Kmart Files Plan for Reorganization

Discount retailer Kmart Corp. filed its plan for getting out of bankruptcy protection, vowing to return to profitability by 2004, and said it found evidence that some former managers violated their responsibility to the company.

Kmart said its reorganization plan, filed with the federal Bankruptcy Court in Chicago, calls for two key creditors to invest at least $140 million in exchange for stock in the firm.

The retailer plans to issue 500 million new shares and cancel its existing ones once the plan is approved. Creditors will receive the bulk of those shares, while existing shareholders would receive at most 2.5%. Kmart has said the existing shares probably will be worthless.

Kmart said a review found “credible and persuasive” evidence that some managers had violated their responsibilities. At issue are millions of dollars in loans issued to executives shortly before Kmart filed for bankruptcy protection a year ago, and allegations of accounting irregularities.

Kmart did not elaborate on what its review found, saying only that 10 employees who already had left the company were terminated for cause.