Kmart Demands Executives Repay Loans, Fires Five More (Update4)
By Rachel Katz
Troy, Michigan, Jan. 17 (Bloomberg) -- Kmart Corp. demanded the repayment of all executive retention loans made before the discount retailer filed for bankruptcy protection, and fired the five recipients of the bonuses still with the company.
An internal investigation found that management under former Chairman and Chief Executive Officer Charles Conaway didn't properly disclose information to the board when it set up the loan program in 2001, Kmart said in a statement. The retailer lent more than $30 million to about 60 executives in the year before the January 2002 bankruptcy filing.
Kmart sought to retain the executives as it struggled to compete with bigger rival Wal-Mart Stores Inc. before lapsing into bankruptcy. Current Chairman and CEO James Adamson was a member of the board that approved the loans, some of which were later forgiven. Some creditors have called the loan agreements inappropriate.
``It's a sign that Kmart is trying to be responsible in this era of heightened corporate responsibility,'' said Leonard Goldberger, a bankruptcy lawyer for White & Williams LP and vice president of the American Bankruptcy Institute. ``Part of bankruptcy involves cleaning your own house.''
The fired executives are Janet Kelley, general counsel and assistant secretary; Mariana Keros, vice president of trend and product development; Douglas Meissner, president of the western division; Paula Paquette, senior vice president of hardlines and home; and Lee Viliborghi, regional vice president.
Spokesman Jack Ferry declined to be more specific on the findings of the review and the terms of the loans. Kmart will release more details from the investigation to the U.S. Bankruptcy Court when it submits its reorganization plan around Jan. 24.
Conaway, Loans
The Troy, Michigan-based retailer three days ago announced plans to close 326 stores, fire as many as 37,000 workers and emerge from bankruptcy by April 30. Sales at stores open at least a year have fallen for 15 straight months, including during two holiday-shopping seasons. Kmart has about 1,800 stores.
Kmart offered a $5 million retention loan to Conaway in May 2001, eight months before the company sought protection from creditors, according to bankruptcy filings. That loan later was forgiven, according to filings. Conaway stepped down in March.
All but three of the loans were made between October 2001 and the Chapter 11 filing, according to court documents. The loans might be forgiven under certain circumstances, Kmart has said.
``Why should an insolvent company forgive a loan? It shouldn't,'' said Randy Picker, a professor at the University of Chicago law school. ``They're playing with someone else's money.''
The discounter has been investigating former management and began reviewing its bookkeeping after receiving anonymous letters raising unspecified accounting issues. The Securities and Exchange Commission authorized a probe after Kmart contacted the agency about the letters. The FBI also began a review to determine if there were any criminal violations.
Kmart has restated its financial results twice since filing for bankruptcy after examining the way it recorded discounts and rebates from suppliers and making adjustments for some leases.
Companies and their accounting policies have been under increasing scrutiny by regulators and investors since energy trader Enron Corp. filed for bankruptcy in December 2001. |
