U.S. News Update: Kmart and Penske Work Out a Deal

Kmart Corporation and Penske Corporation, Penske Auto Centers, Inc., and Penske Auto Centers, LLC have announced that they have reached an agreement whereby Penske and Kmart will work together to achieve an orderly wind-down of operations at auto service centers at more than 550 Kmart stores across the United States.
Under terms of the Agreement, which is subject to the issuance of a signed order by the United States Bankruptcy Court for the Northern District of Illinois, Penske and Kmart will cooperate to assure an orderly wind-down of the business following Penske’s unilateral decision to close the business as of April 6, 2002.
Under the agreement, Penske has earmarked funds for certain close down expenses, including facility restoration, removal of hazardous waste and materials associated with the wind-down, and monies to support Penske Auto Center’s future customer’s warranty needs. Penske Corporation has approved funding PAC’s payment of approximately $10 million for salaries, severance, and future medical expenses of PAC employees.
Penske has also agreed to pay $6 million to Kmart under the terms of a master lease guarantee, and Penske Auto Centers, LLC also has agreed to waive a claim of $5 million that allegedly was owed as a result of Kmart’s previously announced store closing plan. Separately, Penske clarified that the statement contained in a document submitted by Penske to the Bankruptcy Court entitled “Consent In Lieu of Meeting Of The Management Committee Of Penske Auto Centers, LLC” and dated March 29, 2002 regarding reports of a Kmart plan to close as many of 700 additional stores was not based on any business plan, memorandum, or other documentation provided by Kmart to Penske. Penske states that this document was prepared by Penske and not previously shared with Kmart. Further, Kmart reiterated that it currently has no plans to close additional stores and that any future store closings would be part of its overall strategy for exiting Chapter 11.
“We’re pleased to have reached this Agreement and are moving forward with a plan to convert the space occupied by Penske to additional Kmart selling space,” said James B. Adamson, chairman and chief executive officer. “Furthermore, we are confident Penske’s departure will not have any adverse affect on our business.” Roger S. Penske, Chairman of Penske Corporation, said: “This agreement allows us to meet our primary objective of taking care of our employees and customers.”