory Collateral Effective Date. Upon the occurrence of the
Inventory Collateral Effective Date, the provisions of Sections 5.05 and
5.06 shall no longer be applicable.
5. Conditions to Effectiveness. This First Amendment shall not be effective
until each of the following conditions precedent have been fulfilled to
the satisfaction of the Issuing Banks:
a. This First Amendment shall have been duly executed and delivered by
the Kmart and the Issuing Banks.
b. All action on the part of Kmart necessary for the valid execution,
delivery and performance by Kmart of this First Amendment shall have
been duly and effectively taken.
c. Kmart shall reimburse the Issuing Banks for all expenses incurred by
the Issuing Banks in connection herewith, including, without
limitation, reasonable attorneys' fees.
d. No Default or Event of Default shall have occurred and be
continuing.
6. Miscellaneous.
a. Except as provided herein, all terms and conditions of the Credit
Agreement and the other Credit Documents remain in full force and
effect. Kmart hereby ratifies, confirms, and reaffirms all of the
representations, warranties and covenants therein contained.
b. This First Amendment may be executed in several counterparts and by
each party on a separate counterpart, each of which when so executed
and delivered, each shall be an original, and all of which together
shall constitute one instrument. Delivery of an executed counterpart
of a signature page hereto by telecopy shall be effective as
delivery of a manually executed counterpart hereof.
c. This First Amendment expresses the entire understanding of the
parties with respect to the matters set forth herein and supersedes
all prior discussions or negotiations hereon.
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IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed and their seals to be hereto affixed as the date first above
written.
KMART CORPORATION
By___________________________________
Print Name:__________________________
Title:_______________________________
FLEET NATIONAL BANK
By___________________________________
Print Name:__________________________
Title:_______________________________
BANK OF AMERICA, NATIONAL ASSOCIATION
By___________________________________
Print Name:__________________________
Title:_______________________________
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