Penske Corp., in the wake of its decision to close all 562 Penske Auto Centers outlets nationwide, has reached a settlement agreement with Kmart Corp.
In the document, the two corporations agreed on terms for closing the stores, returning inventory, dealing with remaining payments, and basically making nice until the ordeal was finished. In the weeks prior to Penske's April 6 announcement that it was closing its auto centers, both had waged a bitter battle of words.
Included is a guaranty payment of $6 million from Penske to Kmart, to be paid within 30 days of the effective date.
The 13-page, 24-point settlement document was filed April 16 in U.S. Bankruptcy Court for the Northern District of Illinois, and the order was signed by Chief Judge Susan Pierson Sonderby.
Highlights of the binding settlement, governed by Delaware law, include:
* Physical wind-down. The companies ``shall confer in good faith'' to jointly develop and implement a plan to wind down the physical plant and operations of the Auto Centers. This ``wind-down plan'' will provide, among other things, that the auto centers be left in ``broom-clean'' condition consistent with past practice between the parties.
* Plan of liquidation. The companies agreed to confer with each other regarding the liquidation of Penske L.L.C. ``The Penske entities shall take no action...without prior consultation with the Kmart entities.''
* Return of inventory. Kmart will return inventory and equipment by Penske L.L.C. to Goodyear, Snap-on Inc. and National Automotive Parts Association (NAPA), provided that any of the vendors credit the fair market value of the returned goods against an obligation owed by Penske L.L.C., and/or pays Penske L.L.C. any amounts by which the fair market value exceeds such obligations.
* Guaranty payment. No later than 30 days after the effective date, Penske ``shall pay to Kmart $6 million in full satisfaction of any and all of the obligations of Penske Corp. pursuant to the guaranty payment.'' This obligation ``shall not be subject to setoff, counterclaim or defense of any kind.''
* Release of closure payment. As of the effective date, the Penske entities release ``absolutely and forever discharge any and all claims against the Kmart entities for the payment by the Kmart entities of any funds to the Penske entities in connection with the recent closing of Kmart stores....''
* Occupancy by Penske. Penske will have the ability to enter the auto centers' premises in order to carry out the agreement's terms and the physical wind-down plan, and will cooperate with any Kmart efforts to use or market the auto center locations.
* Public statements. ``The parties agree that no party...shall make any further public statements regarding the adversary proceeding or the matters addressed herein, except insofar as any party is required to publicly disclose any information pursuant to any statutory obligation....''
* No admission of liability. The agreement said it is a compromise of disputed claims and nothing contained in it should be construed as an admission of liability on behalf of or with respect to any claims asserted by or against the parties, and all such alleged liability is expressly denied.
The agreement also held Penske liable for funding all payroll and severance obligations of Penske L.L.C.