Kmart Reorganization Won't Be Cheap

Bankruptcy court documents revealed that Kmart Corp. (Troy, Mich.) paid a $2.5 million signing bonus to James Adamson, its new chairman and ceo, will pay him another $4 million if Kmart emerges from bankruptcy by July 31, 2003, and will pay him an annual bonus estimated at 125 percent of his salary.

“Kmart believes that the terms of the employment agreement are reasonable and appropriate under the circumstances,” the document states, “and are necessary to induce Mr. Adamson, a highly qualified businessman, to serve as chief executive throughout these reorganization proceedings.”

Adamson's payments are to be guaranteed by a letter of credit worth more than $10 million. So are payments to JA&A Services, a consulting company that is supplying the cfo and treasurer to Kmart during its reorganization. Those two executives will bill Kmart at an hourly rate of $640 (for the cfo) and $620 (for the treasurer). Three other JA&A consultants will bill Kmart about $400 an hour for their services.

The bankrupt retailer has also retained DJM Asset Management (Melville, N.Y.) and its marketing partner, ChainLinks Retail Advisors (Washington, D.C.) to assist in the disposition of leases for the 283 stores the company had announced it would be closing.

Under the agreement, DJM and ChainLinks will assist Kmart's internal real estate staff in identifying retailers, investors and landlords interested in obtaining the leases for the closing stores. The locations to be marketed range in size from 40,300 to 182,714 square feet and are located in freestanding, strip and mall locations.

“This disposition represents an unusual opportunity for retailers, investors and landlords to obtain and control large pieces of real estate throughout the country,” said John Foster, Kmart's senior vp, real estate management. “We have been advised by DJM and ChainLinks to expect a great deal of interest for both retail and non-retail uses.”

Both the compensation arrangements and the disposition agreement are subject to bankruptcy court approval.