- The Washington Times - Tuesday, February 25, 2003

CHICAGO, Feb. 25 (UPI) — Documents filed Tuesday in Kmart's bankruptcy case indicate former Chief Executive Officer Chuck Conaway stopped payments to vendors and then hid the action from the board of directors.

The documents were filed at the start of a two-day hearing on the century-old retailer's disclosure statement as the company heads towards emergence from bankruptcy.

Kmart's board said it found "credible and persuasive" evidence to indicate Conaway could have been fired for cause for his actions. It recommended sending its findings to a new creditors' trust, which could sue former executives who received $24 million in retention loans and bonuses before the company filed for bankruptcy in January 2002.

When he left Kmart last March, Conaway, who had been hired in May 2000, received $9 million in severance and loans.

The board said Conaway was trying to hide a cash crunch when he stopped vendor payments in the fall of 2001 and hid the extent of losses from the board. The crisis was brought on by the ordering of $850 million in excess inventory in the summer of 2001.

Conaway also allegedly failed to adequately supervise other executives and allowed the distribution of loans and bonuses he knew the board would reject if it knew the extent of the company's financial problems.

The FBI is investigating alleged improper payments from vendors and misuse of company aircraft.

Kmart was expected to lay off 500 to 1,000 of its Troy, Mich., headquarters employees by mid-April as it finishes closing 316 stores across the country. The headquarters once employed 5,000 and the latest layoffs will bring the number down to about 1,900.

As of Tuesday afternoon, no official announcement had been made concerning layoffs.

Kmart lost $2.4 billion in 2001 and $2 billion in 2002. At its peak in the early 1990s, Kmart had 2,350 stores but that number dwindled to 2,114 at the time of its bankruptcy filing. It closed 283 stores last year and cut its workforce by 32,000.

Liquidation sales are under way at 316 stores, with another 35,000 layoffs coming.


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