Interim Management and Restructuring Services Agreement - Kmart Corp. and JA&A Services LLC
JA&A SERVICES, LLC
2000 Town Center
Suite 2400
Southfield, MI 48075
March 10, 2002
Mr. James Adamson
Chairman and CEO
Kmart Corporation
3100 West Big Beaver Road
Troy, Michigan 48084
Re: Interim Management and Restructuring Services
Dear Mr. Adamson:
This letter outlines the understanding between JA&A Services, LLC ("JAS") and
Kmart Corporation (the "Company") for the engagement of JAS to provide certain
temporary employees to the Company to assist it in its restructuring as
described below. Generally, the engagement of JAS, including any JAS employees
who serve in Executive Officer positions, shall be under the approval of the
Board of Directors of the Company and the direct supervision of you as Chairman
and CEO.
JAS will provide the individuals set forth on Exhibit A, herein referred to as
the temporary employees ("Temporary Employees"), subject to the terms and
conditions of this letter, with the titles, pay rates, and other descriptions
set forth therein.
Albert A. Koch will serve as the Company's Chief Financial Officer reporting to
the Company's Chairman and Chief Executive Officer. Additionally, Ted Stenger
will serve as the Company's Treasurer and will report to Al. Al and Ted will
work collaboratively with the senior management team, the Board of Directors and
other case professionals in assisting the Company in evaluating and implementing
strategic and tactical options through the restructuring process. Al and Ted's
roles will include the following:
- Managing the Company's financial and treasury functions.
- Providing leadership to the financial function including, without
limitation, assisting the Company in (i) strengthening the core
competencies in the finance organization, particularly cash management,
planning, general accounting and financial reporting information
management and (ii) formulation and negotiation with respect to a plan of
reorganization.
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Mr. James Adamson
March 13, 2002
Page 2
- Assisting the Company's Chief Restructuring Officer, as appropriate, in
overseeing development of an operating business plan to be used in
managing the Company for the current year as well as for future years.
- Assisting in overseeing and driving financial performance in conformity
with the Company's business plan.
- Supervising the preparation of regular reports required by the Bankruptcy
Court or which are customarily issued by the Company's Chief Financial
Officer as well as providing assistance in such areas as testimony before
the Bankruptcy Court on matters that are within our areas of expertise.
- Assisting with such other matters as may be requested that fall within
our expertise.
Other Temporary Employees will include Maggie L. Anderson, Laurence E. Leonard
and Thomas A. Morrow with responsibility for filling needed roles in assisting
Al and Ted with fulfilling the aforementioned engagement tasks. We will keep you
informed as to our staffing and will not add additional Temporary Employees to
the assignment without first consulting with you to obtain your concurrence that
such additional resources are required and do not duplicate the activities of
other employees or professionals. Moreover, we will attempt to utilize Company
personnel to fulfill such roles and will take such steps as may be necessary to
avoid duplication with the Company's other professionals. Furthermore, we will
keep you informed as to the areas of responsibility being filled by all the
Temporary Employees and will adjust the staffing level upwards or downwards as
you direct.
JAS shall be compensated for its services under this agreement at the rates set
forth on Exhibit A. The Temporary Employees expected to be provided as of the
date of this letter along with the nature of their commitment to the Company is
set forth on Exhibit A, unless JAS and the Company agree to modify the terms of
this agreement.
We commenced this engagement on March 4, 2002 with the understanding that the
Company will promptly seek to have us retained by the bankruptcy court nunc pro
tunc to March 4, 2002.
Other JAS professionals at various levels may assist the Temporary Employees, as
the tasks require, and would also become Temporary Employees. For purposes of
monthly billings, our fees will be based on the hours charged at our hourly
rates, which are:
Principals $520 - $640
Senior Associates $400 - $500
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Mr. James Adamson
March 13, 2002
Page 3
Associates $285 - $385
Accountants and Consultants $210 - $280
Analysts $125 - $185
We review and revise our billing rates effective January 1 of each year.
In addition to the fees set forth above, the Company shall pay directly or
reimburse JA&A upon receipt of periodic billings, for all reasonable
out-of-pocket expenses incurred in connection with this assignment such as
travel, lodging, postage, telephone and facsimile charges.
JAS will be compensated in accordance with the above rates by filing a report of
compensation with the Court, with service to the Debtors, the United States
Trustee, and the Official Unsecured Creditors' Committee. If no objection is
filed to the report of compensation within 20 days, the Debtors will be
authorized to pay the amount incurred by JAS for services of the Temporary
Employees in the ordinary course of its business. If an objection is filed, a
hearing and order of the Court will be necessary to authorize compensation.
In addition to the hourly fees and expenses, the Company agrees to pay JAS an
Annual Performance Fee equal to the following:
A) Actual EBITDA for each year multiplied by .75% will be the Base Amount.
B) The Base Amount will be adjusted for the EBITDA performance levels of
Threshold Amount, Target Amount, and Stretch Amount as defined in the
company's Corporate Annual Performance Plan. The Annual Performance Fee
will be equal to the Base Amount multiplied by 50% for achieving the
Threshold Amount EBITDA performance increasing ratably to 150% for
achieving or exceeding the Stretch Amount.
C) The Annual Performance Fee will be multiplied by a fraction, the
numerator of which is the number of months in the fiscal year that JAS
serves the Company and the denominator of which is 12 to calculate the
fee earned.
We will require a retainer of $500,000 to be applied against the time charges
and expenses specific to the engagement. We will submit monthly invoices for
services rendered and expenses incurred as described above, and we will offset
such invoices against the retainer. Payment will be due upon receipt of the
invoices to replenish the retainer to the agreed upon amount. Any unearned
portion of the retainer will be returned to you at the termination of the
engagement.
The parties intend that an independent contractor relationship will be created
by this agreement. As an independent contractor, JAS will have complete and
exclusive charge of the management and
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Mr. James Adamson
March 13, 2002
Page 4
operation of its business, including hiring and paying the wages and other
compensation of all its employees and agents, and paying all bills, expenses and
other charges incurred or payable with respect to the operation of its business.
Of course, as an independent contractor, neither the Temporary Employees nor JAS
will be entitled to receive from the Company any vacation pay, sick leave,
retirement, pension, or social security benefits, workers' compensation,
disability, unemployment insurance benefits, or any other employee benefits. JAS
will be responsible for all employment, withholding, income and other taxes
incurred in connection with the operation and conduct of its business. Temporary
Employees will not be considered employees of the Company except for purposes of
this agreement.
JAS agrees to keep confidential all information obtained from the Company, and
neither JAS nor the Temporary Employees will disclose to any other person or
entity, or use for any purpose other than specified herein, any information
pertaining to the Company which is either non-public, confidential, or
proprietary in nature ("Information") which it obtains or is given access to
during the performance of the services provided hereunder. The foregoing is not
intended to nor shall be construed as prohibiting JAS or the Temporary Employees
from disclosure pursuant to a valid subpoena or court order, but neither JAS nor
such Temporary Employees shall encourage, suggest, invite or request, or assist
in securing, any such subpoena or court order, and the Temporary Employees shall
immediately give notice of any such subpoena or court order by fax transmission
to the Company. Furthermore, JAS and the Temporary Employees may make reasonable
disclosures of Information to third parties in connection with their performance
of their obligations and assignments hereunder. In addition, JAS will have the
right to disclose to others in the normal course of business their involvement
with the Company.
Information includes data, plans, reports, schedules, drawings, accounts,
records, calculations, specifications, flow sheets, computer programs, source or
object codes, results, models, or any work product relating to the business of
the Company, its subsidiaries, distributors, affiliates, vendors, customers,
employees, contractors and consultants.
The Company acknowledges that all information (written or oral) generated by the
Temporary Employees in connection with their engagement is intended solely for
the benefit and use of the Company (limited to its management, including its
Board of Directors) in considering the transactions to which it relates. The
Company agrees that no such information shall be used for any other purpose or
reproduced, disseminated, quoted or referred to with attribution to JAS at any
time in any manner or for any purpose other than accomplishing the tasks
referred to herein, without JAS's prior approval (which shall not be
unreasonably withheld) except as required by law. This agreement will survive
the termination of the engagement.
The Company acknowledges that it is hiring the Temporary Employees purely to
assist the Company and its Board of Directors in the management and
restructuring of the Company. This engagement shall not constitute an audit,
review or compilation, or any other type of financial
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Mr. James Adamson
March 13, 2002
Page 5
statement reporting or consulting engagement that is subject to the rules of the
AICPA, the SSCS, or other such state and national professional bodies.
JAS employees serving as officers of the Company will be entitled to the benefit
of the indemnities provided by the Company to its officers and directors,
whether under the Company's by-laws, certificates of incorporation, by contract
or otherwise. In the event that other JAS employees become officers of the
Company, such individuals will be entitled to the same benefit.
The Company agrees that it will use its best efforts to specifically include and
cover JAS employees serving as officers of the Company under the Company's
policy for directors' and officers' insurance. In the event that the Company is
unable to include JAS employees serving as officers of the Company under the
Company's policy or does not have first dollar coverage as outlined in the
preceding paragraph in effect for at least $10 million, it is agreed that JAS
will attempt to purchase a separate directors' and officers' policy that will
cover JAS employees serving as officers of the Company only and that the cost of
same shall be invoiced to the Company as an out-of-pocket cash expense. If JAS
is unable to purchase such directors' and officers' insurance then we reserve
the right to terminate this agreement. In the event that other Temporary
Employees become officers of the Company such individuals will be entitled to
the same benefit. The obligations of the parties as reflected herein shall
survive the termination of the engagement.
JAS's engagement to provide temporary employees hereunder may be terminated at
any time by written notice by one party to the other; provided, however, that
notwithstanding such termination JAS will be entitled to any fees and expenses
due under the provisions of the agreement, including performance fees. If at any
time prior to the earlier of (i) the second anniversary of this engagement
letter or (ii) confirmation of a plan of reorganization, a new Chief Executive
Officer is employed and there is a material change in the responsibilities or
duties of Mr. Koch or Mr. Stenger without the consent of JAS, then the
engagement contemplated by this letter shall terminate and a fee of $2,000,000
will be due. Such payment obligation shall inure to the benefit of any successor
or assignee of JAS. The obligations of the parties as reflected herein shall
survive the termination of the engagement.
This letter agreement is governed by and construed in accordance with the laws
of the State of Michigan with respect to contracts made and to be performed
entirely therein and without regard to choice of law or principles thereof.
If we have any dispute arising between us, including any dispute with respect to
this agreement, its interpretation, performance or breach, and are unable to
agree on a mutually satisfactory resolution with 30 days, either party may
require the matter to be settled by binding arbitration. We shall attempt for
two weeks to agree on a single arbitrator. If that effort shall fail, each party
shall appoint one arbitrator. The two arbitrators so chosen shall attempt for
two weeks to select a third. If they are unable to agree, the American
Arbitration Association in New York City shall choose the third.
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Mr. James Adamson
March 13, 2002
Page 6
The arbitration shall occur using the rules and procedures of the American
Arbitration Association. The decision of the arbitrator(s) shall be final,
binding and non-appealable. However, JAS agrees that this arbitration provision
shall apply only to the extent that the United States Bankruptcy Court, or the
United States District Court if the reference is withdrawn, does not retain
jurisdiction over a controversy or claim.
WE RECENTLY RECEIVED A COMPREHENSIVE LIST OF INTERESTED PARTIES IN THIS CASE
AND, HAVE NOT COMPLETED CHECKING FOR CONNECTIONS OR RELATIONSHIPS THAT SHOULD BE
DISCLOSED HEREIN. WE WILL PROVIDE THE APPROPRIATE DISCLOSURES WITHIN 10 DAYS.
We confirm that JAS, its employees, and its affiliates(1) do not have any
financial interest or business connection with the Company other than as
contemplated by this agreement, and we know of no fact or situation that would
represent a conflict of interest for us with regard to the Company. While we are
not currently aware of any other relationships that connect us to any party in
interest, because JAS and its affiliates serve clients on a national basis in
numerous cases, both in and out of court, it is possible that JAS or its
affiliates may have rendered services to, or have business associations with,
other entities which had, or have, relationships with the Company, including
creditors of the Company. JAS and affiliates have not, and will not perform
services for, or have business connections with, any of these aforementioned
entities in this matter involving the Company.
The Company agrees to promptly notify JAS if it extends (or solicits the
possible interest in receiving) an offer of employment to an employee of JAS and
agrees that it will pay JAS a cash fee, upon hiring, equal to 50% of the
aggregate first year's annualized compensation, including any other
compensation, to be paid to any person working for the Company on behalf of JAS
that the Company or any of its subsidiaries or affiliates hires at any time up
to two years subsequent to the date of the final invoice rendered by JAS with
respect to this engagement. This agreement does not prohibit the Company from
making general solicitations for employment or from soliciting for employment
any individuals who have ceased to be employees or agents of JAS prior to such
solicitation.
If any portion of the letter agreement shall be determined to be invalid or
unenforceable, we each agree that the remainder shall be valid and enforceable
to the maximum extent possible. All of the above contains the entire
understanding of the parties relating to the services to be rendered by JAS and
may not be amended or modified in any respect except in writing signed by the
parties. JAS will not be responsible for performing any services not
specifically described in this letter or in a subsequent writing signed by the
parties.
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(1) JAS is a company that provides temporary employees. Affiliates of JAS
include Jay Alix & Associates, a financial advisory and consulting firm, The
System Advisory Group, providing information technology services, Partnership
Services, LLC, a company that provides temporary employees, and the Questor
funds, which are private equity funds that invest in special situations and
under-performing companies.
<PAGE>
Mr. James Adamson
March 13, 2002
Page 7
All notices required or permitted to be delivered under this letter agreement
shall be sent, if to us, to the address set forth at the head of this letter, to
the attention of Mr. Melvin R. Christiansen, and if to you, to the address for
you set forth above, to the attention of your General Counsel, or to such other
name or address as may be given in writing to the other party. All notices under
the agreement shall be sufficient if delivered by facsimile or overnight mail.
Any notice shall be deemed to be given only upon actual receipt.
If these terms meet with your approval, please sign and return the enclosed copy
of this proposal and wire transfer the amount to establish the retainer.
We look forward to working with you.
Sincerely yours,
JA&A SERVICES, LLC
A. A. Koch
Chairman
Acknowledged and Agreed to:
KMART CORPORATION
By:
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Its:
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Dated:
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<PAGE>
JA&A SERVICES LLC
EMPLOYMENT BY KMART CORPORATION
EXHIBIT A
TEMPORARY EMPLOYEES
INDIVIDUALS WITH EXECUTIVE OFFICER POSITIONS
----------------------------- ------------------------------- ------------------- -----------------------------
NAME DESCRIPTION HOURLY RATE COMMITMENT
FULL(1) OR PART TIME
----------------------------- ------------------------------- ------------------- -----------------------------
Albert A. Koch Chief Financial Officer $640 Approx. 4 days/week
Ted Stenger Treasurer $620 Approx. 4 days/week
----------------------------- ------------------------------- ------------------- -----------------------------
ADDITIONAL TEMPORARY EMPLOYEES
----------------------------- ------------------------------- ------------------- -----------------------------
NAME DESCRIPTION HOURLY RATE COMMITMENT
FULL(1) OR PART TIME
----------------------------- ------------------------------- ------------------- -----------------------------
Maggie L. Anderson TBD $420 Full Time
----------------------------- ------------------------------- ------------------- -----------------------------
Laurence E. Leonard TBD $400 Full Time
----------------------------- ------------------------------- ------------------- -----------------------------
Thomas A. Morrow TBD $450 Full Time
----------------------------- ------------------------------- ------------------- -----------------------------
(1) Full time is defined as substantially full time.
<PAGE>
JA&A SERVICES, LLC
2000 Town Center
Suite 2400
Southfield, MI 48075
April 1, 2002
Mr. James Adamson
Chairman and CEO
Kmart Corporation
3100 West Big Beaver Road
Troy, Michigan 48084
Re: Interim Management and Restructuring Services - Supplement
Dear Mr. Adamson:
The purpose of this letter is to supplement our letter dated March 10, 2002
("Agreement") between JA&A Services, LLC ("JAS") and Kmart Corporation (the
"Debtors").
In the Agreement, we stated the following: "We recently received a
comprehensive list of interested parties in this case and have not completed
checking for connections or relationships that should be disclosed herein. We
will provide the appropriate disclosures within 10 days."
With the information we received from the Debtors, we have checked our database
for connections or relationships with any party in interest with regard to the
Debtors. The results of our search are presented below. While we know of no
fact or situation which would represent a conflict of interest for JAS and its
affiliates(1) with regard to the Debtors, we wish to disclose the following:
- Questor Partners Fund, L.P. ("QPF") and Questor Partners Fund II, L.P. ("QPF
II"), a $300 million fund and an $865 million fund, respectively, are private
equity funds that invest in special situations and under-performing
companies. Neither QPF not QPF II will make an investment in the Debtors for
at least three years after the date that JA&A's engagement terminates.
- Mr. Jay Alix, a principal in Jay Alix & Associates, is also the President
and CEO of Questor Management Company, the entity that manages QPF and QPF
II.
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(1)JAS is a company that provides temporary employees. Affiliates of JAS
include Jay Alix & Associates, a financial advisory and consulting firm, The
System Advisory Group, providing information technology services, Partnership
Services, LLC, a company that provides temporary employees, and the Questor
funds, which are private equity funds that invest in special situations and
under-performing companies.
<PAGE>
Mr. James Adamson
April 1, 2002
Page 2
- Questor and JA&A are separate companies. JA&A, pursuant to contract,
performs certain accounting and back-room services for Questor. From time
to time, Questor hires JA&A as a contractor to advise it regarding a
potential acquisition, and occasionally investee companies of QPF and
QPF II hire JA&A.
- Mr. Jay Alix owns interests in the general partners of QPF and QPF II. Mr.
Albert Koch and Mr. Michael Grindfors, Chairman and President of JA&A,
respectively, each own interests in the general partner of QPF II.
- Substantially all of the other principals of JA&A own limited partnership
interests in one or more of the following entities: Questor Side-by-Side
Partners, L.P., Questor Side-by-Side Partners II, L.P., and Questor
Side-by-Side Partners II 3(c)(1), L.P. JA&A principals, except for Mr.
Alix and Mr. Koch, are passive investors and have no voice in approving
Questor's investments.
- Some of the limited partners of QPF and QPF II are affiliates of financial
institutions that are also lenders to companies that may have retained
JA&A. The affiliates of such financial institutions are passive investors
in QPF and QPF II and have no voice in approving Questor's investments.
Where such situations occur, the lending relationship and investment in QPF
and/or QPF II is detailed in JA&A's disclosures.
- QPF, QPF II, Questor Side-by-Side Partners, L.P., Questor Side-by-Side
Partners II, L.P., and Questor Side-by-Side Partners II 3(c)(1), L.P. are
all related entities. The Side-by-Side funds contain, in the aggregate,
6.3% of the total Questor funds, which are in excess of $1.17 billion.
- Mr. James B. Adamson, Chairman, CEO and Director of the Debtors, was a
Director of Oxford Health Plans at a time when JA&A was retained to perform
certain professional services.
- Allard & Fish, a professional that represents JA&A in a client matter that
is unrelated to the Debtors, represents Combine International, Inc. in the
Debtors' case.
- American General Investment Management, a major bondholder of the Debtors,
is the subsidiary of a former JA&A client in a matter unrelated to the
Debtors.
- Bank of America, a lender to the Debtors, is a current client of JA&A in
matters unrelated to the Debtors. Also, Bank of America is and has been a
lender to certain current and/or former JA&A clients in matters unrelated
to the Debtors.
<PAGE>
Mr. James Adamson
April 1, 2002
Page 3
- The Bank of New York, a lender and indentured trustee to the Debtors, is a
bondholder, lessor, and trustee of certain other current and/or former
JA&A clients in matters unrelated to the Debtors. Also, The Bank of New
York has previously employed a JA&A employee.
- Bank One (f/k/a/ National Bank of Detroit), a lender, underwriter and
indentured trustee to the Debtors, is a current client of JA&A in matters
unrelated to the Debtors. In addition, Bank One provides commercial
banking services to JA&A, has previously employed a JA&A employee and is a
lender to certain other current and/or former JA&A clients in matters
unrelated to the Debtors.
- Banker's Trust and its affiliated entities, lenders to the Debtors, are
affiliated with an entity that is a limited partner in QPF II and is a
lender to certain other current and/or former JA&A clients in matters
unrelated to the Debtors.
- Barclays Bank Plc is affiliated with a shareholder of the Debtors and is
adverse to a current JA&A client in a matter unrelated to the Debtors. In
addition, Barclays Bank Plc is a shareholder and lender to certain current
and/or former JA&A clients in matters unrelated to the Debtors.
- Borders, a lessor of the Debtors, is a vendor to JA&A. Also, Borders has
previously employed a JA&A employee.
- Burlington Industries, Inc, a creditor to the Debtors, has retained JA&A
to assist in its restructuring.
- Little Caesars Enterprises, a counter party to a major contract with the
Debtors, is a former client of JA&A in a matter unrelated to the Debtors.
- Citibank and its affiliated entities, lenders to the Debtors, are
affiliated with limited partners in QPF and/or QPF II. Also, Citibank and
its affiliated entities are lenders, bondholders, and shareholders to
certain other current and/or former JA&A clients in matters unrelated to
the Debtors. JA&A was a client of Salomon Smith Barney in a matter
unrelated to the Debtors that has been concluded.
- Comerica, a lender to the Debtors, is a limited partner in QPF and QPF II,
and is also a former JA&A client in matters unrelated to the Debtors.
Comerica is a lender to certain other current and/or former JA&A clients
and to QPF portfolio companies in matters unrelated to the Debtors. Also,
Comerica is a lender to Mr. Jay Alix personally, and Mr. Koch maintains a
banking relationship with Comerica and an investment account with Comerica
Securities.
<PAGE>
Mr. James Adamson
April 1, 2002
Page 4
- Credit Suisse First Boston and its affiliated entities are lenders and
underwriters to the Debtors and are affiliated with a current JA&A client
in a matter unrelated to the Debtors. CS First Boston and its affiliated
entities are creditors, lenders and/or bondholders to certain other
current and/or former JA&A clients in matters unrelated to the Debtors.
Also, Credit Suisse First Boston is affiliated with an entity that is a
limited partner in QPF and/or QPF II.
- Ernst & Young, an advisor to the Debtors, is the former employer of Albert
Koch, Ted Stenger and various JA&A employees.
- An unsecured creditor of the Debtors has retained JA&A to assist in its
restructuring.
- Fidelity and its affiliated entities are shareholders and bondholders of
the Debtors and a current vendor of JA&A.
- First Union National Bank, a lender to the Debtors, is a current and
former JA&A client in matters unrelated to the Debtors and is a lender or
affiliated with lenders to certain other current and/or former JA&A clients
in matters unrelated to the Debtors.
- Firstar Bank, US Bank, and Mercantile Bank are all lenders to the Debtors
and now operate under the US Bank name. The present US Bank and its
affiliated and/or former entities are clients, clients through a bank
group, lessors, lenders, bondholders, and trustees to certain other
current and/or former JA&A clients in matters unrelated to the Debtors.
Also, Firstar Bank has previously employed a JA&A employee.
- Fleet National Bank and its affiliated entities are lenders and
underwriters to the Debtors and are affiliated with an entity that is a
limited partner in QPF II.
- Frito Lay Inc., an unsecured creditor of the Debtors, has previously
employed two JA&A employees.
- Fuji Bank, Limited/The Fuji Bank, Limited is a participant in the bank
group for Lason, Inc. JA&A has been retained by the bank group in this
matter.
- GE Financial Assurance Holdings, a major bondholder of the Debtors, is
affiliated with a limited partner in QPF II. General Electric and its
affiliated entities are creditors, lenders, lessors, bondholders, vendors
and adverse parties to certain other current and/or former JA&A clients in
matters unrelated to the Debtors. Also, the parent company of GE Financial
previously employed a JA&A employee.
<PAGE>
Mr. James Adamson
April 1, 2002
Page 5
- Michelle Gluck, VP Associate General Counsel & Assistant Secretary of the
Debtors, is married to a former JA&A employee.
- GMAC Commercial Credit is a member of the unsecured creditors committee.
Entities affiliated with GMAC Commercial Credit, have been clients of JA&A,
have previously employed certain JA&A employees and have been lenders and
creditors to various JA&A clients in matters unrelated to the Debtors.
- Hartford Investment Management Company, a major bondholder of the Debtors, is
affiliated with an entity which was previously an adverse party in two
distinct litigation engagements of JA&A unrelated to the Debtors.
- ING Investment Management, Inc. is a major bondholder of the Debtors and is
affiliated with ING Capital, an investment banker/underwriter for the
Debtors. ING Capital is also a client of JA&A through a bank group in a
matter unrelated to the Debtors.
- JP Morgan Chase and its affiliated entities are lenders, underwriters and
bondholders of the Debtors and are limited partners in QPF and QPF II. JP
Morgan Chase and its affiliated entities are lenders and shareholders of
certain other current and/or former JA&A clients in matters unrelated to the
Debtors. A current employee of JA&A worked for Chase Manhattan Bank more than
20 years ago. In addition, a unit of Morgan Stanley Dean Witter employs a
relative of a JA&A employee.
- Jefferson Pilot Financial is a major bondholder of the Debtors. An officer
of Jefferson Pilot Corp., an affiliate of Jefferson Pilot Financial, is a
director of a current client of JA&A.
- Jones, Day, Reavis & Pogue ("Jones Day"), counsel to the creditors, is a
current and former JA&A client, has served as legal counsel to various JA&A
clients, and has served as opposing counsel in various other matters
involving JA&A's clients in matters unrelated to the Debtors. Also, Jones Day
has previously provided services to Questor Management Company.
- KPMG, LLP, accountants to the creditors' committee, has previously employed
several JA&A employees and has been an adverse party in current and former
client situations in matters unrelated to the Debtors.
- Los Angeles County Employees Retirement System, a major bondholder of the
Debtors, is a limited partner in QPF and QPF II.
<PAGE>
Mr. James Adamson
April 1, 2002
Page 6
- Lehman Brothers is an investment banker/underwriter for the Debtors and
Lehman Commercial Paper Inc. is a prepetition lender of the Debtors. An
affiliate, Lehman Syndicated Loans, Inc., is a client of JA&A in a matter
unrelated to the Debtors.
- Loomis, Sayles & Company, a major bondholder of the Debtors, is a
significant shareholder and bondholder of current clients of JA&A and is
also a significant shareholder of a former JA&A client, all of which are in
matters unrelated to the Debtors.
- Mellon Bank, N.A., a lender to the Debtors, is a significant shareholder of
a former client of JA&A and is also a client through two bank groups of
current JA&A clients in matters unrelated to the Debtors. Mellon Bank, N.A.
is also a lender to certain current and former JA&A clients in matters
unrelated to the Debtors.
- Merrill Lynch is an investment banker/underwriter for the Debtors and
Merrill Lynch Capital Corporation is a prepetition lender to the Debtors.
Merrill Lynch Capital Corporation is a former client of JA&A in a matter that
has been completed for over five years. Merrill Lynch and its affiliated
entities are also a lender, significant shareholder and bondholder to certain
other current and/or former JA&A clients in matters unrelated to the Debtors.
Merrill Lynch is a former client of JA&A in a matter unrelated to the
Debtors. Also, Merrill Lynch previously employed a JA&A employee.
- Michigan National Bank (of Detroit), lenders of the Debtors, is a current
and former client of JA&A, a client through a bank group, and lender to
several JA&A clients, all unrelated to the Debtors. Also, Michigan National
Bank previously employed a JA&A employee.
- National City Bank, a lender to the Debtors, is affiliated with an entity
that is a limited partner in QPF II and is a former JA&A client in a matter
unrelated to the Debtors. Also, National City Bank is a client through a
bank group, client through an affiliate, and lender to certain other current
and/or former JA&A clients in matters unrelated to the Debtors.
- Oak Hill Securities and its affiliated entities, lenders to the Debtors, are
also lenders and bondholders of certain other current and/or former JA&A
clients in matters unrelated to the Debtors. Also, an officer of a current
JA&A client is a managing partner of an affiliate entity of Oak Hill
Securities.
- PPM America, a major shareholder of the Debtors, is a shareholder of a
former JA&A client and a lender to a current JA&A client in matters
unrelated to the Debtors, and has filed an objection for the payment of
fees to JA&A in another matter unrelated to the Debtors.
<PAGE>
Mr. James Adamson
April 1, 2002
Page 7
- PriceWaterhouseCoopers ("PWC"), a professional of the Debtors, is the auditor
for QPF and QPF II. In addition, JA&A has been retained by PWC in both current
and former matters unrelated to the Debtors. In addition, PWC has previously
employed several JA&A employees.
- Prudential Securities and its affiliated entities are bondholders,
underwriters and lenders to the Debtors, and have been adverse parties in a
litigation engagement, and lenders and bondholders of certain other current
and/or former JA&A clients, all in matters unrelated to the Debtors.
- Skadden, Arps, Slate, Meagher & Flom, counsel to the Debtors, is a former JA&A
client, has served as legal counsel to various JA&A clients, and has served as
opposing counsel in various other matters involving JA&A's clients in matters
unrelated to the Debtors.
- Smith Barney Asset Management, a major bondholder of the Debtors, is
affiliated with an entity that is a limited partner in QPF and QPF II and is
affiliated with lenders and bondholders of certain other current and/or former
JA&A clients in matters unrelated to the Debtors. Also, an affiliate of Smith
Barney is a vendor to JA&A.
- Mr. Thomas T. Stallkamp, member of the board of directors of the Debtors, is
the father of a current JA&A employee who will not be party to this
engagement.
- State Street Global Advisors, a major shareholder of the Debtors, is a lender
to a current JA&A client and is affiliated with a company that is a trustee
for a limited partner in QPF II in matters unrelated to the Debtors. Also,
affiliates of State Street Global Advisors are creditors, shareholders,
bondholders, lenders and vendors of certain other current and/or former JA&A
clients in matters unrelated to the Debtors.
- Transamerica and its affiliated entities are bondholders and underwriters to
the Debtors. An affiliate of Transamerica is a current and former client of
JA&A in a matter unrelated to the Debtors. Also, affiliates of Transamerica
have been clients through a creditors committee, creditors, lenders,
bondholders and lessors to certain other current and/or former JA&A clients in
matters unrelated to the Debtors.
- Travelers Asset Management and The Travelers Insurance Co., major bondholders
of the Debtors, are affiliated with a company that is a limited partner in QPF
and QPF II. Affiliates of the above were clients and vendors of JA&A and were
adverse to JA&A's clients in litigation engagements unrelated to the Debtors.
Also, affiliates of Travelers are creditors, and bondholders, lenders and
vendors of certain other current and/or former JA&A clients in matters
unrelated to the Debtors. Travelers previously employed a JA&A employee.
<PAGE>
Mr. James Adamson
April 1, 2002
Page 8
- Union Bank of California, lenders to the Debtors, is a former client through
a bank group of JA&A in a matter unrelated to the Debtors. Also, Union Bank of
California has been a lender to certain other current and/or former JA&A
clients in matters unrelated to the Debtors.
- Van Kampen, investment banker/underwriter to the Debtors, is affiliated with
former clients of JA&A in matters unrelated to the Debtors. An affiliate of
Van Kampen is a lender to a current client of JA&A in matters unrelated to the
Debtors. Van Kampen and its affiliated entities are also lenders and
bondholders to certain other current and/or former JA&A clients in matters
unrelated to the Debtors.
- The Vanguard Group, Inc. is a major shareholder and bondholder of the
Debtors. The Vanguard Group, Inc. may be affiliated with parties that are
adverse to JA&A clients in matters unrelated to the Debtors. Also, affiliates
of Vanguard Group, Inc. are lenders and vendors to certain other current
and/or former JA&A clients in matters unrelated to the Debtors.
- Winston & Strawn, counsel to the creditors' committee, is a former JA&A
client, has served as legal counsel and opposing counsel involving JA&A's
clients in matters unrelated to the Debtors.
- Wells Fargo Bank, N.A., a lender to the Debtors, is a client through a
creditor's committee, lender and creditor to certain other current and/or
former JA&A clients in matters unrelated to the Debtors.
- Zurich Scudder Investments, Inc., a major bondholder of the Debtors, is a
lender to a current client of JA&A. Zurich Scudder Investments, Inc. is
affiliated with entities that are also vendors to JA&A, adverse to JA&A's
clients in litigation engagements, and have underwritten premium financing for
certain other current and/or former JA&A clients in matters unrelated to the
Debtors.
- An employee of JA&A is a director of a company that has a lease(s) with the
Debtors.
We confirm that JAS, its employees, and its affiliates do not have any
financial interest or business connection with the Debtors other than as
contemplated by this agreement, and we know of no fact or situation that would
represent a conflict of interest for us with regard to the Debtors. While we
are not currently aware of any other relationships that connect us to any party
in interest, because JAS and its affiliates serve clients on a national basis
in numerous cases, both in and out of court, it is possible that JAS or its
affiliates may have rendered services to, or have business associations with,
other entities which had, or have, relationships with the Debtors, including
creditors of the Debtors. JAS and affiliates have
<PAGE>
Mr. James Adamson
April 1, 2002
Page 9
not, and will not perform services for, or have business connections with, any
of these aforementioned entities in this matter involving the Debtors.
Should you have any questions regarding the above, please contact me to
discuss your questions.
Sincerely yours,
JA&A SERVICES, LLC
/s/ A.A. Koch/T.S.
A. A. Koch
Chairman