10-K 1 ----------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549-1004 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required) For the 52-Week Period Ended Commission File December 31, 1994 No. 0-17540 MONTGOMERY WARD HOLDING CORP. (Exact name of registrant as specified in its charter) DELAWARE 36-3571585 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) Montgomery Ward Plaza, Chicago, Illinois 60671-0042 (Address of principal executive offices) (Zip Code) Registrant's Telephone Number, including area code: (312) 467-2000 Securities registered pursuant to Section 12(b) of the Act Title of each class Name of each exchange on which registered Not Applicable None Securities registered pursuant to Section 12(g) of the Act: Class A Common Stock, Series 1, $.01 Par Value (Title of class) Class A Common Stock, Series 2, $.01 Par Value (Title of class) Voting Trust Certificates representing Shares of Class A Common Stock, Series 1, $.01 Par Value (Title of class) Voting Trust Certificates representing Shares of Class A Common Stock, Series 2, $.01 Par Value (Title of class) Class B Common Stock, $.01 Par Value (Title of class) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. . Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . At March 22, 1995, there were 19,204,435 shares of Class A Common Stock and 25,000,000 shares of Class B Common Stock of the Registrant outstanding. Part III incorporates information by reference from the proxy statement for the annual meeting of shareholders to be held on May 12, 1995. ------------------------------------------------------------------- PART I Item 1. Business. General Montgomery Ward Holding Corp., a Delaware corporation formerly named BFB Acquisition Corp. (the Company or MW Holding), and its wholly-owned subsidiary, Montgomery Ward & Co., Incorporated (Montgomery Ward), are engaged in retail merchandising and direct response marketing (including insurance) in the United States. See Note 20 to the Consolidated Financial Statements for financial information regarding these segments. Founded in 1872 and incorporated in Illinois in 1968, Montgomery Ward is one of the nation's largest retail merchandising organizations. As of December 31, 1994, Montgomery Ward and its indirectly, wholly-owned subsidiary Lechmere, Inc., a Massachusetts corporation (Lechmere), operated 402 retail stores in 43 states with approximately 29 million square feet of selling space. In addition, Montgomery Ward operated 13 liquidation centers which sell overstock merchandise, 22 distribution facilities and 112 product service centers. Montgomery Ward offers life and health insurance, revolving credit insurance, club products and other consumer services through Signature Financial/Marketing, Inc., a Delaware corporation (Signature), and through Signature's subsidiaries (collectively, with Signature, the Signature Group). Signature is one of the largest direct marketing companies in the United States. Merchandising Montgomery Ward has grown to become one of the largest privately held retailers in the United States with over $7 billion in annual revenues. The Company is among the largest retailers in the country in electronics, appliances, furniture and fine jewelry. It is also one of the largest retailers of many prominent name brands, including Sony, Maytag, General Electric, La-Z-Boy, Sealy, Lee, Munsingwear and Bugle Boy. Montgomery Ward's specialty concepts combine a focus on specific customer needs, dominant merchandise assortments, updated presentation and aggressive marketing strategies. The specialty categories within Montgomery Ward are the following: Product Category Specialty Concept Appliances and Electronics Electric Avenue and Electric Avenue & More Home Furnishings Home Ideas and Rooms & More Automotive Auto Express Apparel Apparel Store and Kids Store Jewelry Gold 'N Gems Item 1. Business. (continued) Merchandising (continued) Each specialty strategy has its own business structure which focuses on its specific competition, customer preferences and merchandising, marketing and customer service priorities. However, being a leading national retailer with multiple specialty concepts provides the Company with significant buying and cost leverage. Electric Avenue is a combined consumer electronics and appliance superstore offering all major product categories, including video, audio, home office, telephones, electronic games and kitchen, laundry and other major appliances. Electric Avenue has a significant national brand name assortment, including Sony, Maytag, General Electric, Panasonic, IBM, Apple, Bose, Nintendo and Sega. Its national brands are supplemented with proprietary brands, exclusive to Montgomery Ward for certain electronic and appliance categories, featuring the Bell + Howell and Admiral names under trademark licensing agreements. Home Ideas offers a full complement of home furnishings: furniture, bedding, home accessories, kitchen accessories and domestic soft goods. The Rooms & More concept offers accessorized furniture room groupings to provide customers the convenience of coordinated furniture pieces and accessories aggressively priced through tiered discounts on the purchase of multiple pieces. The broad name brand selection includes Bassett, Lane and La-Z-Boy, and the Company is one of the few retailers to offer all four major mattress brands (Simmons, Sealy, Serta and Spring Air). The success of the Home Ideas and Rooms & More specialty concepts has resulted in Montgomery Ward becoming one of the four largest furniture retailers in the United States. Auto Express focuses on the sale and installation of tires, batteries, brakes and shocks. Montgomery Ward is a major retailer of Michelin, B.F. Goodrich, Bridgestone, Monroe and NAPA products. Auto Express supplements its dominant merchandise offering with a strong commitment to customer service and a focus on those services it is capable of delivering at a high performance level. Auto Express adds creditability to its service commitment through its marketing pledges which include price matching guarantees, service time guarantees and a "No Excuses" refund/replacement guarantee for 30 days following service. The Apparel Store and Kids Store offers womens', mens', childrens' and intimate apparel as well as footwear and accessories. Each category carries merchandise dominance and delivers a focused, contemporary and coordinated offering which matches middle income casual and career lifestyles. An impressive offering of prominent name brands has been built, including Lee, Item 1. Business. (continued) Merchandising (continued) Bugle Boy, Playtex, Bestform and Converse. In addition, the Company's creation of a product development organization has enabled it to develop proprietary brands for certain product categories, such as Munsingwear mens' apparel, Ship N Shore womens' apparel and Bike athletic and activewear apparel. Gold 'N Gems is a jewelry specialty concept which sells diamonds, gem stones, gold and watches. Gold 'N Gems emphasizes exceptional values through a wide range of price points. Montgomery Ward has become one of the largest fine jewelry retailers in the country. Montgomery Ward currently operates 340 full line stores featuring all of the specialty concepts and 62 stores featuring a variety of other formats, including 28 Lechmere stores and 6 Electric Avenue & More stores. Full line Montgomery Ward stores average approximately 75,000 square feet of selling space. Montgomery Ward's retail business is seasonal, with one-third of the sales traditionally occurring in the fourth quarter. The results of Montgomery Ward's operations are also subject to changes in consumer demand associated with general economic conditions, which is especially true with respect to demand for durable goods and other "big ticket" merchandise. Montgomery Ward's retail operations are supported by its corporate buying division which has its principal office in Chicago, and includes foreign purchasing offices in Italy, Hong Kong, Taiwan, Japan, Singapore and Korea. In addition to its buying staff, the corporate buying division employs designers and technical teams to ensure quality control of Montgomery Ward's merchandise. The Company considers logistics to be important to its operations and continued to invest in logistics during 1994. A new distribution center in Phoenix, Arizona was opened in May, 1994 to service Montgomery Ward's western territory. The new Phoenix facility, along with the facilities opened in Tampa in 1993, Baltimore in 1992 and southern California in 1991, incorporates distribution management systems which are more dynamic in tracking merchandise and facilitating inventory planning and customer service. Corporate Expansion In March 1994, Montgomery Ward acquired Lechmere, a chain of northeast-based superstores. The Company's acquisition of Lechmere adds substantial volume to a highly successful specialty segment of Item 1. Business. (continued) Corporate Expansion (continued) the Company's business. The addition of Lechmere to Montgomery Ward's sales base contributed to an over 27% increase and record volume of over $4 billion in its sales of home-oriented products (home furnishings, home office, electronics and appliances). Lechmere offers extensive selections of hardline merchandise and currently operates 28 stores averaging approximately 50,000 square feet of selling space. Lechmere has built a strong customer franchise and is believed to be the marketshare leader in the greater Boston area in many of the products it sells. It offers a comprehensive selection of nationally recognized brands which are now being supplemented with Montgomery Ward's successful proprietary brands. Leverage opportunities from the acquisition are being realized through added buying volume and expense consolidation. In 1994, Montgomery Ward opened 16 new stores (including 4 Lechmere stores), and has opened 90 new stores (including the 4 Lechmere stores referenced earlier), since 1985. The ongoing store opening program has resulted in such stores representing a significant portion, 22%, of the Company's total stores. Six of the new store openings in 1994 were Montgomery Ward's newest specialty format, Electric Avenue & More. This new retail concept combines Montgomery Ward's most successful strategies, Electric Avenue, Rooms & More and Gold 'N Gems, with Lechmere's strong offering in entertainment and housewares to create a dominant home- oriented product offering. Electric Avenue & More is designed for mid-size markets with populations of 150,000 to 300,000 and for a superstore format of approximately 65,000 gross square feet. Montgomery Ward has substantial buying and operating leverage compared to the more limited competition in these markets. Given the favorable performance of the Electric Avenue & More stores opened in 1994, the Company plans to increase the Electric Avenue & More openings going forward. In addition, the Company is planning to continue opening full line Montgomery Ward stores in regional shopping centers and Lechmere stores in the northeast United States. In August 1994, Montgomery Ward introduced "The Electric Avenue & More Program", a home shopping program carried on ValueVision, a home-shopping television program. The test was the first television shopping program produced for a major national retailer of consumer electronics and appliances. "The Electric Avenue & More Program" generated strong sales of high quality, brand name, big ticket merchandise and offered customers the convenience of using the Montgomery Ward credit card to finance their purchases. In December 1994, Montgomery Ward announced its plan to purchase an equity interest in ValueVision International, Inc., through an agreement allowing Montgomery Ward to acquire up to 49% ownership Item 1. Business. (continued) Corporate Expansion (continued) of the company, should ValueVision achieve certain growth targets in the number of cable homes that carry its programming. ValueVision also reached a 7-year, non-cancelable agreement with Time Warner Cable Company to launch ValueVision programming in 2.5 million homes. After this addition, 14 million homes will be able to receive ValueVision programs, and 3.4 million of these will be able to receive programming 24 hours per day. See Note 19 to the Consolidated Financial Statements. In July, 1994, Montgomery Ward, through a subsidiary, became a limited partner in Merchant Partners Limited Partnership. The purpose of this partnership is to invest in new and emerging growth businesses and leveraged buy-outs to achieve a superior rate of return. Montgomery Ward made a capital contribution of $1 million to Merchant Partners Limited Partnership in 1994. Additional funding may be required within limitations set forth in the limited partnership agreement. The cumulative maximum capital contribution is $40 million. Montgomery Ward considers acquisitions, particularly those that would generate synergies with existing businesses, to be an area of growth for the Company and is actively seeking such opportunities. Direct Marketing Montgomery Ward offers life and health insurance, revolving credit insurance, club products and other consumer services through the Signature Group. As a recognized leader in sophisticated segmentation scoring models, Signature is among the premier direct marketers in the country. During 1994, Signature made 380 million direct mail solicitations and 50 million telemarketing presentations from its 13 telemarketing centers located throughout the United States. At year-end 1994, Signature had 10.4 million policyholders and club memberships, a 33% increase over year-end 1993. The Company believes that Signature has the broadest major product offering among direct marketers. Its legal services club is the largest United States provider of voluntary legal services, it operates the second largest national auto club in the country, and it has a unique dental plan which offers discounted and free dental services for a monthly fee. Signature has developed a substantial network of service providers to support these clubs. Its dispatch towing network for Auto Club members exceeds 6,500 towing companies with a fleet of over 32,000 tow trucks. Its legal plan network includes 2,200 attorneys with thirteen years average experience and the dental plan includes 7,900 dentists with sixteen years average experience. Item 1. Business. (continued) Direct Marketing (continued) Signature has marketing rights to the 8.8 million promotable accounts in the Montgomery Ward credit card file, and Montgomery Ward credit cardholders comprise the majority of Signature's customers. The size and customer dynamics of the Montgomery Ward file have allowed Signature to attain economies of scale which have lowered its marketing and operating costs. Signature also markets its products and services to the customers of more than 50 other entities, providing 28.3 million promotable accounts, including some of the nation's largest financial institutions, oil companies and retailers. Signature's major clients include Chemical Bank, First National Bank of Chicago, Mobil, Chase, Texaco, Associates, USAA and CUNA, and revenues from these clients have grown to 31% of its revenues. Following successful introduction in Chicago and Minneapolis in 1993 of Signature's newest product, Dining a la Card, the Company expanded into 15 major markets, including the West Coast, by year- end 1994. Dining a la Card provides cash payments and marketing opportunities to participating restaurants in exchange for future restaurant purchase credits. The Dining Member receives a direct monthly cash rebate equal to 20% of their entire bill, including taxes and gratuity, at participating restaurants. Dining a la Card then automatically withdraws its purchase credits from the restaurant. The Company expects to continue expanding Dining a la Card to additional markets in 1995. In April 1994, Signature acquired Greater California Dental Plan Services, Inc. and National Dental Services, Inc., California-based companies which provide dental referral services and added approximately 250,000 members to its dental services plan. Through acquisition of these companies, Signature will be able to expand its customer base into new demographic and geographic markets. In October 1994, Signature acquired the North American operations of Credit Card Sentinel, which offers protection for lost or stolen credit cards. Signature is now the second largest credit card registration company in the United States and Canada. See Note 20 to the Consolidated Financial Statements for restrictions on dividends which may be paid by insurance subsidiaries of Signature. Item 1. Business. (continued) Specialty Catalog In 1991, Montgomery Ward, through two newly formed subsidiaries, became a 50% partner in Montgomery Ward Direct L.P. (MW Direct), a specialty catalog business. The other 50% partners are subsid- iaries of Fingerhut Companies, Inc. MW Direct generated $188 million in revenues in 1994, compared to $116 million in 1993, an increase of 62%. These revenues are not included in the Company's revenues. Following testing of a variety of specialty catalogs in its first years of operation, Montgomery Ward Direct announced in February 1995 that it will focus its marketing efforts on its most successful specialty segment, its Home Catalog. In addition, it will continue to produce and distribute gifts and certain seasonal specialty merchandise catalogs which leverage Fingerhut's resources. These changes, which would reduce revenues in the short-term, are expected to enhance Montgomery Ward Direct's profitability and strategically position it for future growth. Competition and Regulation The sale of merchandise by Montgomery Ward and Lechmere is conducted under highly competitive conditions. Buying and selling are each done in open competitive markets. Montgomery Ward's stores are in competition with specialty stores, department stores and other types of retail outlets in the areas in which they operate. The Company believes that dominance of merchandise assortments, brand names, competitive pricing and availability of services such as credit, delivery, installation and repair, are the principal factors which differentiate competitors. The Company believes it competes effectively with respect to all of these factors despite strong competitive pressures. To meet competition, Montgomery Ward is continuously striving to improve the efficiency and effectiveness of its operations and to modernize and specialize its facilities. Signature's insurance operations are highly regulated and conducted under highly competitive conditions. To date, Signature has been able to compete effectively with other companies which offer programs similar to those provided by Signature. Signature also competes with traditional methods of marketing that enjoy widespread consumer acceptance, including unaffiliated dentists and lawyers. Insurance companies operate pursuant to specific state statues as well as rules and regulations promulgated by various state insurance departments and are required to file reports with such agencies at least quarterly. Telemarketing and direct mail solicitations are regulated at state and federal levels, and management believes that these activities will increasingly be subject to such regulation. Such Item 1. Business. (continued) Competition and Regulation (continued) regulation may limit Signature's ability to solicit new members or to offer more products and services to existing members and may materially adversely affect Signature's business and revenues. The requirements of environmental protection laws and regulations have not had a material effect upon Montgomery Ward's operations. Compliance may, in certain cases, lengthen the lead time of expansion plans and could increase construction and operating costs. Account Purchase Agreement Montgomery Ward extends credit to its customers under an open-end revolving credit plan. Montgomery Ward's private label credit card sales were 55.9% and 57.4% of total sales for 1994 and 1993, respectively. Bankcard sales were an additional 14.9% and 13.3% of total sales for 1994 and 1993, respectively. Prior to June 22, 1988, Montgomery Ward financed the receivables under its revolving credit plan by the sale of such receivables to a wholly-owned subsidiary, Montgomery Ward Credit Corporation (Montgomery Ward Credit). On June 22, 1988, Montgomery Ward Credit became a wholly- owned subsidiary of General Electric Capital Corporation (GE Capital). On June 24, 1988, Montgomery Ward and Montgomery Ward Credit entered into an Account Purchase Agreement pursuant to which Montgomery Ward Credit purchases receivables from time to time from, and provides services to, Montgomery Ward. Under this agreement, Montgomery Ward Credit has the exclusive right to operate the Montgomery Ward private label credit card system and the obligation to purchase for their face value (and Montgomery Ward is obligated to sell) all the receivables generated by the Montgomery Ward private label credit card system, including those generated through MW Direct, up to $6 billion at any time outstanding. If Montgomery Ward desires to sell its customer receivables at a time when Montgomery Ward Credit owns $6 billion or more of such receivables, alternative arrangements, such as the sale of receivables to banks or other financial institutions, would be required unless Montgomery Ward Credit agrees to purchase the excess. As of December 31, 1994, there were $5.2 billion of Montgomery Ward private label credit card receivables owned by Montgomery Ward Credit and the average outstanding amount of such receivables owned by Montgomery Ward Credit during 1994 was $4.9 billion. Pursuant to the Account Purchase Agreement, Montgomery Ward Credit bears certain credit promotion expenses, while Montgomery Item 1. Business. (continued) Account Purchase Agreement (continued) Ward retains certain specified in-store service responsibilities with respect to credit operations. Decisions regarding certain credit matters are determined by a management committee with representatives from each party. Under the Account Purchase Agreement, Montgomery Ward is required to pay Montgomery Ward Credit the excess interest costs on a monthly basis if a blended interest rate applicable to Montgomery Ward Credit's finance costs with respect to the receivables exceeds 10% per annum. To date, the blended interest rate has been less than 10%. Under the Account Purchase Agreement, Montgomery Ward and Montgomery Ward Credit have made certain arrangements with respect to credit losses. Previously, credit losses were shared. Effective January 1, 1994, Montgomery Ward bears the entire risk of credit losses until such time as Montgomery Ward or Montgomery Ward Credit elects to revert to the prior loss sharing arrangement. Montgomery Ward's remaining liability for credit losses for 1991 through 1994, and its liability for credit losses for 1995 through 1997, may be deferred, and such deferred credit losses are payable by Montgomery Ward to Montgomery Ward Credit in early 1998. To the extent these deferred credit losses, less the deferred amount of finance charges (other then incremental finance charges) described below exceeds $300 million at any time, such excess is to be paid annually in cash. The Company does not expect such amounts for the period through 1997 to exceed the $300 million limitation. Interest on Montgomery Ward's deferred liability for credit losses is payable at a rate equal to rates on comparable borrowings of Montgomery Ward. In exchange for Montgomery Ward's agreement to allow Montgomery Ward Credit to increase finance charge rates in selected states, Montgomery Ward receives a share of incremental finance charges. These incremental finance charges are deferred and payable by Montgomery Ward Credit to Montgomery Ward in early 1998, together with interest at the same rate as amounts owed by Montgomery Ward to Montgomery Ward Credit. Incremental finance charges are generated only on purchases subsequent to the date such finance charge rates are increased. In the event that, due to the increase in finance charge rates, certain refunds are required to be made, Montgomery Ward and Montgomery Ward Credit have agreed to share the financial risk. In addition, legislation has from time to time been introduced in certain states which, if enacted, may impose limitations on the ability to implement or maintain all or a portion of such rate increases, in which case Montgomery Ward's share of rate increases may be substantially reduced. In addition to sharing incremental finance charges, beginning in 1994, until such time as Montgomery Ward or Montgomery Ward Item 1. Business. (continued) Account Purchase Agreement (continued) Credit elects to revert to the prior loss sharing arrangements, with respect to each fiscal year, Montgomery Ward Credit will make a payment (subject to the deferral for 1994 through 1997) to Montgomery Ward of a share of all finance charges in an amount equal to (a) if credit losses are 5% or less of average gross receivables, the lesser of 3.9% of average gross receivables or the actual credit losses; (b) if credit losses are greater than 5% but less than or equal to 8% of average gross receivables, 3.9% of average gross receivables plus 50% of the amount by which actual credit losses exceed 5% of average gross receivables; or (c) if credit losses exceed 8% of average gross receivables, 5.4% of average gross receivables plus the amount by which credit losses exceed 8% of average gross receivables. Nothwithstanding the foregoing, in certain circumstances the amounts payable to Montgomery Ward by Montgomery Ward Credit with respect to its share of all finance charges are limited as follows: in the event that total finance charges billed by Montgomey Ward Credit during a fiscal year less Montgomery Ward's share of the incremental finance charges are less than the amount which would otherwise be payable to Montgomery Ward by Montgomery Ward Credits as it's share of the finance charges as computed above, the payments by Montgomery Ward Credit to Montgomery Ward will be reduced to the amount of such total finance charges less such incremental finance charges. In connection with the foregoing arrangements, the Company has executed notes for the deferred credit losses which totalled $161 million with respect to credit losses from 1991 through 1994. The incremental finance charge amount owed by Montgomery Ward Credit to Montgomery Ward as of the end of 1994 was $24 million. See Note 4 to the Consolidated Financial Statements. Montgomery Ward Credit has the right of first refusal to implement certain new financing programs proposed by Montgomery Ward. The Account Purchase Agreement will be in effect until December 31, 2005 and thereafter from year to year unless either party gives to the other not less than ten years prior notice of its election to terminate. Except upon the occurrence of certain events of default, the Account Purchase Agreement may generally not be terminated by either party prior to December 31, 2005. GE Capital has guaranteed Montgomery Ward Credit's obligations under the Account Purchase Agreement. Under the terms of a Letter Agreement dated June 24, 1988 among Signature, Montgomery Ward Credit and Montgomery Ward, Montgomery Ward Credit purchases the customer accounts receivable of Signature Item 1. Business. (continued) Account Purchase Agreement (continued) on terms similar to those contained in the Account Purchase Agreement, except for certain fees. In 1994, Signature paid approximately $5 million to Montgomery Ward Credit for administrative services provided by Montgomery Ward Credit in connection with Signature products. Associates At December 31, 1994, Montgomery Ward and its subsidiaries employed the equivalent of 58,600 full-time associates. During certain seasons, temporary associates are added and peak employment is approximately 72,600 associates during the Christmas season. Approximately 2,650 Montgomery Ward and Lechmere associates are covered by various collective bargaining agreements. The majority of the agreements are currently in the process of negotiation with the remaining contracts expiring in 1995. Montgomery Ward has experienced no major labor-related interruption or curtailment of operations during the last 15 years. Item 2. Properties. At December 31, 1994, the Company owned or leased 509 retail, distribution and other operating facilities. The Company's properties are located throughout the continental United States and cover approximately 60 million square feet. These properties are summarized as follows: Number of Approximate Use Locations Total Square Feet Montgomery Ward Retail Stores: Full Line . . . . . . . . .340 44,215,000 Limited Line. . . . . . . 34 1,652,000 Lechmere Retail Stores. . . . . . . . . . 28 2,543,000 Corporate Office Complex . . . . . . . . . . 1 2,975,000 Miscellaneous Operating Locations . . . . . . . . .106 8,256,000 Total Locations. . . . .509 59,641,000 Owned and leased retail stores include approximately 29 million square feet of selling space and 19 million square feet devoted to storage, office and related uses. Miscellaneous operating locations include warehouses, office buildings and distribution centers, but exclude vacant land parcels and properties held for disposition. See Note 12 to the Consolidated Financial Statements for information with respect to leased properties. Item 2. Properties. (continued) The nationwide scope of Montgomery Ward's operations helps minimize the impact of changes in the economies of specific regions on the overall performance of its retail stores and allows Montgomery Ward to merchandise to a variety of demographic profiles. The regional distribution of Montgomery Ward and Lechmere retail stores as of December 31, 1994 is indicated in the following table: State Total Alabama 3 Arizona 11 Arkansas 5 California 57 Colorado 13 Connecticut 4 Florida 22 Georgia 3 Idaho 1 Illinois 36 Indiana 8 Iowa 6 Kansas 6 Kentucky 2 Louisiana 6 Maine 1 Maryland 16 Massachusetts 13 Michigan 16 Minnesota 10 Missouri 10 Montana 2 Nebraska 2 Nevada 3 New Hampshire 6 New Mexico 3 New York 18 North Carolina 4 North Dakota 1 Ohio 5 Oklahoma 5 Oregon 8 Pennsylvania 14 Rhode Island 1 South Carolina 5 Tennessee 2 Texas 45 Vermont 1 Virginia 17 Washington 3 West Virginia 5 Wisconsin 2 Wyoming 1 402 Item 3. Legal Proceedings. The Company and its subsidiaries are engaged in various litigation and have a number of unresolved claims. While the amounts claimed are substantial and the ultimate liability with respect to such litigation and claims cannot be determined at this time, management is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to have a material impact on the financial condition or the results of operations of the Company. In 1979, a suit entitled "United States v. Midwest Solvent Recovery, Inc., et.al." (Civil Action Number H-79-556) was initiated by the United States Department of Justice on behalf of the Environmental Protection Agency in the U.S. District Court for the Northern District of Indiana, and an Amended Complaint was filed in January 1984. This suit is against Standard T Chemical Company, Inc., a Delaware corporation and wholly-owned subsidiary of Montgomery Ward (Standard T), and others involving two waste disposal sites and seeks reimbursement for the cost of surface clean-up, investigation studies concerning possible contamination of the soil and ground water and remedial action. In January 1990, the United States filed a second Amended Complaint seeking inter alia, treble damages and monetary sanctions. Standard T has signed a consent decree, whereby it was obligated to provide a financial assurance up to $3 million for remediation of the site and paid civil penalties in the amount of $.1 million. The Company currently anticipates that its obligation will not exceed those amounts. In 1985, the New York Environmental Protection Agency brought an action for remediation of a site in Staten Island, New York against the owner of the property. The owner asserted that Montgomery Ward and Standard T, among others, generated wastes that were disposed of at the site. Standard T is in the process of completing the cleanup of this site and has purchased the site from the owner for $1.45 million. In February 1986, Standard T, along with approximately 330 other companies, was notified by the United States Environmental Protection Agency that the agency was mandating a remediation of the contamination of the American Chemical Services, Inc. (A.C.S.) site located in Griffith, Indiana, under authority vested in it by the Comprehensive Environmental Response, Compensation and Liability Act of 1980. Standard T and a Montgomery Ward paint factory were each identified as a Potentially Responsible Party (PRP), under the terms of the Act because of their alleged status as generators of hazardous waste ultimately disposed of at the A.C.S. site. The Company will pay its proportionate share of the Item 3. Legal Proceedings. (continued) costs of the studies, and may ultimately pay a share of the costs of abating the contamination of the A.C.S. property. One estimate by the EPA of future costs is $69 million with the Company alleged to be responsible for 2 to 2 1/2% of total costs. However, these costs cannot be estimated with any degree of accuracy at this time. Thus, the Company is currently not in a position to estimate the range or amount of potential exposure in this matter with a high degree of certainty. On or about December 10, 1990, the Company was served with a Complaint and Notice of Opportunity for Hearing (Complaint), alleging certain violations by the Company of the Federal Toxic Substances Control Act (TSCA). The Complaint contains twenty-two counts and alleges that the Company violated various regulations concerning the use, disposal, storage and marking of polychlorinated biphenyls (PCBs) at a warehouse facility located in Kansas City, Missouri. The Complaint seeks a total civil penalty of $.3 million. Standard T and Montgomery Ward are also involved at various stages with several other sites where Standard T and Montgomery Ward have been notified or sued as a PRP. The potential liability related to these sites cannot be estimated at this time. Item 4. Submission of Matters to a Vote of Security Holders. Pursuant to a Proxy Statement dated October 17, 1994, the stockholders of the Company were asked to execute consents in lieu of a special meeting of the stockholders of the Company. All of the stockholders of record of the Company executed and returned the consents before October 20, 1994. Pursuant to the consent, the stockholders (i) approved a Certificate of Amendment to the Certificate of Incorporation of the Company, authorizing 2,000,000 additional shares of Class A Common Stock, Series 3, and revising the Certificate of Incorporation to conform the size of the Board of Directors to its current membership; and (ii) approved an amendment to the Montgomery Ward & Co., Incorporated Stock Ownership Plan (the "Plan") reserving the 2,000,000 newly authorized shares of Class A Common Stock, Series 3, of the Company, for issuance under the Plan. EXECUTIVE OFFICERS OF THE REGISTRANT Listed below are the names and ages of the executive officers of the Company as of March 17, 1995, and the positions each has held during the past five years: Bernard F. Brennan, 56, has been Chief Executive Officer and a director of the Company since February 9, 1988, Chairman since June 17, 1988 and was President from February 9, 1988 through September 10, 1992. Mr. Brennan has been Chief Executive Officer and a director of Montgomery Ward since May 13, 1985 and became Chairman of Montgomery Ward on June 24, 1988. He served as President of Montgomery Ward from May 13, 1985 through September 10, 1992. Mr. Brennan has been a director of Itel Corporation since 1988 and a director of ANTEC Corporation since October 1993. Richard M. Bergel, 59, has been Vice Chairman of the Company since June 25, 1993 and a director since June 24, 1988. Prior thereto he was Executive Vice President from June 17, 1988 through June 24, 1993. Mr. Bergel has been Vice Chairman, Operations and Catalog of Montgomery Ward since June 25, 1993. Prior thereto, he was Executive Vice President and President of Specialty Catalogs of Montgomery Ward from June 16, 1991 to June 24, 1993. He was President of Store Operations from March 3, 1989 through June 15, 1991. Mr. Bergel has been President of MW Direct since October 21, 1991 and Chairman and Chief Executive Officer of Lechmere since March 30, 1994. Bernard W. Andrews, 53, has been President and a director of the Company since January 28, 1994. Mr. Andrews has been President and Chief Operating Officer of Montgomery Ward since January 28, 1994. Prior thereto, he served as Executive Vice President of Operations of Circuit City Stores, Incorporated from March 1991 to January 1994, and Executive Vice President of Marketing of Circuit City Stores from October 1990 to February 1991. He was Executive Vice President and President of Marketing of Montgomery Ward from May 18, 1990 through June 16, 1990 and Executive Vice President and President of Home and Automotive Group from August 18, 1986 to May 17, 1990. Spencer H. Heine, 52, has been an Executive Vice President, Secretary and General Counsel of the Company since September 30, 1991 and a director since May 15, 1992. Prior thereto, he was Senior Vice President, Secretary and General Counsel of the Company from June 17, 1988 through September 29, 1991. Mr. Heine has been Executive Vice President, Secretary and General Counsel of Montgomery Ward and President-Montgomery Ward Properties since April 12, 1994. Prior thereto, Mr. Heine served as Executive Vice President, Legal and Financial Services of Montgomery Ward from September 30, 1991 through April 11, 1994. He served as Senior Vice President-Legal and Real Estate from March 28, 1990 through Executive Officers of the Registrant (continued) September 29, 1991. Mr. Heine was Chairman and Chief Executive Officer of Signature from March 8, 1993 through April 11, 1994. Prior thereto, he also served as President of Signature since September 30, 1991. Robert A. Kasenter, 48, has been an Executive Vice President of the Company since February 21, 1992. Prior thereto, he was a Senior Vice President of the Company from June 17, 1988 through February 20, 1992. Mr. Kasenter has served as Executive Vice President, Human Resources of Montgomery Ward since January 27, 1992 and was Senior Vice President-Human Resources and Customer Satisfaction from June 23, 1988 to January 26, 1992. Edwin G. Pohlmann, 47, has been an Executive Vice President since September 30, 1991 and served as Chief Financial Officer of the Company from September 30, 1991 to August 30, 1992. Prior thereto, he was Senior Vice President and Chief Accounting Officer from May 18, 1990 to September 29, 1991, and Senior Vice President-Finance from June 17, 1988 through May 17, 1990. Mr. Pohlmann has been Executive Vice President, Merchandise and Store Operations of Montgomery Ward since November 16, 1993. Prior thereto, he was Executive Vice President, Merchandise Control from June 25, 1993 through November 15, 1993, Executive Vice President, Stores and Finance of Montgomery Ward from January 27, 1992 to June 24, 1993 and prior thereto, Executive Vice President and Chief Financial Officer since September 30, 1991. He served as Senior Vice President-Store Operations of Montgomery Ward from June 16, 1991 through September 29, 1991 and was Senior Vice President-Finance of Montgomery Ward from March 1, 1988 through June 15, 1991. John L. Workman, 43, has been Executive Vice President, Chief Financial Officer and Assistant Secretary of the Company since January 28, 1994. Prior thereto, he served as Senior Vice President, Chief Financial Officer and Assistant Secretary from August 31, 1992 through January 27, 1994 and Vice President and Assistant Secretary from May 15, 1992 through August 30, 1992. Mr. Workman has been Executive Vice President and Chief Financial Officer of Montgomery Ward since January 28, 1994 and served as Senior Vice President and Chief Financial Officer from August 31, 1992 to January 27, 1994. Prior thereto, he served as Vice President and Corporate Controller from January 16, 1991 through August 30, 1992 and Corporate Controller from August 2, 1988 through January 15, 1991. Tommy T. Cato, 53, served as an Executive Vice President of the Company from May 15, 1992 until his current leave of absence which began on February 4, 1994. Mr. Cato was Executive Vice President- Logistics and Product Service of Montgomery Ward from November 8, 1990 until February 4, 1994 and was Senior Vice President-Logistics Executive Officers of the Registrant (continued) from March 3, 1989 until November 7, 1990. Mr. Cato is also on a leave of absence from Montgomery Ward. Richard C. Rusthoven, 54, served as an Executive Vice President of the Company from May 15, 1992 until his current leave of absence which began on November 1, 1992. Mr. Rusthoven was Executive Vice President-Apparel of Montgomery Ward from February 20, 1992 through October 31, 1992 and was Senior Vice President-Apparel from July 3, 1991 to February 19, 1992. He served as Vice President and General Merchandise Manager, Men's Apparel, Footwear and Accessories from June 6, 1990 to July 2, 1991. Prior thereto, he served as President and Chief Operating Officer of Baddour, Inc., parent company of Fred's Dollar Stores in Memphis, Tennessee from March 1990 to June 1990, and President and Chief Executive Officer, Gentlemen's Warehouse from August 1989 to March 1990. Mr. Rusthoven is also on a leave of absence from Montgomery Ward. Carol J. Harms, 41, has been a Vice President and Treasurer of the Company since January 1, 1989. Ms. Harms has been Vice President and Treasurer of Montgomery Ward since May 1, 1988. Robert F. Connolly, 51, has been Executive Vice President, Apparel of Montgomery Ward since February 2, 1994. Prior thereto, he was Senior Vice President and General Merchandise Manager, Women's and Intimate Apparel, Accessories, Health and Beauty Aids and Sundries of Wal-Mart Stores, Incorporated from August 1989 to December 1993. Gene C. McCaffrey, 49, has been Executive Vice President Marketing, Sales Promotion and Business Development of Montgomery Ward since November 30, 1994. Mr. McCaffrey served as Executive Vice President-Marketing from August 4, 1992 to November 29, 1994, Senior Vice President-Advertising from November 11, 1991 to August 3, 1992, Senior Vice President and General Merchandise Manager, Intimates, Footwear and Accessories from September 19, 1991 to November 10, 1991 and Senior Vice President-Merchandise Planning from July 3, 1991 to September 18, 1991. Prior thereto, he served as Vice President-Merchandise Planning from February 19, 1991 to July 2, 1991, Vice President-Apparel Planning and Field Merchandising from October 11, 1990 to February 18, 1991 and Vice President-Apparel Planning and Product Development from July 28, 1989 to October 10, 1990. G. Joseph Reddington, 53, has been a director of the Company and of Montgomery Ward since September 22, 1994. Mr. Reddington has been Chairman and Chief Executive Officer of Signature since April 12, 1994. Prior thereto, he was President of Sears Canada, Inc. from 1989 until his retirement in December 1993. Mr. Reddington has been a director of TransWorld Airlines since August 1993 and a director of Loblaw Companies Ltd. since August 1994. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. There is no established public trading market for the Common Stock of the Company. All shares are subject to restrictions on transfers contained in the Stockholders' Agreement dated as of June 17, 1988, as amended and restated (Stockholders' Agreement), or the Terms and Conditions (Terms and Conditions) imposed under the Montgomery Ward & Co., Incorporated Stock Ownership Plan (Stock Ownership Plan). It is not expected that a market will develop in the near term. Transfers of shares of Class A Common Stock are restricted for a period of three years from certain applicable dates under the Stockholders' Agreement and the Terms and Conditions. Transfers of Class A shares purchased other than pursuant to the Stock Ownership Plan are restricted for a period of three years from the holder's first acquisition of any such shares, while transfers of shares received under the Stock Ownership Plan are restricted for a period of three years after the award of such shares, exercise of purchase rights for such shares or grant of options with respect to such shares, as applicable. After the applicable three-year periods, limited transfers of such shares which have become vested in accordance with the Stockholders' Agreement or the Terms and Conditions, as applicable, are permitted, subject to certain rights of first refusal. All of the Class B shares and virtually all of the outstanding Class A shares are eligible for transfer. Montgomery Ward declared and paid common stock dividends of $22 million and preferred stock dividends of $2 million to the Company in 1994, which declared and paid common stock dividends of $22 million and preferred stock dividends of $2 million in 1994. For information concerning limitations on the amount of dividends which Montgomery Ward may pay, see Note 11 to the Consolidated Financial Statements. Future payments of dividends, if any, are dependent upon future levels of earnings and capitalization. As of March 22, 1995, there were three holders of record of Class A Common Stock, Series 1, one such holder of Class A, Common Stock, Series 2, and one such holder of Class B Common Stock. No shares of Class A Common Stock, Series 3, were outstanding as of that date. As of March 22, 1995, there were 122 holders of record of Voting Trust Certificates representing beneficial ownership in shares of Class A Common Stock, Series 1, of which 946,785 shares are pledged as collateral for notes issued to effect the repurchase of shares. See Note 14 to the Consolidated Financial Statements. There were 274 holders of record of Voting Trust Certificates representing beneficial ownership in shares of Class A Common Stock, Series 2. Item 6. Selected Financial Data The following summary of certain financial information for each of the five fiscal years in the period ended December 31, 1994 has been derived from the Consolidated Financial Statements of MW Holding. Such information for each fiscal year should be read in conjunction with the Consolidated Financial Statements and notes thereto and the report of Arthur Andersen LLP beginning on page 27.
As of and for the 52-Week 53-Week 52-Week Period Ended Period Ended Period Ended Dec. 29, Dec. 28, Jan. 2, Jan. 1, Dec. 31, 1990 1991 1993 1994 1994 (Dollars in millions, except per share amounts) Total Revenues $5,595 $5,674 $5,806 $6,029 $7,038 Net Income (a) 153 135 100 101 117 Net Income Applicable to Common Share- holders(a) 140 122 92 101 115 Net Income per Class A Common Share (a) 2.79 2.40 2.01 2.29 2.68 Total Assets 3,906 3,948 3,485 3,835 4,540 Long-Term Debt 651 521 125 213 228 Obligations Under Capital Leases 111 104 95 89 81 Total Share- holders' Equity 421 520 553 607 687 Redeemable Preferred Stock 90 90 - - 75 Cash Divi- dends per Common Share - - .25 .50 .50
(a) 1992 amounts are presented before cumulative effect of changes in accounting principles. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of the significant impact of these changes. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of results of operations for the Company compares 1994 to 1993, as well as 1993 to 1992. Montgomery Ward is on a 52- or 53-week fiscal year basis. As a result, 1994 and 1993 are 52-week years, and 1992 is a 53-week year. All dollar amounts are in millions, and all income and expense items and gains and losses are shown before income taxes, unless specifically stated otherwise. The Company's retail business is seasonal, with one-third of the sales traditionally occurring in the fourth quarter. Results of Operations: 1994 Compared with 1993 Consolidated net income increased $16, or 16%, from the prior year. Consolidated net income applicable to common shareholders for 1994 was $115, which was 14% greater than the prior year. Consolidated total revenues (net sales and direct response marketing revenues, including insurance) were $7,038 compared with $6,029 in 1993. Net sales increased $944, or 17%. Sales on a comparable store basis, which reflects only the stores in operation for both 1994 and 1993, increased 3%. Non-comparable sales include Lechmere sales of $694. Lechmere was acquired on March 30, 1994. Non-comparable sales also include the sales of six "Electric Avenue & More" stores opened during 1994. This new specialty power format combines the appliances/electronics (Electric Avenue), furniture (Rooms & More) and fine jewelry (Gold 'N Gems) specialty formats. The stores, which include an expanded assortment, contain Montgomery Ward's and Lechmere's most successful merchandise categories in a format designed for mid-sized markets. Direct response marketing revenues increased $65, or 16%, to $465. The increase was primarily due to increased clubs membership and insurance policyholder levels. Gross margin (net sales less cost of goods sold) dollars, including Lechmere, were $1,484, an increase of $111, or 8%, from 1993. This increase was due to the gross margin impact of the increased sales ($273), partially offset by the decrease in the margin rate on sales ($107), increased occupancy costs related to new store openings ($40) and increased buying and other expenses ($15). The decrease in the margin rate was impacted by a heavier emphasis in appliances and electronics and the lower margin rates that accompany these businesses (which includes Lechmere) and continued competitive pressures. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Results of Operations: 1994 Compared with 1993 (continued) Operating, selling, general and administrative expenses increased $142, or 9%, from the prior year. Excluding Lechmere's expenses, operating, selling, general and administrative expenses increased by $37. The increase was due to the impact of new store openings of $48 and increased benefits and losses of direct response operations of $9, partially offset by increased income generated from the sale of product service contracts of $18 (See Note 9 to the Consolidated Financial Statements) and decreased other operating and administrative costs of $2. Net interest expense increased $15, or 35%, from the prior year. The increase is due to a combination of increased borrowings, primarily due to the acquisition of Lechmere, as well as increased rates in 1994. Income tax expense was $62, or 34% of income before income taxes, for 1994 as compared to $59, or 37% of income before income taxes, for 1993. The decrease in the effective income tax rate was caused by an income tax adjustment due to the settlement of issues with the Internal Revenue Service for the 1988 through 1990 tax years. Results of Operations: 1993 Compared with 1992 Net income applicable to common shareholders before applying the cumulative impact of accounting changes on retained earnings as of December 29, 1991 increased by $9, or 10%. Consolidated net income in 1993 was $101, an increase of $41, or 68%, from the prior year. Net income for 1992 reflects a charge of $40 for the cumulative effect of changes in accounting principles as a result of adoption of Financial Accounting Standards Board (FASB) Statements No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and No. 109, "Accounting for Income Taxes". Income tax expense of $59 increased $9, or 18%, from 1992, of which $2 was due to the impact of the increase in the Federal income tax rate from 34% to 35%. Consolidated total revenues were $6,029, compared with $5,806 in 1992. Net sales increased $202, or 4%, over 1992, with an increase of $303, or 6%, from prior year net of the impact of the 53rd week in 1992. Apparel sales increased 1%, and hardlines sales experienced increases of 6%. Net of the impact of the 53rd week in 1992, apparel sales increased 2%, and hardlines sales increased 8%. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Results of Operations: 1993 Compared with 1992 (continued) Management believes merchandise sales increases reflect the positive impact of new strategic programs implemented throughout Montgomery Ward. Sales on a comparable store basis, which reflect only the stores in operation for 1993 and 1992, increased 2%. Direct response marketing revenues increased $21, or 6%, to $400. The increase was primarily due to increased clubs membership levels. Gross margin dollars were $1,373, a decrease of $7, or 1%, from last year. This decrease was primarily due to the decrease in the margin rate on sales ($57) and increased occupancy costs primarily as a result of new store openings ($10) and increased buying and other expenses ($2), partially offset by the gross margin impact of the increased sales ($62). The strong sales increase in Electric Avenue of 11% had an impact on the overall Company margin rate as Electric Avenue generally has lower margin rates than other merchandise categories. Operating, selling, general and administrative expenses increased $6 from the prior year. This increase was attributable to the impact of new store openings of $33, increased provision for estimated costs to be incurred in connection with the Account Purchase Agreement of $17, increased payroll and operating costs of $10. These increases were partially offset by decreased health care and insurance costs of $21, decreased advertising and other promotional costs of $19, increased product service income of $10, and decreased benefits and losses of direct response operations of $4. Net interest expense of $43 decreased $2, or 4%, from the prior year. The decrease in interest expense due to lower interest rates on borrowings was offset by decreased investment income due to lower investment balances and rates. There was no preferred stock dividend requirement in 1993, as there was no preferred stock outstanding during 1993. Discussion of Financial Condition Montgomery Ward is the only direct subsidiary of MW Holding and therefore Montgomery Ward and its subsidiaries are MW Holding's sole source of funds. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Discussion of Financial Condition (continued) Montgomery Ward has entered into a Long Term Credit Agreement (Long Term Agreement) dated as of September 15, 1994 with various lenders. The Long Term Agreement, which expires September 15, 1999, provides for a revolving facility in the principal amount of $603. As of December 31, 1994, no borrowings were outstanding under the Long Term Agreement. Concurrently, Montgomery Ward also entered into a Short Term Credit Agreement (Short Term Agreement) dated as of September 15, 1994 with various lenders. The Short Term Agreement, which expires September 14, 1995, provides for a revolving facility in the principal amount of $297. As of December 31, 1994, $144 was outstanding under the Short Term Agreement. Proceeds from borrowings under the Long Term Agreement and the Short Term Agreement (collectively, the Agreements) were used to pay all borrowings outstanding under an Amended and Restated Credit Agreement dated as of September 22, 1992 (Long Term Credit Agreement), a Short Term Credit Agreement dated as of September 22, 1992 (Short Term Credit Agreement) and a Term Loan Agreement (Term Loan Agreement) dated as of November 24, 1993 with various banks and the agreements were terminated. Under the Agreements, Montgomery Ward may select among several interest rate options, including a rate negotiated with one or more of the various lenders. The interest rates for the aforementioned bank borrowings are based on market rates, and significant increases in market interest rates will increase interest payments required. A commitment fee is payable based upon the unused amount of each facility, although under certain circumstances, an additional fee may be payable to lenders not participating in a negotiated rate loan. During the fourth quarter of 1994, Montgomery Ward entered into interest rate exchange and cap agreements with various banks to offset the market risk associated with an increase in interest rates under both the Long Term Agreement and the Short Term Agreement. The aggregate notional principal amounts under the interest rate exchange agreements are $100 in 1994, $175 in 1995 through 1997 and $75 in 1998 and 1999. Under the terms of the interest rate exchange agreements, Montgomery Ward pays the banks a weighted average fixed rate of 7.2% in the fourth quarter of 1994, 7.4% from 1995 through 1997 and 7.6% from 1998 through 1999 and will receive the one-month daily average London Inter- bank Offered (LIBO) rate in each case multiplied by the notional Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Discussion of Financial Condition (continued) principal amount. The average aggregate notional principal amounts under the various cap agreements are $63 in the fourth quarter of 1994, $154 in 1995, $158 in 1996 and $113 in 1997. Under the terms of the cap agreements, Montgomery Ward receives payments from the banks when the one-month daily average LIBO rate exceeds the 5.0% cap strike rate in 1994, 5.5% cap strike rate in 1995, 6% cap strike rate in 1996 and 7.0% cap strike rate in 1997. Such payments will equal the amount determined by multiplying the notional principal amount by the excess of the percentage rate, if any, of the one-month daily average LIBO rate over the cap strike rate. The Agreements and the Note Purchase Agreements impose various restrictions on Montgomery Ward, including the satisfaction of certain financial tests which include restrictions on payments of dividends. Under the terms of the Agreements, which are currently the most restrictive of the financing agreements as to dividends, distributions and redemptions, Montgomery Ward may not pay dividends or make any other distributions to the Company or redeem any common stock in excess of (1) $63 on a cumulative basis, plus (2) 50% of Consolidated Net Income of Montgomery Ward (as defined in the Agreements) after January 1, 1994, plus (3) any repayment by the Company of any loan or advance made by Montgomery Ward to the Company which was received after January 1, 1994, plus (4) capital contributions received by Montgomery Ward after January 1, 1994, plus (5) net proceeds received by Montgomery Ward from (a) the issuance of capital stock including treasury stock but excluding Debt-Like Preferred Stock (as defined in the Agreements), or (b) any indebtedness which is converted into shares of capital stock other than Debt-Like Preferred Stock of Montgomery Ward or the Company, after January 1, 1994, plus (6) an adjustment of $45 for 1994 through 1996, $30 in 1997 and $15 in 1998. At December 31, 1994, Montgomery Ward could pay dividends and make other distributions to the Company of $124 pursuant to the terms of the Agreements. To date, Montgomery Ward has been in compliance with all such financial tests. On April 27, 1994, the Company issued 750 shares of a new series of Senior Preferred Stock (Senior Preferred Stock) to GE Capital in exchange for $75 in cash. The Company used the proceeds to acquire 750 shares of a new issue of Senior Preferred Stock of Montgomery Ward (Montgomery Ward Preferred) for $75 and Montgomery Ward used the proceeds to reduce short-term borrowings. The Montgomery Ward Preferred constitutes Debt-Like Preferred Stock for purposes of the dividend restrictions under the Agreements. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Discussion of Financial Condition (continued) Montgomery Ward acquired in a merger transaction all the stock of LMR Acquisition Corporation (LMR), which owns 100% of the stock of Lechmere, Inc. (Lechmere) on March 30, 1994. The aggregate purchase price was comprised of an estimated price of $113 and a contingent purchase price of up to $20 in cash and the issuance of up to 400,000 shares of Class A Common Stock, Series 1 (or at the option of Montgomery Ward, up to 400,000 shares of Class A Common Stock, Series 3). The contingent price is dependent on Lechmere achieving or exceeding a specified gross margin amount during the period commencing February 27, 1994 and ending February 25, 1995. Management believes that no payment of the contingent purchase price will be required. The closing price included a $10 promissory note (the Note) of Montgomery Ward, which bears interest at a rate of 4.87% per annum. Seventy-five percent of the accrued interest on and principal of the Note are payable 540 days after the date of the Note and the balance is payable three years after the date of the Note. The Note, which is secured by a standby letter of credit, is to be reduced upon the occurrence of certain specified circumstances. As part of the closing, Montgomery Ward advanced approximately $88 and assumed $3 of obligations to enable Lechmere to retire its outstanding bank debt and subordinated debt. The purchase of and advances to Lechmere were financed by the proceeds from borrowings under the Short Term Credit Agreement, Long Term Credit Agreement and the Term Loan Agreement. The Company has repurchased 4,187,550 shares held by certain former officers of the Company, Montgomery Ward and Signature and their permitted transferees by making cash payments and issuing installment notes in the aggregate of approximately $62. As of December 31, 1994, the outstanding balance of these notes was $26. See Note 14 to the Consolidated Financial Statements. These installment notes bear interest at varying rates, are payable over multi-year periods (generally three to five years) and are secured by shares of Common Stock, the fair market value of which is equal to the outstanding principal amount under each note. Under the Agreements, Montgomery Ward expects to be able to advance the Company sufficient funds to allow the Company to make the required installment payments in 1995. Currently available external sources of funds include $900 in multi-year revolving loan commitments which were obtained in September 1994 of which $297 will expire on September 14, 1995 and $603 will expire on September 15, 1999. During 1994, the average daily balance of borrowings under these commitments was $361. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Discussion of Financial Condition (continued) Under the laws and regulations applicable to insurance companies, some subsidiaries of Signature are limited in the amount of dividends they may pay. For information concerning limitations on the amount of dividends Signature may pay, see Note 20 to the Consolidated Financial Statements. During 1994, Signature paid dividends aggregating $22. Future cash needs are expected to be satisfied by ongoing operations, the sale of customer receivables to Montgomery Ward Credit, borrowings under the Agreements, and the disposition of capital assets related to facility closings. See "Business - Account Purchase Agreement" for a discussion of the terms of the sales of customer receivables by Montgomery Ward to Montgomery Ward Credit. Montgomery Ward and Lechmere's capital expenditures of $184 for 1994 were primarily related to opening 16 new stores, closing 2 stores, relocating 2 stores and implementing conversion strategies in conventional retail stores and various merchandise fixture and presentation programs. Montgomery Ward regularly reviews opportunities for acquisitions and joint ventures and regards such transactions as a possible source for future growth. 1994 1993 1992 Total Capital Expenditures . . .$ 184 $ 142 $ 146 Capital appropriations authorized during the year . .$ 247 $ 149 $ 154 Cancellations of prior year's appropriations. . . . .$(25) $(23) $(62) Unexpended capital appropriations at year-end . .$ 181 $ 143 $ 159 Montgomery Ward and Lechmere are not contractually committed to spend all of the capital appropriations unexpended at December 31, 1994, but generally expect to do so. On May 20, 1994, the Board of Directors declared a cash dividend of $.50 per common share to shareholders of record on June 15, 1994, for a total of $22. This dividend was paid on June 23, 1994. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Discussion of Financial Condition (continued) Effective January 2, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments In Debt and Equity Securities" (FAS No. 115). Under FAS No. 115, all debt securities are classified as "available-for-sale" and are stated at fair market value with all changes in unrealized gains or losses included in Shareholders' Equity. The adoption of FAS No. 115 increased Investments of insurance operations by $20, Deferred income taxes by $7 and Unrealized gain on marketable securities by $13 as of January 2, 1994 and had no impact on the results of operations of the Company. Item 8. Financial Statements. Page Report of Independent Public Accountants . . . . . . . . . . . . . . . 28 Consolidated Balance Sheet at December 31, 1994 and January 1, 1994 . . . . . . . . . . . . . 31 For the 52-Week Periods Ended December 31, 1994 and January 1, 1994 and the 53-Week Period Ended January 2, 1993 Consolidated Statement of Income. . . . . . . . . . . . . . . . . 29 Consolidated Statement of Shareholders' Equity. . . . . . . . . . 32 Consolidated Statement of Cash Flows. . . . . . . . . . . . . . . 35 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . 37 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Montgomery Ward Holding Corp.: We have audited the accompanying consolidated balance sheet of MONTGOMERY WARD HOLDING CORP. (a Delaware Corporation) AND SUBSIDIARY as of December 31, 1994 and January 1, 1994, and the related consolidated statements of income, shareholders' equity and cash flows for the fiscal years ended December 31, 1994, January 1, 1994 and January 2, 1993. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Montgomery Ward Holding Corp. and Subsidiary as of December 31, 1994 and January 1, 1994 and the results of their operations and their cash flows for the fiscal years ended December 31, 1994, January 1, 1994 and January 2, 1993, in conformity with generally accepted accounting principles. As discussed in Notes 6 and 8 to the consolidated financial statements, effective December 29, 1991, the Company changed its methods of accounting for postretirement benefits other than pensions and income taxes. Arthur Andersen LLP Chicago, Illinois, February 14, 1995 MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF INCOME (Millions of dollars)
52-Week 53-Week Period Ended Period Ended Dec. 31, Jan. 1, Jan. 2, 1994 1994 1993 Revenues Net sales, including leased and licensed department sales. . . . $6,573 $5,629 $5,427 Direct response marketing revenues, including insurance . . 465 400 379 Total Revenues . . . . 7,038 6,029 5,806 Costs and Expenses Cost of goods sold, including net occupancy and buying expense. . . . . 5,089 4,256 4,047 Operating, selling, general and adminis- trative expenses, including benefits and losses of direct response operations (Note 16) . . . . . . . 1,712 1,570 1,564 Interest expense (Note 17) . . . . . . . 58 43 45 Total Costs and Expenses. . . . . . . 6,859 5,869 5,656 Income Before Income Taxes . . . . . . 179 160 150 Income Tax Expense (Note 8) . . . . . . . . 62 59 50 Net Income before cumulative effect of changes in accounting principles. . 117 101 100 Cumulative Effect of Changes in Accounting Principles: Income Taxes (Note 8) . . . . . . . - - 50 Postretirement Benefits, net (Note 6) . . . . . . . - - (90) Net Income . . . . . . . . 117 101 60 Preferred Stock Dividend Requirements (Note 13). . . . . . . . 2 - 8 Net Income Applicable to Common Shareholders. . . $ 115 $ 101 $ 52
See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF INCOME (Continued) (Millions of dollars, except per share amounts)
52-Week 53-Week Period Ended Period Ended Dec. 31, Jan. 1, Jan. 2, 1994 1994 1993 Net Income Per Class A Common Share before cumulative effect of changes in accounting principles . . . . . . . .$2.68 $2.29 $2.01 Cumulative effect of changes in accounting principles . . . . . . . .$ - $ - $(.88) Net Income per Class A Common Share (Note 14) . . . . . . . . .$2.68 $2.29 $1.13 Net Income Per Class B Common Share before cumulative effect of changes in accounting principles . . . . . . . .$2.30 $2.04 $ 1.87 Cumulative effect of changes in accounting principles . . . . . . . .$ - $ - $(.82) Net Income per Class B Common Share (Note 14) . . . . . . . .$2.30 $2.04 $1.05 Cash Dividends declared per Common Share Class A . . . . . . . . $ .50 $ .50 $ .25 Class B . . . . . . . . $ .50 $ .50 $ .25
See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. CONSOLIDATED BALANCE SHEET (Millions of dollars) ASSETS
December 31, January 1, 1994 1994 Cash and cash equivalents. . . . . . . . . $ 33 $ 98 Short-term investments . . . . . . . . . . 3 19 Investments of insurance operations (Note 3) . . . . . . . . . . . . . . . . 314 296 Total Cash and Investments . . . . . . . 350 413 Trade and other accounts receivable. . . . . 112 62 Accounts and notes receivable from affiliates (Note 4). . . . . . . . . . . 6 4 Total Receivables. . . . . . . . . . . . 118 66 Merchandise inventories (Note 5) . . . . . .1,625 1,242 Prepaid pension contribution (Note 6). . . . 324 310 Properties, plants and equipment, net of accumulated depreciation and amortization (Note 7). . . . . . . . .1,399 1,263 Direct response and insurance acquisition costs. . . . . . . . . . . . . 322 295 Other assets . . . . . . . . . . . . . . . 402 246 Total Assets . . . . . . . . . . . . . . . $4,540 $3,835 LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt (Note 11). . . . . . . . . $ 144 $ - Trade accounts payable . . . . . . . . . . .1,719 1,358 Federal income taxes payable (Note 8) . . . 14 7 Accrued liabilities and other obligations (Notes 2, 4, 6, 9 and 14). . . . . . . . . . . . . . . . . 1,234 1,197 Insurance policy claim reserves (Note 10). . . . . . . . . . . . . . . . . 236 237 Long-term debt (Note 11) . . . . . . . . . . 228 213 Obligations under capital leases (Note 12). . . . . . . . . . . . . . . . 81 89 Deferred income taxes (Note 8) . . . . . . 122 127 Total Liabilities. . . . . . . . . . . .3,778 3,228 Commitments and Contingent Liabilities (Notes 11 and 18) Redeemable Preferred Stock (Note 13) . . . . 75 - Shareholders' Equity Common stock (Note 14) . . . . . . . . . . - - Capital in excess of par value . . . . . . 23 19 Retained earnings. . . . . . . . . . . . . 751 658 Unrealized gain on marketable equity securities . . . . . . . . . . . 2 3 Less: Treasury stock, at cost . . . . . (89) (73) Total Shareholders' Equity . . . . . . 687 607 Total Liabilities and Shareholders' Equity . . . . . . . . . . $4,540 $3,835
See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Millions of dollars, except per share amounts)
Class A Class B Capital Common Common in Stock Stock Excess Treasury Total $ .01 $ .01 of Unre- Stock, Share- Par Par Par Retained alized at holders' Value Value Value Earnings Gains Cost Equity (Number of shares in thousands) Balance, December 29,1991 as re- stated 21,190 25,000 $13 $499 $ 2 $(34) $480 Net income before cumulative effect of changes in accounting principles - - - 100 - - 100 Cash divi- dends paid - - - (19) - - (19) Tax benefit of stock option exer- cises and other share exchanges - - 2 - - - 2 Change in unrealized gain on mar- ketable equity securities - - - - 1 - 1 Shares repur- chased as Treasury stock (777) - - - - (12) (12) Shares issued upon exer- cise of options 256 - 1 - - - 1 Shares issued upon exer- cise of conversion rights 3 - - - - - - Balance, January 2,1993 20,672 25,000 $16 $580 $ 3 $(46) $553
See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Continued) (Millions of dollars, except per share amounts)
Class A Class B Capital Common Common in Stock Stock Excess Treasury Total $ .01 $ .01 of Unre- Stock, Share- Par Par Par Retained alized at holders' Value Value Value Earnings Gains Cost Equity (Number of shares in thousands) Balance, January 2,1993 20,672 25,000 $16 $580 $ 3 $(46) $553 Net income - - - 101 - - 101 Cash dividends paid - - - (23) - - (23) Tax benefit of stock option exer- cises and other share exchanges - - 2 - - - 2 Shares repur- chased as Treasury stock (1,258) - - - - (27) (27) Shares issued upon exer- cise of options 193 - 1 - - - 1 Shares issued upon exer- cise of conversion rights 3 - - - - - - Balance, January 1,1994 19,610 25,000 19 658 3 (73) 607 Cumulative effect of change in accounting principle - - - - 13 - 13 Balance, January 1, 1994, as restated 19,610 25,000 $19 $658 $16 $(73) $620
See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Continued) (Millions of dollars, except per share amounts)
Class A Class B Capital Common Common in Stock Stock Excess Treasury Total $ .01 $ .01 of Unre- Stock, Share- Par Par Par Retained alized at holders' Value Value Value Earnings Gains Cost Equity (Number of shares in thousands) Balance, January 1, 1994, as restated 19,610 25,000 $19 $658 $16 $(73) $620 Net income - - - 117 - - 117 Cash dividends paid - - - (24) - - (24) Tax benefit of stock option exer- cises - - 1 - - - 1 Change in unrealized gain on marketable securities - - - - (14) - (14) Shares repur- chased as Treasury stock (629) - - - - (16) (16) Shares issued upon exer- cise of options 297 - 3 - - - 3 Shares issued upon exer- cise of conversion rights 2 - - - - - - Balance, December 31,1994 19,280 25,000 $23 $751 $ 2 $(89) $687
See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (Millions of dollars)
52-Week 53-Week Period Ended Period Ended Dec. 31, Jan. 1, Jan. 2, 1994 1994 1993 Cash flows from operating activities: Net income before cumulative effect of changes in accounting principles . . . . . . . $ 117 $ 101 $ 100 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization. . . . . . 109 98 97 Deferred income taxes . . 29 25 32 Changes in operating assets and liabilities, net of businesses acquired: (Increase) decrease in: Trade and other accounts receivable (38) (9) 9 Accounts and notes receivable from affiliates (2) 14 (1) Merchandise inventories. . . . . . (243) (204) (38) Prepaid pension contribution . . . . . (15) (19) (18) Other assets. . . . . . (51) (50) 57 Increase (decrease) in: Accounts and notes payable to affiliates. . - - (30) Trade accounts payable. . 291 148 (17) Accrued liabilities and other obligations. . . . . . . (37) 33 21 Federal income taxes payable, net . . . . . . 5 (1) (34) Insurance policy claim reserves . . . . (1) (4) (21) Deferred income taxes (8) - - Net cash provided by operations. . . . . 156 132 157 Cash flows from investing activities: Acquisition of Lechmere net of cash acquired . . (109) - - Acquisition of Smilesaver, net of cash acquired . . . (11) - - Purchase of short-term investments. . . . . . . (231) (248) (1,221) Purchase of investments of insurance operations . . . . . . . (691) (688) (707) Sale of short-term investments. . . . . . . . 247 240 1,367 Sale of investments of insurance operations . . . . . . . . 671 669 698 Disposition of properties, plants and equipment, net . . . . 4 3 7 Capital expenditures. . . (184) (142) (146) Net cash used for investing activities . . . . . . $(304) $(166) $ (2)
See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) (Millions of dollars)
52-Week 53-Week Period Ended Period Ended Dec. 31, Jan. 1, Jan. 2, 1994 1994 1993 Cash flows from financing activities: Proceeds from issuance of short-term debt . . . . . . . . . $11,160 $7,718 $1,823 Payments of short-term debt . . . . . . . . . (11,016) (7,718) (1,823) Proceeds from issuance of long-term debt . . . . . . . . . 168 100 - Payments of Montgomery Ward long-term debt . . . . . . . . . . (179) (12) (396) Payments of Lechmere long-term debt . . . . . (88) - - Payments of obligations under capital leases . . (8) (6) (7) Proceeds from issuance of common stock. . . . . 3 1 1 Proceeds from issuance of preferred stock . . . 75 - - Payments to redeem preferred stock. . . . . - - (90) Cash dividends paid . . . (24) (23) (19) Purchase of treasury stock, at cost . . . . . (9) (11) (7) Tax benefit of stock options exercised and other share exchanges. . . . . . . 1 2 2 Net cash provided by (used for) financing activities. . . . . . 83 51 (516) Increase (Decrease) in cash and cash equivalents . . . (65) 17 (361) Cash and cash equivalents at beginning of period . . 98 81 442 Cash and cash equivalents at end of period . . . . . $ 33 $ 98 $ 81
See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in millions) 1. Major Accounting Policies Business Segments Montgomery Ward Holding Corp. (the Company or MW Holding) and its subsidiaries are engaged in retail merchandising and direct response marketing (including insurance) in the United States. Retail merchandising operations are conducted through Montgomery Ward and Montgomery Ward's indirectly, wholly-owned subsidiary Lechmere, Inc. (Lechmere), while direct response marketing operations are conducted primarily through Signature Financial/Marketing, Inc. (Signature), a wholly-owned subsidiary of Montgomery Ward. Signature markets consumer club products and insurance products through its subsidiaries. See Note 20 for information regarding these segments. Principles of Consolidation; Use of Estimates The consolidated financial statements include the Company and all subsidiaries. Certain prior period amounts have been reclassified to be comparable with the current period presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, time deposits and highly liquid debt instruments with a maturity of three months or less from the date of purchase. The carrying amount reported in the financial statements for cash and cash equivalents approximates the fair value of these assets. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 1. Major Accounting Policies (continued) Following is a summary of cash payments for interest and income taxes and non-cash financing and investing activities: 52-Week 53-Week Period Ended Period Ended Dec. 31, Jan. 1, Jan. 2, 1994 1994 1993 Cash paid for: Income taxes . . . . . . $ 33 $ 46 $ 53 Interest . . . . . . . . $ 56 $ 55 $ 50 Non-cash financing activities: Notes issued for purchase of Treasury stock. . . . $ 7 $ 16 $ 5 Non-cash investing activities: Change in unrealized gain on marketable securities. . . . . . $(14) $ - $ 1 Like-kind exchange of assets. . . . . . . . $ 5 $ 6 $ - The net cumulative effect of changes in accounting principles of $13 in 1994 and $40 in 1992 has no cash impact. Investments Effective January 2, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments In Debt and Equity Securities" (FAS No. 115). Under FAS No. 115, all debt securities are classified as "available-for-sale" and are stated at fair market value with all changes in unrealized gains or losses included in Shareholder's Equity. The adoption of FAS No. 115 increased Investments of insurance operations by $20, Deferred income taxes by $7 and Unrealized gain on marketable securities by $13 as of January 2, 1994 and had no impact on the results of operations of the Company. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 1. Major Accounting Policies (continued) Merchandise Inventories Merchandise inventories are valued at the lower of cost or market, using the retail last-in, first-out (LIFO) method. Depreciation, Amortization and Repairs Depreciation is computed on a straight-line basis over the estimated useful lives of the properties, with annual rates ranging between 2% and 3% for buildings and between 12% and 25% for fixtures and equipment. Leasehold improvements and assets under capital leases are amortized on a straight-line basis over no longer than the primary term of the lease. Upon retirement or disposition, the cost and the related depreciation or amortization are removed from the accounts, with the gains or losses included in income. Interest relating to construction in progress is capitalized and amortized over the useful life of the property. Pre-operating expenditures which are not capital in nature are charged against income in the year the store is opened. Normal maintenance and repairs are expensed as incurred. Major repairs that materially extend the lives of properties are capitalized, and the assets replaced, if any, are retired. Direct Response Marketing Revenues Life and accident and health insurance premiums, which are recognized as revenue when due from policyholders, are associated with related benefits and expenses to result in the recognition of profit over the terms of the policies. Property-liability insurance premiums and club membership dues are deferred and earned on a pro-rata basis over the terms of the policies and memberships. Unearned premiums and club memberships of $63 and $53 at December 31, 1994 and January 1, 1994, respectively, are included in Accrued liabilities and other obligations. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 1. Major Accounting Policies (continued) Direct Response and Insurance Acquisition Costs Costs allocated to the insurance and club memberships in force at June 24, 1988, as well as the costs of acquiring new club memberships and insurance business (primarily marketing expenses), are included in Direct response and insurance acquisition costs. Costs of acquiring new business have been deferred when considered recoverable. Acquisition costs are amortized in proportion to the revenue recognized. Amortization charged to income was $124, $111 and $106 for 1994, 1993 and 1992, respectively, and is included in Operating, selling, general and administrative expenses. Interest Rate Exchange and Cap Agreements Amounts paid or received pursuant to interest rate exchange and cap agreements are deferred and amortized as interest expense or income over the remaining life of the applicable agreement. Insurance Policy Claim Reserves Liabilities for future policy benefits have been determined principally by the net level premium method. These amounts have been computed by using assumptions that include provisions for risk of adverse deviation. The assumptions developed for interest rates (average 6%-8%) and withdrawal rates are based on the experience of Montgomery Ward Life Insurance Company, a wholly-owned subsidiary of Signature. The principal mortality tables used to develop the assumed mortality rates are the 1960 Commissioners' Standard Group Table, the 1955-1960 and 1965-1970 Basic Mortality Tables and the 1969-1971 U.S. Life Tables. The reserve for claims and related adjustment expenses is based on estimates of the costs of individual claims reported and incurred but not reported prior to year-end. While management believes the reserve for claims and related adjustment expenses is adequate, the reserve is continually reviewed and as adjustments become necessary, they are reflected in current operations. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 1. Major Accounting Policies (continued) Federal Income Tax The Company and its subsidiaries file a consolidated Federal income tax return. Insurance subsidiaries which had previously filed separate Federal income tax returns are expected to be included in the consolidated return to be filed for the 1994 tax year. Prior to 1992, the Company determined its income tax expense and related deferred federal income taxes in accordance with Statement of Financial Accounting Standards No. 96, "Accounting for Income Taxes" (FAS 96). Effective December 29, 1991, the Company adopted the provisions of FAS 109, "Accounting for Income Taxes". See Note 8 for discussion of the impact on financial position and results of operations resulting from the adoption of FAS 109. 2. Acquisition of Lechmere, Inc. Montgomery Ward acquired in a merger transaction all the stock of LMR Acquisition Corporation (LMR), which owns 100% of the stock of Lechmere, on March 30, 1994. The aggregate purchase price was comprised of an estimated price of $113 and a contingent purchase price of up to $20 in cash and the issuance of up to 400,000 shares of Class A Common Stock, Series 1 (or at the option of Montgomery Ward, up to 400,000 shares of Class A Common Stock, Series 3). The contingent price is dependent on Lechmere achieving or exceeding a specified gross margin amount during the period commencing February 27, 1994 and ending February 25, 1995. Management believes that no payment of the contingent purchase price will be required. The closing price included a $10 promissory note (the Note) of Montgomery Ward, which bears interest at a rate of 4.87% per annum. The Note is included in accrued liabilities and other obligations at December 31, 1994. Seventy-five percent of the accrued interest on and principal of the Note are payable 540 days after the date of the Note, and the balance is payable three years after the date of the Note. The Note, which is secured by a standby letter of credit, is to be reduced upon the occurrence of certain specified circumstances. As part of the closing, Montgomery Ward advanced approximately $88 and assumed $3 in obligations to enable Lechmere to retire its outstanding bank debt and subordinated debt. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 2. Acquisition of Lechmere, Inc. (continued) The acquisition was accounted for as a purchase. The purchase price has been allocated to Lechmere's net assets based upon preliminary results of asset valuations and liability and contingency assessments. Actual adjustments may differ based on the results of further evaluations of the fair value of the acquired assets and liabilities. Any differences between preliminary and actual adjustments are not expected to have a material impact on the consolidated financial statements. The preliminary allocation is summarized as follows: Inventory . . . . . . . . . . . . . . . . . . . . $140 Properties, Plants & Equipment. . . . . . . . . . 57 Goodwill . . . . . . . . . . . . . . . . . . . . 124 Other Assets. . . . . . . . . . . . . . . . . . . 50 Due to Montgomery Ward. . . . . . . . . . . . . . (88) Accounts Payable and other Liabilities. . . . . .(170) $113 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 3. Investments of Insurance Operations Following is a summary of Investments of insurance operations in securities other than related party investments. The fair values for marketable debt and equity securities are based on quoted market prices. December 31, 1994 Gross Gross Type of Unrealized Unrealized Market Investment Cost Gains Losses Value Fixed maturities Bonds: United States Govern- ment and government agencies and author- ities. . . . . $ 51 $ - $ 2 $ 49 Public utilities. . . . 73 6 - 79 All other corporate bonds. . . . . 26 1 1 26 Mortgage-backed securities. . . 115 - 6 109 Total fixed maturi- ties. . 265 7 9 263 Equity securities: Common stock. . . . . 8 5 - 13 Total equity securi- ties. . 8 5 - 13 Policy loans. . . . . . . 7 - - 7 Short-term investments. . . 31 - - 31 Total Invest- ments . $311 $12 $ 9 $314 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 3. Investments of Insurance Operations (continued) January 1, 1994 Amount at Which Gross Gross Shown in Type of Unrealized Unrealized Market Balance Investment Cost Gains Losses Value Sheet Fixed maturities Bonds: United States Govern- ment and government agencies and author- ities. . . $ 67 $ 3 $ - $ 70 $67 Public utilities. 80 16 - 96 80 All other corporate bonds. . . 26 1 - 27 26 Mortgage- backed securities. 64 - - 64 64 Total fixed maturi- ties. 237 20 - 257 237 Equity securities: Common stock. . . 8 5 - 13 13 Total equity securi- ties. 8 5 - 13 13 Policy loans. . . . 7 - - 7 7 Short-term investments. 39 - - 39 39 Total Invest- ments $291 $25 $ - $316 $296 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 3. Investments of Insurance Operations (continued) The amounts of fixed maturities as of December 31, 1994 are as follows: Amortized Market Cost Value Due in 1995. . . . . . . . . . . . . . . . .$ 12 $ 12 Due in 1996 through 2000 . . . . . . . . . . 109 111 Due in 2001 through 2005 . . . . . . . . . . 28 30 Due in 2006 and beyond . . . . . . . . . . . 1 1 Mortgage-backed securities . . . . . . . . . 115 109 $265 $263 Realized capital gains before income tax and changes in unrealized gains (losses) after income tax on fixed maturities, mortgage loans and equity securities are as follows: Fixed Maturities and Mortgage Equity Loans Securities 52-Week Period Ended December 31, 1994 Realized. . . . . . . . . . . . . . . . . .$ - $ - Unrealized. . . . . . . . . . . . . . . . $(2) $ 4 52-Week Period Ended January 1, 1994 Realized. . . . . . . . . . . . . . . . . .$ 1 $ - Unrealized. . . . . . . . . . . . . . . . .$ - $ 3 53-Week Period Ended January 2, 1993 Realized. . . . . . . . . . . . . . . . . .$ 1 $ - Unrealized. . . . . . . . . . . . . . . . .$ - $ 3 4. Accounts and Notes Receivable from Affiliates Montgomery Ward and Montgomery Ward Credit Corporation (Montgomery Ward Credit), a subsidiary of GE Capital Corporation (GE Capital) have entered into an Account Purchase Agreement pursuant to which Montgomery Ward Credit purchases receivables from time to time and provides services to Montgomery Ward. Under this agreement, Montgomery Ward Credit has the exclusive right to operate the Montgomery Ward private label credit card system and the obligation to purchase for their face value (and Montgomery Ward is obligated to sell) all the receivables generated by the MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 4. Accounts and Notes Receivable from Affiliates (continued) Montgomery Ward private label credit card system, including those generated through MW Direct, up to $6,000 at any time outstanding. Montgomery Ward accounts for the transfer as a sale of the applicable receivables. Sales of receivables to Montgomery Ward Credit were $4,092, $3,991 and $3,489 for 1994, 1993 and 1992, respectively. At December 31, 1994 and January 1, 1994, there were $5,221 and $4,947 of Montgomery Ward credit card receivables owned by Montgomery Ward Credit, respectively. Amounts receivable from Montgomery Ward Credit pursuant to the sale of such receivables are included in Accounts and notes receivable from affiliates. Montgomery Ward is exposed to both market risk and credit risk under the Account Purchase Agreement. Under the Account Purchase Agreement, Montgomery Ward is required to pay Montgomery Ward Credit the excess interest costs on a monthly basis if a blended interest rate applicable to Montgomery Ward Credit's finance costs with respect to the receivables exceeds 10% per annum. To date, the blended interest rate has been less than 10%. Should Montgomery Ward Credit or its guarantor, GE Capital, fail to perform its obligations under the Account Purchase Agreement, Montgomery Ward would suffer an accounting loss up to the amount of Montgomery Ward's share of finance charges (as described below), net of applicable reserves carried by Montgomery Ward Credit. Montgomery Ward estimates that any accounting loss would be immaterial at December 31, 1994. Montgomery Ward Credit's obligations under the Account Purchase Agreement are not collateralized. Effective January 1, 1994, Montgomery Ward bears the entire risk of credit losses. Previously credit losses were shared. Montgomery Ward's remaining liability for credit losses for 1991 through 1994 are payable to Montgomery Ward Credit in early 1998. In addition, the amounts payable by Montgomery Ward for credit losses for 1995 through 1997 may be deferred, and such deferred credit losses are also payable at Montgomery Ward's election in early 1998. Interest on Montgomery Ward's liability for credit losses is payable at a rate equal to rates on comparable borrowings of Montgomery Ward. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 4. Accounts and Notes Receivable from Affiliates (continued) In exchange for Montgomery Ward's agreement to allow Montgomery Ward Credit to increase finance charge rates in selected states, Montgomery Ward receives a share of incremental finance charges resulting from such increases which is available for offset as previously discussed and earns interest at the same rate. Incremental finance charges are generated only on purchases subsequent to the date such finance charge rates are increased. In the event that, due to the increase in finance charge rates, any refunds are required to be made, Montgomery Ward and Montgomery Ward Credit have agreed to share the financial risk. Legislation has from time to time been introduced in certain states which, if enacted, may require rescinding all or a portion of such rate increases, in which case, Montgomery Ward's share of rate increases may be substantially reduced. In addition to sharing incremental finance charges, with respect to each fiscal year, Montgomery Ward Credit will make a payment to Montgomery Ward of a share of all finance charges in an amount equal to (a) if credit losses are 5% or less of average gross receivables, the lesser of 3.9% of average gross receivables or the actual credit losses; (b) if credit losses are greater than 5% but less than or equal to 8% of average gross receivables, 3.9% of average gross receivables plus 50% of the amount by which actual credit losses exceed 5% of average gross receivables; or (c) if credit losses exceed 8% of average gross receivables, 5.4% of average gross receivables plus the amount by which credit losses exceed 8% of average gross receivables. In the event that finance charges billed during a fiscal year less the incremental finance charges referred to below are less than the amount computed above, the payments will be reduced to the amount of the finance charge less the incremental finance charge. The Company has executed notes for the credit losses which totalled $161 with respect to credit losses through 1994. The finance charge offset as of the end of 1994 was $24. Under the agreement, the notes payable to Montgomery Ward Credit are limited to $300 at any time, with any excess to be paid currently in cash. The Company does not expect credit losses for the period through 1997 to exceed the $300 limitation. The Account Purchase Agreement will be in effect until December 31, 2005, and thereafter from year to year unless either party gives ten years prior notice of its election to terminate. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 5. Merchandise Inventories Merchandise inventories are valued using the retail LIFO method, which matches current costs with current sales. If inventories had been valued using the first-in, first-out (FIFO) method, they would have been $133, $117 and $104 higher than those reported as of December 31, 1994, January 1, 1994 and January 2, 1993, respectively. 6. Retirement Plans Retirement plans of a contributory nature cover a majority of full-time associates of Montgomery Ward and its subsidiaries. Retirement benefits are provided by a defined benefit pension plan as well as by a savings and profit sharing plan. Montgomery Ward and its subsidiaries contribute to the defined benefit pension plan to cover any excess of defined minimum benefits over the benefits available from the savings and profit sharing plan attributable to the accumulated value of associate contributions. The components of the pension credit were as follows: 52-Week 53-Week Period Ended Period Ended Dec. 31, Jan. 1, Jan. 2, 1994 1994 1993 Service cost-benefits earned during the period. . . . . . . . . .$(13) $(11) $(9) Interest cost on projected benefit obligation. . . . . . . . (46) (45) (44) Actual return on assets. . . . . . . . . . 4 101 (20) Deferral of unantici- pated investment performance . . . . . . . 72 (26) 91 Amortization of unrecognized net loss. . . . . . . . . (2) - - Net pension credit . . . .$ 15 $ 19 $18 Assumptions: Discount rate . . . . . . 7.5% 8.5% 9.0% Increase in future compensation . . . . . . 6.0% 6.0% 6.0% Rate of return on plan assets . . . . . 9.5% 9.5% 9.0% MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 6. Retirement Plans (continued) The funded status of the defined benefit pension plan was as follows: December 31, January 1, 1994 1994 Actuarial present value of accumulated benefit obligation: Vested . . . . . . . . . . . . . . . . $576 $565 Nonvested. . . . . . . . . . . . . . . 4 4 Accumulated benefit obligation . . . . . 580 569 Additional amounts related to projected increases in compensation levels . . . . . . . . . . 23 9 Projected benefit obligation . . . . . . 603 578 Plan assets at fair value, primarily in equity and fixed income securities . . . . . . . . 789 863 Plan assets in excess of projected benefit obligation. . . . . . . . . . . $186 $285 Consisting of: Unrecognized net loss since initial application of FAS 87. . . . . . . . $(140) $(28) Unrecognized prior service cost since initial application of FAS 87. . . . . . . . . . . . . . $ 2 $ 3 Prepaid pension contribution . . . . $324 $ 310 The projected benefit obligation was determined using an assumed discount rate of 8.5% at December 31, 1994 and 7.5% at January 1, 1994 and an assumed rate of increase in future compensation levels of 6% for 1994 and 1993. Unrecognized net gains and losses and prior service costs are amortized over the average future service period. The savings and profit sharing plan includes a voluntary savings feature for eligible associates and matching company contributions based on a fixed percentage of certain associates' contributions. The company matching expense was $6 for each of 1994, 1993 and 1992. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 6. Retirement Plans (continued) Substantially all associates who retire after participation in the retirement plan for ten years and who are members of the health care plan for the year prior to retirement are eligible for certain health care and life insurance benefits, the cost of which is shared with the retirees. In 1992, the Company established a limit on its future annual contributions on behalf of retirees at a maximum of 125% of the projected 1992 company contributions. In the fourth quarter of 1992, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" as of December 29, 1991. This statement requires the accrual of the cost of providing postretirement benefits, including medical and life insurance coverage, during the active service period of the associate. The Company elected to immediately recognize the accumulated postretirement liability. This resulted in a one-time, after-tax charge of $90 (after reduction for income taxes of $59). The effect of this change on 1992 earnings was not material. Prior to 1992, the Company recognized expense in the year the benefits were provided. The components of the net periodic postretirement benefit cost were as follows: 1994 1993 1992 Service Cost. . . . . . . . . . . . . $ 2 $ 2 $ 2 Interest cost on accumulated postretirement benefit obligation . . . . . . . . . . . . . 11 12 12 Net periodic postretirement benefit cost . . . . . . . . . . . . $13 $14 $14 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 6. Retirement Plans (continued) The status of the Company's liability for postretirement benefits at December 31, 1994 and January 1, 1994, which are included in Accrued liabilities and other obligations is as follows: 1994 1993 Accumulated postretirement benefit obligation: Retirees. . . . . . . . . . . . . . . . . .$104 $120 Fully eligible active associates. . . . . . 18 20 Other active associates . . . . . . . . . . 26 25 Total accumulated postretirement benefit obligation. . . . . . . . . . . . . . . . 148 165 Unrecognized loss. . . . . . . . . . . . . . (4) (22) Accrued postretirement benefit obligation. . . . . . . . . . . . .$144 $143 The weighted average discount rate used in measuring the accumulated postretirement benefit obligation was 8.5% at December 31, 1994 and 7.5% at January 1, 1994. The assumed health care cost trend rate and the impact of a 1% increase in the medical trend rate on the accumulated postretirement benefit obligation, service cost and interest cost are not applicable due to caps established on current cost levels. The Company continues to evaluate ways in which it can better manage retiree benefits and control the costs. Any changes in the plan or revisions to assumptions that affect the amount of expected future benefits may have a significant effect on the amount of the reported obligation and annual expense. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 7. Properties, Plants and Equipment The details of the properties, plants and equipment accounts are shown below at cost: December 31, January 1, 1994 1994 Land . . . . . . . . . . . . . . $ 197 $ 177 Buildings. . . . . . . . . . . . . . 860 778 Leasehold improvements . . . . . . . 319 289 Fixtures and equipment . . . . . . . 503 401 Assets under capital leases. . . . . 111 113 Less accumulated depreciation and amortization. . . . . . (591) (495) Properties, Plants, and Equipment, net. . . . . . . $1,399 $1,263 Gains or (losses) on the sale of properties were $1, $0 and $(2) for 1994, 1993 and 1992, respectively. Accumulated amortization on capital lease assets was $49 and $43 for 1994 and 1993, respectively. 8. Income Taxes In the fourth quarter of 1992, the Company adopted FAS 109, "Accounting for Income Taxes", as of December 29, 1991. The cumulative effect on prior years' net income of the adoption of this statement was a credit of $50. The Company has alternative minimum tax (AMT) credits of $24, $31 and $31 as of December 31, 1994, January 1, 1994 and January 2, 1993, respectively, available to offset future Federal income tax liabilities. The Company also has targeted jobs tax credit carryforwards of $9 available as of December 31, 1994, which expire beginning in 2007. The approximate tax effects of temporary differences and carryforwards that give rise to the deferred tax liability are as follows: December 31, January 1, 1994 1994 Accrued liabilities. . . . . . . . . . . . . . . .$(169) $(222) Postretirement benefits. . . . . . . . . . . . . . (56) (56) Insurance reserves . . . . . . . . . . . . . . . . (61) - Other deferred tax assets. . . . . . . . . . . . . (23) (27) Total deferred tax assets . . . . . . . . . . . . (309) (305) Prepaid pension contribution . . . . . . . . . . . 128 121 Direct response and insurance acquisition costs . . . . . . . . . . . . . . . . 127 114 Property, plants and equipment . . . . . . . . . . 133 133 Other deferred tax liabilities . . . . . . . . . . 47 68 Total deferred tax liabilities. . . . . . . . . . 435 436 AMT and other credit carryforwards . . . . . . . . (36) (31) Valuation allowance. . . . . . . . . . . . . . . . 32 27 Net deferred tax liability. . . . . . . . . . . . $ 122 $ 127 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 8. Income Taxes (continued) Income tax expense consists of: 52-Week 53-Week Period Ended Period Ended Dec. 31, Jan. 1, Jan. 2, 1994 1994 1993 Federal Currently payable . . . .$25 $28 $15 Deferred. . . . . . . . . 29 25 32 State, local and foreign . . . . . . . 8 6 3 Total income tax expense . . . . . . .$62 $59 $50 A reconciliation of the statutory to effective federal income tax rate is as follows: 52-Week 53-Week Period Ended Period Ended Dec. 31, Jan. 1, Jan. 2, 1994 1994 1993 Federal income tax rate. . . . . . . . .35% 35% 34% State taxes, net of reduction of Federal tax . . . . . . . 3 2 1 Targeted Jobs Tax Credit. . . . . . . .(3) (1) (2) Impact of increase in statutory rate . . . . - 1 - Permanent differences. . (1) - - Effective income tax rate. . . . . . . . 34% 37% 33% Permanent differences include the 1994 settlement of income tax assessments for the taxable years ending December 31, 1988 through December 29, 1990. Montgomery Ward had previously provided for these assessments and the related deferred income taxes were adjusted in 1994 to reflect the impact of this settlement. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 9. Deferred Service Contract Revenue The Company sells product service contracts on its own behalf, and beginning in 1994, on behalf of Virginia Surety Company, Inc. (VSC). The Company recognizes the revenue related to sales of Montgomery Ward service contracts in proportion to the costs expected to be incurred in performing services under the contracts. Deferred service contract revenue of $231 and $239 at December 31, 1994 and January 1, 1994, respectively, is included in Accrued liabilities and other obligations. The Company recognizes the revenue, net of the fixed payment due to VSC on sales of VSC contracts at time of the sale. VSC insured contracts comprised 17% of sales of service contracts to Montgomery Ward customers in 1994. Montgomery Ward has contracted with VSC to provide repair services to VSC. 10. Insurance Policy Claim Reserves The Company's insurance subsidiaries are involved in both the cession and assumption of reinsurance with other companies. Risks are reinsured with other companies to permit the recovery of a portion of the direct losses. Policy related liabilities and accruals, including incurred but not reported claims, are included in the financial statements as Insurance policy claim reserves, and reinsurance ceded is reflected as a component of Other assets. The Company remains liable to the extent the reinsuring companies cannot meet their obligations under these reinsurance treaties. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 10. Insurance Policy Claim Reserves (continued) Premium revenues, which are included in Direct response marketing revenues, are as follows: Percentage Ceded To Assumed of Amount Gross Other from Other Net Assumed Amount Companies Companies Amount To Net 52-Week Period Ended Decem- ber 31, 1994: Life insurance in force . . $5,729 $ 93 $ - $5,636 0.0% Premiums Life insurance . $ 50 $ 1 $ 3 $ 52 5.8% Accident and health insurance . . 76 - 11 87 12.6% Property and liability insurance . 62 9 - 53 0.0% Total. . . $ 188 $ 10 $ 14 $ 192 7.3% 52-Week Period Ended Janu- ary 1, 1994: Life insurance in force . . $5,438 $102 $ - $5,336 0.0% Premiums Life insurance . $ 45 $ 1 $ 3 $ 47 6.4% Accident and health insurance . . 67 - 13 80 16.3% Property and liability insurance . 51 8 - 43 0.0% Total. . . $ 163 $ 9 $16 $ 170 9.4% 53-Week Period Ended Janu- ary 2, 1993: Life insurance in force . . $5,325 $114 $ - $5,211 0.0% Premiums Life insurance . $ 45 $ 1 $ 3 $ 47 6.4% Accident and health insurance . . 66 - 16 82 19.5% Property and liability insurance . 49 8 - 41 0.0% Total. . . $ 160 $ 9 $19 $ 170 11.2% MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 11. Short-Term and Long-Term Debt The long-term debt of Montgomery Ward and its subsidiaries is as follows: December 31, January 1, 1994 1994 Montgomery Ward Note Purchase Agreements; Senior Notes Series A to Series G due in 1998 to 2005 at 7.07% to 8.18% interest rates. . . . . . . . . . . . . . . . . . $100 $100 Economic Development Revenue Bonds, due in 1994 at 9.5% interest rate. . . . . - 5 Commercial Development Revenue Bonds, due in 2013 at 4.15% interest rate, adjusted at three-year intervals . . . . 5 5 Other . . . . . . . . . . . . . . . . . . . 2 2 Montgomery Ward Real Estate Subsidiaries 4 3/4% Secured Notes, due serially to January 15, 1995. . . . . . . . . . . . 1 2 11 1/2% Secured Note, due serially to September 1, 2001 . . . . . . . . . . 15 17 7 1/2% Secured Note, due serially to November 30, 2002 . . . . . . . . . . . 6 7 9.45% Secured Notes, due serially to November 30, 2003 . . . . . . . . . . . 18 19 7 3/4% Secured Notes, due serially to August 31, 2004 . . . . . . . . . . . . 20 22 7 7/8% Secured Notes, due serially to December 15, 2005 . . . . . . . . . . . 9 10 9% Secured Notes, due serially to January 1, 2006. . . . . . . . . . . . . . 13 14 Other . . . . . . . . . . . . . . . . . . . 10 10 Lechmere 9.65% Secured Mortgage Notes, due October 31, 1996 . . . . . . . . . . . . . 24 - Other . . . . . . . . . . . . . . . . . . . 5 - Total long-term debt. . . . . . . . . .$228 $213 The amounts of long-term debt that become due during the fiscal years 1995 through 1999 are as follows: 1995--$8, 1996--$33, 1997--$10, 1998--$20 and 1999--$10. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 11. Short-Term and Long-Term Debt (continued) Montgomery Ward has entered into a Long Term Credit Agreement (Long Term Agreement) dated as of September 15, 1994 with various lenders. The Long Term Agreement, which expires September 15, 1999, provides for a revolving facility in the principal amount of $603. As of December 31, 1994, no borrowings were outstanding under the Long Term Agreement. Concurrently, Montgomery Ward also entered into a Short Term Credit Agreement (Short Term Agreement) dated as of September 15, 1994 with various lenders. The Short Term Agreement, which expires September 14, 1995, provides for a revolving facility in the principal amount of $297. As of December 31, 1994, $144 was outstanding under the Short Term Agreement. Proceeds from borrowings under the Long Term Agreement and the Short Term Agreement (collectively, the Agreements) were used to pay all borrowings outstanding under an Amended and Restated Credit Agreement dated as of September 22, 1992, a Short Term Credit Agreement dated as of September 22, 1992 and a Term Loan Agreement dated as of November 24, 1993 and the agreements were terminated. Under the Agreements, Montgomery Ward may select among several interest rate options, including a rate negotiated with one or more of the various lenders. The interest rates for the aforementioned bank borrowings are based on market rates and significant increases in market interest rates will increase interest payments required. A commitment fee is payable based upon the unused amount of each facility, although under certain circumstances, an additional fee may be payable to lenders not participating in a negotiated rate loan. The weighted average interest rate paid under the Agreements was 4.9% for 1994. During the fourth quarter of 1994, Montgomery Ward entered into interest rate exchange and cap agreements with various banks to offset the market risk associated with an increase in interest rates under both the Long Term Agreement and Short Term Agreement. The aggregate notional principal amounts under the interest rate exchange agreements is $100 in 1994, $175 in 1995 through 1997 and $75 in 1998 through 1999. Under the terms of the interest rate exchange agreements, Montgomery Ward pays the banks a weighted average fixed rate of 7.2% in 1994, 7.4% from 1995 through 1997 and 7.6% from 1998 through 1999 and will receive the one-month daily average London Interbank Offered (LIBO) rate in each case multiplied by the notional principal amount. The average aggregate notional principal amounts under the various cap agreements is $63 in the fourth quarter of 1994, $154 in 1995, $158 in 1996 and $113 in 1997. Under the terms of the cap agreements, Montgomery Ward MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 11. Short-Term and Long-Term Debt (continued) receives payments from the banks when the one-month daily average LIBO rate exceeds the 5.0% cap strike in 1994, 5.5% cap strike rate in 1995, 6% cap strike rate in 1996 and 7.0% cap strike rate in 1997. Such payments will equal the amount determined by multiplying the notional principal amount by the percentage, if any, by which the one-month daily average LIBO rate exceeds the cap strike rate. Montgomery Ward is exposed to credit risk in the event of nonperformance by the other parties to the interest rate exchange and cap agreements; however, Montgomery Ward anticipates full performance by the counterparties. The fair market value of the exchange and cap agreements at December 31, 1994 was $11. Fair value is estimated based upon the amount that Montgomery Ward would receive or pay to terminate the agreements as of the reporting date, utilizing quoted prices for comparable contracts. The Agreements and the Note Purchase Agreements impose various restrictions on Montgomery Ward, including the satisfaction of certain financial tests which include restrictions on payments of dividends. Under the terms of the Agreements, which are currently the most restrictive of the financing agreements as to dividends, distributions and redemptions, Montgomery Ward may not pay dividends or make any other distributions to the Company or redeem any Common Stock in excess of (1) $63 on a cumulative basis, plus (2) 50% of Consolidated Net Income of Montgomery Ward (as defined in the Agreements) after January 1, 1994, plus (3) any repayment by the Company of any loan or advance made by Montgomery Ward to the Company which was received after January 1, 1994, plus (4) capital contributions received by Montgomery Ward after January 1, 1994, plus (5) net proceeds received by Montgomery Ward from (a) the issuance of capital stock including treasury stock but excluding Debt-Like Preferred Stock (as defined in the Agreements), or (b) any indebtedness which is converted into shares of capital stock other than Debt-Like Preferred Stock of Montgomery Ward or the Company, after January 1, 1994, plus (6) an adjustment of $45 for 1994 through 1996, $30 in 1997 and $15 in 1998. The Montgomery Ward Preferred discussed in Note 13 constitutes Debt-Like Preferred Stock for purposes of the dividend restrictions under the Agreements. At December 31, 1994, Montgomery Ward could pay dividends and make other distributions to the Company of $124 pursuant to the terms of the Agreements. To date, Montgomery Ward has been in compliance with all such financial tests. Montgomery Ward has outstanding Commercial Development Revenue Bonds, which are adjusted to the market rate of interest at three-year intervals. The rate was adjusted to 4.15% in 1992. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 11. Short-Term and Long-Term Debt (continued) The Secured Notes of the real estate subsidiaries and the secured Mortgage Notes of Lechmere are secured by mortgage liens and/or assignments of rental agreements whereby the real estate subsidiaries have assigned to trustees certain monies payable under leases with Montgomery Ward. At December 31, 1994, assets with a net book value of approximately $228 represented collateral for certain of these secured notes. The market value of the Company's long-term debt of $212 is estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. 12. Leases The Company leases real and personal property principally through noncancelable capital and operating leases, which generally provide for the payment of minimum rentals and, in certain instances, executory costs and additional rentals based upon a percentage of sales. The terms of the real estate leases typically contain renewal options for additional periods. At December 31, 1994, the minimum lease payments under all noncancelable operating leases with an initial term of more than one year, not including $17 of future sublease rentals, and under capital leases are as follows: Capital Operating Leases Leases 1995 . . . . . . . . . . . . . . . . . . . .$ 15 $113 1996 . . . . . . . . . . . . . . . . . . . . 14 105 1997 . . . . . . . . . . . . . . . . . . . . 13 95 1998 . . . . . . . . . . . . . . . . . . . . 13 87 1999 . . . . . . . . . . . . . . . . . . . . 12 79 Later Years. . . . . . . . . . . . . . . . . 57 807 Total Minimum Lease Payments. . . . . . . .$124 $1,286 Less Executory Costs, principally real estate taxes to be paid by the lessor . . . . . . . . . . . . . . . (5) Less Imputed Interest. . . . . . . . . . . .(38) Present Value of Net Minimum Capital Lease Payments Including Portion due within one year of $7 . . . . . . . . . . . . . .$ 81 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 12. Leases (continued) Net rent expense charged to earnings was $130 for 1994, $104 for 1993 and $101 for 1992 after deducting rentals from subleases of $9 in 1994, $9 in 1993 and $10 in 1992. Rent expense includes contingent lease rentals for capital and operating leases of $13 for 1994, $11 for 1993 and $11 for 1992. These contingent lease rentals are generally based on sales revenues. Some rental agreements contain escalation provisions that may require higher future rent payments. Rent expense incurred under rental agreements which contain escalation clauses is recognized on a straight-line basis over the life of the lease. 13. Redeemable Preferred Stock Effective September 30, 1992, Montgomery Ward declared a dividend payable to the Company and the Company redeemed all of its outstanding shares of Preferred Stock, including 500 shares of Senior Preferred Stock, par value $1.00 per share, and 400 shares of Junior Preferred Stock, par value $1.00 per share, all of which were held by GE Capital. The aggregate redemption prices for the Senior Preferred Stock and the Junior Preferred Stock were $50 and $40, respectively, and accrued dividends thereon were $3. Dividends had been paid quarterly at an annual rate of $11,500 per share and $12,000 per share for the Senior Preferred Stock and Junior Preferred Stock, respectively. On April 27, 1994, the Company's Certificate of Incorporation was amended to authorize the issuance of a new series of senior preferred stock (Senior Preferred Stock). On that date, the Company issued all of the 750 shares of Senior Preferred Stock authorized by the Certificate of Incorporation to General Electric Capital Corporation in exchange for $75 in cash. The Company used the proceeds to acquire 750 shares of a new issue of senior preferred stock of Montgomery Ward (Montgomery Ward Preferred) for $75 and Montgomery Ward used the proceeds to reduce short-term borrowings. Dividends on the Senior Preferred Stock are payable quarterly at an annual rate of $4,850 per share. The Company is required to redeem all or any portion of the Senior Preferred Stock upon four months' written notice by the holders on or after April 28, 1999. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 14. Common Stock The Company has the following authorized classes of common stock: Class A Common Stock, Series 1; $.01 par value; 25,000,000 shares authorized; 19,074,118 shares issued and outstanding, net of 5,925,882 shares held in treasury. Class A Common Stock, Series 2; $.01 par value; 5,412,000 shares authorized; 206,364 shares issued and outstanding, net of 678,982 shares held in treasury. Class A Common Stock, Series 3; $.01 par value; 2,400,000 shares authorized; no shares issued or outstanding. Class B Common Stock; $.01 par value; 25,000,000 shares authorized, issued and outstanding; all owned by GE Capital. The Company has repurchased 4,187,550 shares held by certain former officers of the Company, Montgomery Ward and Signature and their permitted transferees by making cash payments and issuing installment notes in the aggregate of approximately $62. As of December 31, 1994, the outstanding balance of these notes was $26. These installment notes bear interest at varying rates, are payable over multi-year periods (generally three to five years) and are secured by shares of Common Stock, the fair market value of which is equal to the outstanding principal amount under each note. The notes are classified as Accrued liabilities and other obligations. Under all of the Agreements, Montgomery Ward expects to be able to advance the Company sufficient funds to allow the Company to make the required installment payments in 1995. Each share of Class B Common Stock entitles the holder thereof to one vote. All shares of Class A Common Stock entitle the holders to a total of 25,000,000 votes, or one vote per share if the total number of Class A shares issued and outstanding is less than 25,000,000. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 14. Common Stock (continued) Net income per common share is computed as follows: 52-Week Period Ended December 31, 1994 Class A Class B Earnings available for Common Share- holders, after deducting preferred stock dividend requirements. . . . . $57 $58 Weighted average number of common and common equivalent shares (stock options) outstanding. . . . . 21,407,379 25,000,000 Earnings per share . . . . . . . . . . $2.68 $2.30 52-Week Period Ended January 1, 1994 Class A Class B Earnings available for Common Shareholders . . . . . . . . . . . . $50 $51 Weighted average number of common and common equivalent shares (stock options) outstanding. . . . . 21,805,203 25,000,000 Earnings per share . . . . . . . . . . $2.29 $2.04 53-Week Period Ended January 2, 1993 Class A Class B Earnings available for Common Share- holders, after deducting preferred stock dividend requirements and cumulative effect of changes in accounting principles. . . . . . . . $26 $26 Weighted average number of common and common equivalent shares (stock options) outstanding. . . . . 22,537,539 25,000,000 Earnings per share . . . . . . . . . . $1.13 $1.05 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 15. Stock Ownership Plan The Montgomery Ward & Co., Incorporated Stock Ownership Plan was adopted effective July 19, 1988. A total of 1,000,000 Class A Common Stock, Series 1, 5,412,000 shares of Class A Common Stock, Series 2, and 2,000,000 shares of Class A Common Stock, Series 3, have been reserved for issuance under the plan. Key associates of Montgomery Ward and its subsidiaries are eligible to participate and may receive awards, purchase rights and options. Awards are grants of shares for no consideration. Options for 2,926,286 and 1,484,302 of Class A Common Stock, Series 2 shares were exercisable at December 31, 1994 and January 1, 1994, respectively. Following is a summary of activity under the plan. Option Price Options Range Outstanding December 28, 1991 . . . . 2,944,967 $0.20-$14.79 Granted, 1992 . . . . . . . . . . . . 1,377,478 $15.11-$18.75 Exercised, 1992 . . . . . . . . . . . (256,367) $0.20-$15.11 Cancellations, 1992 . . . . . . . . . (469,170) $0.20-$18.75 Outstanding January 2, 1993 . . . . . 3,596,908 $0.20-$18.75 Granted, 1993 . . . . . . . . . . . . 1,979,105 $18.75-$22.50 Exercised, 1993 . . . . . . . . . . . (192,864) $0.20-$18.75 Cancellations, 1993 . . . . . . . . . (520,083) $0.20-$22.50 Outstanding January 1, 1994 . . . . . 4,863,066 $0.20-$22.50 Granted, 1994 . . . . . . . . . . . . 2,010,236 $12.50-$26.50 Exercised, 1994 . . . . . . . . . . . (297,415) $0.20-$22.50 Cancellations, 1994 . . . . . . . . . (890,285) $0.20-$26.50 Outstanding, December 31, 1994. . . . 5,685,602 $0.20-$26.50 During 1991, the Board of Directors approved the Directors Plan. The Directors Plan was established to, among other things, allow outside directors to receive all or any portion of the fees for their services as directors of the Company and Montgomery Ward via conversion rights in Series 1 or Series 2 shares. In 1994, 1993 and 1992, 2,489, 3,466 and 3,332 Series 1 shares were issued from treasury as payment for directors fees, respectively. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 16. Benefits and Losses Operating, selling, general and administrative expenses include benefits and losses related to direct response marketing operations of $102, $93 and $97 for the 52-week periods ended December 31, 1994 and January 1, 1994 and the 53-week period ended January 2, 1993, respectively. 17. Interest Expense, Net of Investment Income Net interest expense is as follows: 52-Week 53-Week Period Ended Period Ended Dec. 31, Jan. 1, Jan. 2, 1994 1994 1993 Interest on short-term borrowings. . . . . . . . .$19 $ 12 $ 4 Interest on long-term debt and obligations under capital leases. . . . 30 24 41 Miscellaneous interest, net . . . . . . . . . . . . 11 8 6 Investment income. . . . . (2) (1) (6) Total interest expense, net of investment income. . . . . . . . . . .$58 $43 $45 18. Litigation and Other Proceedings MW Holding, Montgomery Ward and its subsidiaries are engaged in various litigation and have a number of unresolved claims. While the amounts claimed are substantial and the ultimate liability with respect to such litigation and claims cannot be determined at this time, management is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to have a material impact on the financial condition and the results of operations of the Company. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 19. Related Party Transactions Substantially all shares of Class A Series 1 and Series 2 Common Stock, except those held by the Chairman and Chief Executive Officer of the Company and a trust established for the benefit of his children, are held by a Voting Trust which was created in 1988. In 1994, a second voting trust was created to hold shares of Class A Series 3 Common Stock. A Voting Trustee (currently the Chairman and Chief Executive Officer of the Company) has sole voting power and control of all shares held by both Voting Trusts. The 1988 Voting Trust will expire June 21, 1998 or upon the occurrence of certain specified events in accordance with the Voting Trust Agreement. The 1994 Voting Trust has no expiration date but may expire upon the occurrence of certain specified events in accordance with the Voting Trust Agreement. The Company engages in various transactions with GE Capital as described in Notes 4, 13 and 14. In December, 1994, Montgomery Ward signed a letter of intent to acquire an equity interest in ValueVision International, Inc. (ValueVision). ValueVision provides television programming within the emerging home shopping industry. Under the proposed agreement, Montgomery Ward will purchase 1,280,000 unregistered shares of common stock of ValueVision at $6.25 per share, which represents approximately 4.7% of the issued and outstanding shares of common stock of ValueVision. Montgomery Ward will also receive warrants to purchase an additional 25 million shares of common stock of ValueVision with exercise prices ranging from $6.50 to $17.00 per share, with an average exercise price of $9.16 per share. The warrants vest over time, subject to the vesting termination and acceleration provisions in the agreement. In July, 1994, Montgomery Ward, through a subsidiary, became a limited partner in Merchant Partners Limited Partnership. The purpose of this partnership is to invest in new and emerging growth businesses and leveraged buy-outs to achieve a superior rate of return. Montgomery Ward made a capital contribution of $1 in 1994. Per the terms of the agreement, additional funding may be required within limitations set forth in the agreement. The cumulative maximum capital contribution is $40. In October 1991, the Company entered into a joint venture, MW Direct L.P. (MW Direct), formed through a partnership between subsidiaries of Montgomery Ward and subsidiaries of Fingerhut Companies, Inc., a Minneapolis-based specialty catalog marketer. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 19. Related Party Transactions (continued) Montgomery Ward made a $5 initial capital contribution in 1992. Per the terms of the agreement, no further capital contributions are required. Montgomery Ward paid on behalf of those associates and past associates of Montgomery Ward and certain of its subsidiaries who purchased stock in the Company in 1988, the legal fees and related costs and expenses in connection with certain deficiencies in tax assessed by the Internal Revenue Service, and certain Tax Court cases. All assessments were settled in 1994. Montgomery Ward paid approximately $4 in 1993 and $1 in 1992 for services rendered in connection with the aforementioned matters. In November 1991, the Board of Directors approved a line of credit program for certain associates, including directors who are associates and executive officers of the Company (Line of Credit Program). Under the Line of Credit Program, the Company arranged with banks (Program Banks) for lines of credit of up to $10 in the aggregate for all participants in the Line of Credit Program. As of December 31, 1994, an aggregate of $5 was available under the Line of Credit Program. Any associate who borrows money from the Program Banks under the Line of Credit Program is required to pledge to such Program Banks as collateral a number of shares owned by such associate, the fair market value of which is equal to twice the amount the associate borrows. In the event any associate should default upon his or her repayment obligations, the Company anticipates that it will repurchase that individual's note from the Program Banks, together with the Banks' security interest in the pledged stock, at the face amount of the note plus up to one year's interest. At December 31, 1994, the borrowings outstanding under the Line of Credit Program were less than $1. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 20. Business Segments Montgomery Ward and its subsidiaries are engaged in retail merchandising and direct response marketing, including insurance, in the United States. Following is information regarding revenues, earnings and assets of the Company by segment. 52-Week 53-Week Period Ended Period Ended Dec. 31, Jan. 1, Jan. 2, 1994 1994 1993 Total Revenues Retail Merchandising. . $6,573 $5,629 $5,427 Direct Response Marketing. . . . . . . 465 400 379 Total . . . . . . . . $7,038 $6,029 $5,806 Operating Earnings Retail Merchandising. . $ 208 $ 171 $ 198 Direct Response Marketing. . . . . . . . 60 54 52 Corporate and Other . . (89) (65) (100) Total. . . . . . . . . $ 179 $ 160 $ 150 Identifiable Assets Retail Merchandising. . $3,317 $ 2,627 $2,391 Direct Response Marketing. . . . . . . . 789 753 702 Corporate and Other. . 434 455 392 Total . . . . . . . . $4,540 $3,835 $3,485 Depreciation and Amortization Retail Merchandising. . $ 105 $ 95 $ 94 Direct Response Marketing. . . . . . . 4 3 3 Total . . . . . . . . $ 109 $ 98 $ 97 Capital Expenditures Retail Merchandising. . $ 180 $ 139 $ 141 Direct Response Marketing. . . . . . . 4 3 5 Total . . . . . . . . $ 184 $ 142 $ 146 Under the laws and regulations applicable to insurance companies, certain subsidiaries of Signature are limited in the amount of dividends they may pay without the approval of the Illinois Insurance Department and are prohibited from making any loans and advances to Montgomery Ward and its affiliates. Under these laws, the restricted subsidiaries, which had aggregate retained earnings of $141, and aggregate total shareholders equity of $192, can pay dividends of $41 during 1995 subject to the availability of earned surplus as determined on a statutory basis. Dividends received from insurance subsidiaries were $22, $35 and $27 for 1994, 1993 and 1992. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 21. Parent Company Financial Information Following is the MW Holding balance sheet as of December 31, 1994 and January 1, 1994 and the statements of income and cash flows for the 52-week periods ended December 31, 1994 and January 1, 1994 and the 53-week period ended January 2, 1993. MONTGOMERY WARD HOLDING CORP. BALANCE SHEET ASSETS December 31, January 1, 1994 1994 Federal Income Taxes Receivable . . . . . .$ 4 $ 4 Investment in Montgomery Ward . . . . . . . 766 671 Redeemable Preferred Stock of Montgomery Ward. . . . . . . . . . . . . . 75 - Total Assets . . . . . . . . . . . . . . .$845 $675 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts Payable to Montgomery Ward . . . .$ 57 $ 35 Accrued Liabilities . . . . . . . . . . . . 26 33 Total Liabilities. . . . . . . . . . . . . 83 68 Redeemable Preferred Stock. . . . . . . . . 75 - Common Stock. . . . . . . . . . . . . . . - - Capital in excess of par value. . . . . . . 23 19 Retained Earnings . . . . . . . . . . . . . 751 658 Unrealized gain on marketable equity securities . . . . . . . . . . . . . . . . 2 3 Less: Treasury stock, at cost. . . . . . .(89) (73) Total Shareholders' Equity . . . . . . . . 687 607 Total Liabilities and Shareholders' Equity . . . . . . . . . . .$845 $675 STATEMENT OF INCOME 52-Week 53-Week Period Ended Period Ended Dec. 31, Jan. 1, Jan. 2, 1994 1994 1993 Miscellaneous Costs . . . .$(2) $(1) $(2) Total Costs and Expenses. . . . . . . . . (2) (1) (2) Tax Benefits. . . . . . . . - - - Net Loss Before Earnings of Montgomery Ward. . . . . . (2) (1) (2) Equity in Net Income of Montgomery Ward, net of cumulative effect of accounting changes . . . . 119 102 62 Net Income. . . . . . . . . 117 101 60 Preferred Stock Dividend Requirements . . . . . . . 2 - 8 Net Income Available for Common Shareholders . . . . . . .$115 $101 $ 52 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 21. Parent Company Financial Information (continued) STATEMENT OF CASH FLOWS December 31, January 1, January 2, 1994 1994 1993 Net Income. . . . . . . . . .$117 $101 $ 60 Adjustments to reconcile net income to net cash provided: Change in undis- tributed earnings of subsidiary . . . . . .(96) (79) 48 Decrease (increase) in: Federal income taxes receivable . . . . . . . - - (1) Other assets. . . . . . . - 1 - Increase (decrease) in: Accounts payable to Montgomery Ward. . . . . 22 12 10 Accrued liabilities . . (14) (4) (4) Net cash provided before financing activities . . . . . . . . (29) 31 113 Cash flows from financing activities: Proceeds from issuance of common stock . . . . . 3 1 1 Proceeds from issuance of preferred stock. . . . 75 - - Purchase of Montgomery Ward preferred stock. . . . . . . . . . .(75) - - Cash dividends paid . . . .(24) (23) (19) Payments to redeem preferred stock . . . . . - - (90) Purchase of treasury stock, at cost. . . . . . (9) (11) (7) Tax benefit of stock options exercise and other stock exchanges . . . . . . . 1 2 2 Net cash used for financing activities . . . (29) (31) (113) Cash at end of period . . . $ - $ - $ - Non-cash investing activities: Change in unrealized gain on investments . . . $ (1) $ - $ 1 Non-cash financing activities: Notes issued for purchase of treasury stock. . . . . . $ 7 $ 16 $ 5 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 22. Quarterly Financial Data (unaudited) The quarterly operations of MW Holding are summarized as follows: Quarter First Second Third Fourth Year 52-Week Period Ended December 31, 1994 Net sales. . . . . . .$1,216 $1,520 $1,574 $2,263 $6,573 Cost of goods sold . . . 930 1,183 1,234 1,742 5,089 Net Income . . . . . . . .10 28 15 64 117 Net Income per Class A Common Share. . . . . .23 .62 .33 1.51 2.68 Net Income per Class B Common Share. . . . . .20 .53 .29 1.28 2.30 52-Week Period Ended January 1, 1994 Net sales. . . . . . .$1,160 $1,283 $1,327 $1,859 $5,629 Cost of goods sold . 876 963 1,009 1,408 4,256 Net Income . . . . . 10 27 14 50 101 Net Income per Class A Common Share. . . . .21 .61 .33 1.16 2.29 Net Income per Class B Common Share. . . . .19 .56 .29 1.01 2.04 Item 9. Disagreements on Accounting and Financial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Company Information as to executive officers required by this item is included under the caption "Executive Officers of the Registrant" beginning on page 15. Information as to directors required by this item is incorporated herein by reference, pursuant to General Instruction G(3) to Form 10-K, from the Registrant's definitive proxy statement, for the annual meeting of shareholders to be held on May 12, 1995, to be filed within 120 days of the end of the Registrant's fiscal year. Item 11. Executive Compensation Incorporated herein by reference, pursuant to General Instruction G(3) to Form 10-K, from the Registrant's definitive proxy statement, for the annual meeting of shareholders to be held on May 12, 1995, to be filed within 120 days of the end of the Registrant's fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management. Incorporated herein by reference, pursuant to General Instruction G(3) to Form 10-K, from the Registrant's definitive proxy statement, for the annual meeting of shareholders to be held on May 12, 1995, to be filed within 120 days of the end of the Registrant's fiscal year. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference, pursuant to General Instruction G(3) to Form 10-K, from the Registrant's definitive proxy statement, for the annual meeting of shareholders to be held on May 12, 1995, to be filed within 120 days of the end of the Registrant's fiscal year. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. Financial Statements. Page Report of Independent Public Accountants. . . . . . . . .28 Consolidated Balance Sheet at December 31, 1994 and January 1, 1994 . . . . . . . . . . . . . . . . . .31 For the 52-Week Periods Ended December 31, 1994 and January 1, 1994 and the 53-Week Period Ended January 2, 1993 Consolidated Statement of Income. . . . . . . . . . . .29 Consolidated Statement of Shareholders' Equity. . . .32 Consolidated Statement of Cash Flows. . . . . . . . .35 Notes to Consolidated Financial Statements. . . . . . . .37 2. Financial Statement Schedules. Schedules have been omitted because they are not applicable, not required, not material, or the required information is given in the financial statements or notes thereto or combined with the information presented in other schedules or exhibits. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued) 3. Exhibits 2.(i)(A) Agreement and Plan of Merger dated March 17, 1994 by and among Montgomery Ward & Co., Incorporated, MW Merger Corp., LMR Acquisition Corporation, Lechmere, Inc. and stockholders of LMR Acquisition Corporation executing counterparts of this agreement, incorporated by reference to Exhibit 2.(i)(A) of the Company's Annual Report on Form 10- K for the fiscal year ended January 1, 1994. 2.(i)(A)(1) First Amendment to Agreement and Plan of Merger dated June 15, 1994, by and among Montgomery Ward & Co., Incorporated, LMR Acquisition Corporation, and the Stockholders' Committee, incorporated by reference to Exhibit 2.(i)(A)(1) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended July 2, 1994. 2.(ii) Agreement of Purchase and Sale of Stock dated February 24, 1994 among Signature Financial/ Marketing, Inc., Greater California Dental Services Plan, Inc. and National Dental Services, Inc., incorporated by reference to Exhibit 2.(i)(A) of the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1994. 3.1 Third Restated Certificate of Incorporation of Registrant, filed June 28, 1994, incorporated by reference to Exhibit 3.2(ii) of the Company's Registration Statement on Form S-1 (Registration No. 33-33252). 3.1(i) Certificate of Amendment to Certificate of Incorporation of Montgomery Ward Holding Corp. dated October 25, 1994, incorporated by reference to Exhibit 3.2(iv) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 3.3 Amended and Restated By-laws of Registrant, dated as of April 15, 1994, incorporated by reference to Exhibit 3.3(i) of the Company's Registration Statement on Form S-1 (Registration No. 33-33252). 3.3(i) Amendment No. 1 to Restated By-laws of Montgomery Ward Holding Corp. dated September 21, 1994, incorporated by reference to Exhibit 3.3(i) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 9. Voting Trust Agreement dated as of June 21, 1988, incorporated by reference to Exhibit 3(a) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued) 3. Exhibits (continued) 9.(i) Voting Trust Agreement dated as of October 21, 1994, incorporated by reference to Exhibit 9.(i) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 10.(i)(A)(1) Stockholders' Agreement dated as of June 17, 1988, as amended and restated as of August 1, 1994, incorporated by reference to Annex 1 of the Prospectus contained in the Company's Registration Statement on Form S-1 (Registration No. 33-33252). 10.(iv)(A)(1)(a) Amendment No. 14 to Stockholders' Agreement dated September 22, 1994, incorporated by reference to Exhibit 10.(iv)(A)(1)(a) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 10.(i)(A)(3) Montgomery Ward & Co., Incorporated Stock Ownership Plan Terms and Conditions, as amended and restated, as of August 1, 1994, incorporated by reference to Exhibit 10.(iv)(A)(v) of the Company's Registration Statement on Form S-1 (Registration No. 33-41161). 10.(i)(A)(4) Amendment No. 10 to Montgomery Ward & Co., Incorporated Stock Ownership Plan Terms and Conditions dated September 22, 1994, incorporated by reference to Exhibit 10.(iv)(A)(5) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 10.(i)(B) Stock Purchase Agreement dated March 6, 1988 between Mobil Corporation, Marcor Inc. and BFB Acquisition Corp. incorporated by reference to Exhibit 10.(i)(B) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). 10.(i)(F) Note Purchase Agreements dated March 1, 1993 between Montgomery Ward & Co., Incorporated and various lenders, incorporated by reference to Exhibit 10.(i)(F) of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued) 3. Exhibits (continued) 10.(i)(H) Long Term Credit Agreement dated as of September 15, 1994 among Montgomery Ward & Co., Incorporated, various banks, The First National Bank of Chicago, as Documentary Agent, The Bank of Nova Scotia, as Administrative Agent, The Bank of New York, as Negotiated Loan Agent and Bank of America National Trust and Savings Association, as Advisory Agent, incorporated by reference to Exhibit 10.(i)(G) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 10.(i)(I) Short Term Credit Agreement dated as of September 15, 1994 among Montgomery Ward & Co., Incorporated, various banks, The First National Bank of Chicago, as Documentary Agent, The Bank of Nova Scotia, as Administrative Agent, The Bank of New York, as Negotiated Loan Agent and Bank of America National Trust and Savings Association, as Advisory Agent, incorporated by reference to Exhibit 10.(i)(H) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 10.(ii)(A) Stock Purchase Agreement dated June 22, 1988 between General Electric Capital Corporation and Montgomery Ward & Co., Incorporated, incorporated by reference to Exhibit 10.(ii)(A) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). 10.(ii)(B) Account Purchase Agreement dated June 24, 1988 by and between Montgomery Ward Credit Corporation and Montgomery Ward & Co., Incorporated, incorporated by reference to Exhibit 10.(ii)(B) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). 10.(ii)(B)(1) Letter Agreement dated April 21, 1989, by and between Montgomery Ward Credit Corporation and Montgomery Ward & Co., Incorporated (amending the Account Purchase Agreement which is Exhibit 10.(ii)(B) hereto), incorporated by reference to Exhibit 10.(ii)(B)(1) of the Company's Registration Statement on Form S-1 (Registration No. 33-33252). 10.(ii)(B)(2) Amendment to Account Purchase Agreement dated December 26, 1989 by and between Montgomery Ward Credit Corporation and Montgomery Ward & Co., Incorporated, incorporated by reference to Exhibit 10.(ii)(B)(2) of the Company's Registration Statement on Form S-1 (Registration No. 33-33252). Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued) 3. Exhibits (continued) 10.(ii)(B)(3) Letter Agreement dated April 24, 1990, by and between Montgomery Ward Credit Corporation and Montgomery Ward & Co., Incorporated, incorporated by reference to Exhibit 10.(ii)(B)(3) of the Company's Registration Statement on Form S-1 (Registration No. 33-33252). 10.(ii)(C) Letter Agreement dated June 24, 1988 among Signature Financial/Marketing, Inc., Montgomery Ward Credit Corporation and Montgomery Ward & Co., Incorporated, incorporated by reference to Exhibit 10.(ii)(C) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). 10.(ii)(D) Letter Agreement dated December 26, 1990, by and between Montgomery Ward Credit Corporation and Montgomery Ward & Co., Incorporated, incorporated by reference to 10.(ii)(D) of the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1990. 10.(ii)(E) Fifth Amendment to Account Purchase Agreement dated May 23, 1992 by and between Montgomery Ward & Co., Incorporated and Montgomery Ward Credit Corporation, incorporated by reference to Exhibit 10.(ii)(E) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended June 27, 1992. 10.(ii)(F) Amendment dated May 23, 1992 to Letter Agreement dated June 24, 1988 (Signature Credit Agreement) by and among Signature Financial/Marketing, Inc., Montgomery Ward & Co., Incorporated and Montgomery Ward Credit Corporation, incorporated by reference to Exhibit 10.(ii)(F) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended June 27, 1992. 10.(ii)(G) Letter Agreement dated December 29, 1992 by and between Montgomery Ward & Co., Incorporated and Montgomery Ward Credit Corporation, incorporated by reference to Exhibit 10.(ii)(G) of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993. 10.(ii)(G)(1) Letter Agreement dated April 29, 1993, by and between Montgomery Ward Credit Corporation and Montgomery Ward & Co., Incorporated, incorporated by reference to Exhibit 10.(ii)(H) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended April 3, 1993. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued) 3. Exhibits (continued) 10.(ii)(G)(2) Letter Agreement dated September 15, 1993, by and between Montgomery Ward Credit Corporation and Montgomery Ward & Co., Incorporated, incorporated by reference to Exhibit 10.(ii)(G)(2) of the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1994. 10.(ii)(H) Ninth Amendment to Account Purchase Agreement dated February 16, 1994 by and between Montgomery Ward & Co., Incorporated and Montgomery Ward Credit Corporation, incorporated by reference to Exhibit 10.(ii)(H) of the Company's Annual Report on form 10-K for the fiscal year ended January 1, 1994. 10.(ii)(I) Tenth Amendment to Account Purchase Agreement dated June 16, 1994, by and between Montgomery Ward Credit Corporation and Montgomery Ward & Co., Incorporated, incorporated by reference to Exhibit 10.(ii)(B)(11) of the Company's Registration Statement on Form S-1 (No. 33-33252). 10.(ii)(J) Second Amendment dated June 16, 1994 to Signature Credit Agreement by and among Signature Financial/Marketing, Inc., Montgomery Ward & Co., Incorporated and Montgomery Ward Credit Corporation, incorporated by reference to Exhibit 10.(ii)(C)(2) of the Company's Registration Statement on Form S-1 (No. 33-33252). 10.(ii)(K) Eleventh Amendment to the Account Purchase Agreement dated January 1, 1994, by and between Montgomery Ward Credit Corporation and Montgomery Ward & Co., Incorporated. 10.(iv)(A) Montgomery Ward & Co., Incorporated Stock Ownership Plan, amended and restated as of May 20, 1994, incorporated by reference to Exhibit 10.(iv)(A)(ii)(A) of the Company's Registration Statement on Form S-1 (No. 33-33252). 10.(iv)(A)(1) Amendment No. 1 to the Amended and Restated Montgomery Ward & Co. Stock Ownership Plan dated October 20, 1994, incorporated by reference to Exhibit 10.(iv)(A)(iii) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 10.(iv)(B) Montgomery Ward & Co., Incorporated Long Term Incentive Plan, incorporated by reference to Exhibit 10.(iv)(B) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). 10.(iv)(B)(i) Montgomery Ward & Co., Incorporated Executive Long- Term Incentive Plan, incorporated by reference to Exhibit 10.(iv)(B)(1) of the Company's Registration Statement on Form S-1 (No. 33-33252). Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued) 3. Exhibits (continued) 10.(iv)(C) Montgomery Ward & Co., Incorporated Performance Management Program, incorporated by reference to Exhibit 10.(iv)(C) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). 10.(iv)(C)(i) Montgomery Ward & Co., Incorporated Senior Executive Performance Management Program, incorporated by reference to Exhibit 10.(iv)(C)(i) of the Company's Registration Statement on Form S-1 (No. 33-33252). 10.(iv)(D) Montgomery Ward & Co., Incorporated Retirement Security Plan (as amended and restated effective as of January 1, 1994). 10.(iv)(E) Montgomery Ward & Co., Incorporated Supplemental Retirement Plan, incorporated by reference to Exhibit 10.(iv)(E) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). 10.(iv)(F) Montgomery Ward Holding Corp. Directors Fee and Stock Ownership Plan, incorporated by reference to Exhibit 10.(iv)(F) of the Company's Registration Statement on Form S-1 (Registration No. 33-41161). 10.(iv)(G) Montgomery Ward Holding Corp. Senior Officer Severance Plan, incorporated by reference to Exhibit 10.(iv)(G) of the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993. 10.(iv)(H) Montgomery Ward & Co., Incorporated Savings and Profit Sharing Plan (as amended and restated as of January 1, 1994). 10.(iv)(I) Montgomery Ward & Co., Incorporated Success Plan, incorporated by reference to Exhibit 10.(iv)(I) of the Company's Registration Statement on Form S-1 (No. 33-33252). 10.(vi) Employment Agreement effective January 14, 1994 between Montgomery Ward & Co., Incorporated and Bernard W. Andrews, incorporated by reference to Exhibit 10.(vi) of the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1994. 10.(vii) Agreement effective October 21, 1991 between Montgomery Ward & Co., Incorporated and Fingerhut Companies, Inc., incorporated by reference to Exhibit 10.(vii) of the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1991. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued) 3. Exhibits (continued) 10.(viii) Line of Credit Agreement effective November 19, 1991 between Montgomery Ward & Co., Incorporated and The Northern Trust Company and The First National Bank of Chicago, incorporated by reference to Exhibit 10.(viii) of the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1991. 10.(i x) Employment Agreement effective December 31, 1993 between Montgomery Ward & Co., Incorporated and Robert F. Connolly, incorporated by reference to Exhibit 10.(ix) of the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1994. 10.(xi) Employment Agreement dated March 1, 1994 between Montgomery Ward & Co., Incorporated and Richard Bergel, incorporated by reference to Exhibit 10.(xi)(A) of the Company's Registration Statement on Form S-1 (No. 33-33252). 10.(xii) Employment Agreement effective April 12, 1994 between Montgomery Ward & Co., Incorporated, and G. Joseph Reddington. 11. Statement regarding computation of per share earnings. 12. Not applicable. 13. Not applicable. 16. Not applicable. 18. Not applicable. 19. Not applicable. 21. Subsidiaries of the Registrant, incorporated by reference to Exhibit 21 of the Company's Registration Statement on Form S-1 (Registration No. 33-33252). 22. Not applicable. 23. Consent of independent public accountants. 24. Powers of attorney executed by directors and officers authorizing execution of Annual Report on Form 10-K. 27. Financial data schedule. 28. Not applicable. (b) Reports on Form 8-K. On December 15, 1994, the Registrant filed a Form 8-K to communicate its intention to enter into an equity and license service agreement with ValueVision International, Inc. The letter of intent by and between Montgomery Ward & Co., Inc. and ValueVision International, Inc. dated December 4, 1994 and the press release issued by the Registrant jointly with ValueVision International, Inc. on December 5, 1994 were included as exhibits thereto. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant, Montgomery Ward Holding Corp., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGISTRANT MONTGOMERY WARD HOLDING CORP. BY JOHN L. WORKMAN NAME AND TITLE John L. Workman, Executive Vice President, Chief Financial Officer and Assistant Secretary DATE March 30, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. BY SPENCER H. HEINE NAME AND TITLE Bernard F. Brennan*, Director, Chairman of the Board and Principal Executive Officer DATE March 30, 1995 BY SPENCER H. HEINE NAME AND TITLE Bernard W. Andrews*, President and Director DATE March 30, 1995 BY SPENCER H. HEINE NAME AND TITLE Richard Bergel*, Vice Chairman and Director DATE March 30, 1995 BY SPENCER H. HEINE NAME AND TITLE Spencer H. Heine, Executive Vice President, Secretary, General Counsel and Director DATE March 30, 1995 BY SPENCER H. HEINE NAME AND TITLE G. Joseph Reddington*, Director DATE March 30, 1995 SIGNATURES BY JOHN L. WORKMAN NAME AND TITLE John L. Workman, Executive Vice President, Chief Financial Officer and Assistant Secretary DATE March 30, 1995 BY SPENCER H. HEINE NAME AND TITLE Myron Lieberman*, Director DATE March 30, 1995 BY SPENCER H. HEINE NAME AND TITLE Silas S. Cathcart*, Director DATE March 30, 1995 BY SPENCER H. HEINE NAME AND TITLE David D. Ekedahl*, Director DATE March 30, 1995 BY SPENCER H. HEINE NAME AND TITLE Denis J. Nayden*, Director DATE March 30, 1995 BY SPENCER H. HEINE NAME AND TITLE James A. Parke*, Director DATE March 30, 1995 * by power of attorney EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA ------- ---------------------- 2.(i)(A) Agreement and Plan Incorporated by of Merger dated March reference to 17, 1994 by and among Exhibit 2.(i)(A) of the Montgomery Ward Company's Annual Report & Co., Incorporated, on Form 10-K for the MW Merger Corp., LMR fiscal year ended Acquisition Corporation, January 1, 1994. Lechmere, Inc. and stockholders of LMR Acquisition Corporation executing counterparts of this agreement. 2.(i)(A)(1) First Amendment to Incorporated by Agreement and Plan of reference to Merger dated June 15, Exhibit 2.(i)(A)(1) 1994, by and among of the Company's Montgomery Ward & Co., Quarterly Report Incorporated, LMR on Form 10-Q for Acquisition Corporation, the fiscal quarterly and the Stockholders' period ended July 2, Committee. 1994. 2.(ii) Agreement of Purchase Incorporated by and Sale of Stock reference to dated February 24, 1994 Exhibit 2.(i)(A) by and among Signature of the Company's Financial/Marketing, Annual Report on Inc., Greater California Form 10-K for the Dental Services Plan, fiscal year ended Inc. and National January 1, 1994. Dental Services, Inc. 3.1 Third Restated Incorporated by Certificate of reference to Incorporation of Exhibit 3.2(ii) of the Registrant, filed Company's Registration June 28, 1994. Statement on Form S-1 (Registration No. 33-33252). 3.1(i) Certificate of Incorporated by Amendment to reference to Exhibit Certificate of 3.2(iv) of the Company's Incorporation of Quarterly Report on Montgomery Ward Holding Form 10-Q for the fiscal Corp. dated October quarterly period ended 25, 1994. October 1, 1994. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA ------------- ---------------------- 3.3 Amended and Restated Incorporated by By-laws of Registrant, reference to Exhibit dated as of April 15, 3.3(i) of the Company's 1994. Registration Statement on Form S-1 (Registration No. 33-33252). 3.3(i) Amendment No. 1 to Incorporated by Restated By-laws of reference to Exhibit Montgomery Ward Holding 3.3(i) of the Company's Corp. dated September Quarterly Report on 21, 1994. Form 10-Q for the fiscal quarterly period ended October 1, 1994. 9. Voting Trust Incorporated by Agreement dated as reference to of June 21, 1988. Exhibit 3(a) of the Company's Registration Statement on Form S-1 (Registration No. 33-23403). 9.(i) Voting Trust Agreement Incorporated by dated as of October 21, reference to Exhibit 1994. 9.(i) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. 10.(i)(A)(1) Stockholders' Agreement Incorporated by dated June 17, 1988, reference to Annex 1 as amended and of the Prospectus restated as of contained in the August 1, 1994. Company's Registration Statement on Form S-1 (Registration No. 33-33252). 10.(iv)(A)(1)(a)Amendment No. 14 Incorporated by to Stockholders' reference to Exhibit Agreement dated 10.(iv)(A)(1)(a) of September 22, the Company's Quarterly 1994. Report on Form 10-Q for the fiscal quarterly period ended October 1, 1994. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA ------------- ---------------------- 10.(i)(A)(3) Montgomery Ward Incorporated by & Co., Incorporated reference to Exhibit Stock Ownership 10.(iv)(A)(v) of the Plan Terms and Company's Registration Conditions, as Statement on Form S-1 amended and (Registration No. restated, as of 33-41161). August 1, 1994. 10.(i)(A)(4) Amendment No. 10 Incorporated by to Montgomery Ward reference to Exhibit & Co., Incorporated 10.(iv)(A)(5) of the Stock Ownership Plan Company's Quarterly Terms and Conditions Report on Form 10-Q dated September 22, for the fiscal 1994. quarterly period ended October 1, 1994. 10.(i)(B) Stock Purchase Incorporated by Agreement dated reference to Exhibit March 6, 1988 10.(i)(B) of the between Mobil Company's Registration Corporation, Statement on Form S-1 Marcor Inc. and (Registration No. BFB Acquisition 33-23403). Corp. 10.(i)(F) Note Purchase Incorporated by Agreements dated reference to Exhibit March 1, 1993 10.(i)(F) of the between Montgomery Company's Annual Ward & Co., Incor- Report on Form 10-K porated and various for the fiscal year lenders. ended January 2, 1993. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA ------------- ---------------------- 10.(i)(H) Long Term Credit Incorporated by Agreement dated as of reference to Exhibit September 15, 1994 10.(i)(G) of the among Montgomery Ward Company's Quarterly & Co., Incorporated, Report on Form 10-Q various banks, The for the fiscal quarterly First National Bank period ended October 1, of Chicago, as Docu- 1994. mentary Agent, The Bank of Nova Scotia, as Administrative Agent, The Bank of New York, as Negotiated Loan Agent and Bank of America National Trust and Savings Association, as Advisory Agent. 10.(i)(I) Short Term Credit Incorporated by Agreement dated as of reference to Exhibit September 15, 1994 10.(i)(H) of the among Montgomery Ward Company's Quarterly & Co., Incorporated, Report on Form 10-Q various banks, The for the fiscal quarterly First National Bank period ended October 1, of Chicago, as Docu- 1994. mentary Agent, The Bank of Nova Scotia, as Administrative Agent, The Bank of New York, as Negotiated Loan Agent and Bank of America National Trust and Savings Association, as Advisory Agent. 10.(ii)(A) Stock Purchase Incorporated by Agreement dated reference to Exhibit June 22, 1988 10.(ii)(A) of the between General Company's Registration Electric Capital Statement on Form S-1 Corporation and (Registration No. Montgomery Ward 33-23403). & Co., Incorporated. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA ------------- ---------------------- 10.(ii)(B) Account Purchase Incorporated by Agreement dated reference to Exhibit June 24, 1988 10.(ii)(B) of the by and between Company's Registration Montgomery Ward Statement on Form S-1 Credit Corporation (Registration No. and Montgomery 33-23403). Ward & Co., Incorporated. 10.(ii)(B)(1) Letter Agreement Incorporated by dated April 21, reference to Exhibit 1989 by and between 10.(ii)(B)(1) of the Montgomery Ward Company's Registration Credit Corporation Statement on Form S-1 and Montgomery (Registration No. Ward & Co., Incor- 33-33252). porated (amending the Account Purchase Agreement which is Exhibit 10.(ii)(B) hereto). 10.(ii)(B)(2) Amendment to Incorporated by Account Purchase reference to Exhibit Agreement dated 10.(ii)(B)(2) of the December 26, 1989 by Company's Registration and between Statement on Form S-1 Montgomery Ward (Registration No. Credit Corporation 33-33252). and Montgomery Ward & Co., Incorporated. 10.(ii)(B)(3) Letter Agreement Incorporated by dated April 24, reference to Exhibit 1990, by and between 10.(ii)(B)(3) of the Montgomery Ward Company's Registration Credit Corporation Statement on Form S-1 and Montgomery Ward (Registration No. & Co., Incorporated. 33-33252). EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA ------------- ---------------------- 10.(ii)(C) Letter Agreement Incorporated by dated June 24, reference to Exhibit 1988 among Signa- 10.(ii)(C) of the ture Financial/ Company's Registration Marketing, Inc., Statement on Form S-1 Montgomery Ward (Registration No. Credit Corpora- 33-23403). tion and Montgomery Ward & Co., Incor- porated. 10.(ii)(D) Letter Agreement Incorporated by dated December 26, reference to Exhibit 1990, by and between 10.(ii)(D) of the Montgomery Ward Company's Annual Credit Corporation Report on Form 10-K and Montgomery for the fiscal year Ward & Co., Incor- ended December 29, porated. 1990. 10.(ii)(E) Fifth Amendment to Incorporated by Account Purchase reference to Exhibit Agreement dated 10.(ii)(E) of the May 23, 1992 by and Company's Quarterly between Montgomery Report on Form 10-Q Ward & Co., Incor- for the fiscal porated and Mont- quarterly period ended gomery Ward Credit June 27, 1992. Corporation. 10.(ii)(F) Amendment dated Incorporated by May 23, 1992 to reference to Exhibit Letter Amendment 10.(ii)(F) of the dated June 24, Company's Quarterly 1988 (Signature Report on Form 10-Q Credit Agreement) for the fiscal by and among quarterly period ended Signature Financial/ June 27, 1992. Marketing, Inc., Montgomery Ward & Co., Incorporated and Montgomery Ward Credit Corporation. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA ------------- ----------------------- 10.(ii)(G) Letter Agreement Incorporated by dated December 29, reference to Exhibit 1992 by and between 10.(ii)(G) of the Montgomery Ward Company's Annual & Co., Incorporated Report on Form 10-K and Montgomery for the fiscal year Ward Credit Corpora- ended January 2, tion. 1993. 10.(ii)(G)(1) Letter Agreement Incorporated by dated April 29, reference to 1993, by and Exhibit 10.(ii)(H) between Montgomery of the Company's Ward Credit Corpora- quarterly report on tion and Montgomery Form 10-Q for the Ward & Co., Incor- fiscal quarterly porated. period ended April 3, 1993. 10.(ii)(G)(2) Letter Agreement Incorporated by dated September 15, reference to 1993, by and Exhibit 10.(ii)(G)(2) between Montgomery of the Company's Ward Credit Corpora- Annual Report on tion and Montgomery Form 10-K for the Ward & Co., Incor- fiscal year ended porated. January 1, 1994. 10.(ii)(H) Ninth Amendment to Incorporated by Account Purchase reference to Agreement dated Exhibit 10.(ii)(H) February 16, 1994 of the Company's by and between Annual Report on Montgomery Ward & Form 10-K for the Co., Incorporated fiscal year ended and Montgomery January 1, 1994. Ward Credit Corporation. 10.(ii)(I) Tenth Amendment to Incorporated by Account Purchase reference to Exhibit Agreement dated June 10.(ii)(B)(11) of the 16, 1994, by and Company's Registration between Montgomery Statement on Form S-1 Ward Credit Corporation (No. 33-33252). and Montgomery Ward & Co., Incorporated. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA ------------- ----------------------- 10.(ii)(J) Second Amendment Incorporated by dated June 16, 1994 reference to Exhibit to Signature Credit 10.(ii)(C)(2) of the Agreement by and Company's Registration among Signature Statement on Form S-1 Financial/Marketing, (No. 33-33252). Inc., Montgomery Ward & Co., Incorporated and Montgomery Ward Credit Corporation. 10.(ii)(K) Eleventh Amendment to the Account Purchase Agreement dated January 1, 1994, by and between Montgomery Ward Credit Corporation and Montgomery Ward & Co., Incorporated. 10.(iv)(A) Montgomery Ward Incorporated by & Co., Incorporated reference to Exhibit Stock Ownership 10.(iv)(A)(ii)(A) of Plan, amended and the Company's restated as of Registration Statement May 20, 1994. on Form S-1 (No. 33-33252). 10.(iv)(A)(1) Amendment No. 1 to Incorporated by the Amended and reference to Exhibit Restated Montgomery 10.(iv)(A)(iii) of the Ward & Co. Stock Company's Quarterly Ownership Plan dated Report on Form 10-Q October 20, 1994. for the fiscal quarterly period ended October 1, 1994. 10.(iv)(B) Montgomery Ward Incorporated by & Co., Incorporated reference to Exhibit Long Term Incentive 10.(iv)(B) of the Plan. Company's Registration Statement on Form S-1 (Registration No. 33-23403). EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA ------------- ----------------------- 10.(iv)(B)(i) Montgomery Ward & Co., Incorporated by Incorporated Executive reference to Exhibit Long-Term Incentive 10.(iv)(B)(1) of the Plan. Company's Registration Statement on Form S-1 (Registration No. 33-33252). 10.(iv)(C) Montgomery Ward Incorporated by & Co., Incorporated reference to Exhibit Performance 10.(iv)(C) of the Management Program. Company's Registration Statement on Form S-1 (Registration No. 33-23403). 10.(iv)(C)(i) Montgomery Ward & Co., Incorporated by Incorporated Senior reference to Exhibit Executive Performance 10.(iv)(C)(i) of the Management Program. Company's Registration Statement on Form S-1 (Registration No. 33-33252). 10.(iv)(D) Montgomery Ward & Co., Incorporated Retirement Security Plan (as amended and restated effective as of January 1, 1994). 10.(iv)(E) Montgomery Ward Incorporated by & Co., Incorporated reference to Exhibit Supplemental 10.(iv)(E) of the Retirement Plan. Company's Registration Statement on Form S-1 (Registration No. 33-23403). 10.(iv)(F) Montgomery Ward Incorporated by Holding Corp. reference to Exhibit Directors Fee 10.(iv)(F) of the and Stock Owner- Company's Registration ship Plan. Statement on Form S-1 (Registration No. 33-41161). EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA ------------- ----------------------- 10.(iv)(G) Montgomery Ward Incorporated by Holding Corp. reference to Exhibit Senior Officer 10.(iv)(G) of the Severance Plan. Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1993. 10.(iv)(H) Montgomery Ward & Co., Incorporated Savings and Profit Sharing Plan (as amended and restated as of January 1, 1994). 10.(iv)(I) Montgomery Ward & Co., Incorporated by reference Incorporated Success to Exhibit 10.(iv)(I) of Plan. the Company's Registration Statement on Form S-1 (No. 33-33252). 10.(vi) Employment Agreement Incorporated by effective January reference to Exhibit 14, 1994 between 10.(vi) of the Company's Montgomery Ward Annual Report on Form & Co., Incorporated 10-K for the fiscal and Bernard W. year ended January 1, Andrews. 1994. 10.(vii) Agreement effective Incorporated by October 21, 1991 reference to Exhibit between Montgomery 10.(vii) of the Ward & Co., Incor- Company's Annual porated and Finger- Report on Form 10-K hut Companies, Inc. for the fiscal year ended December 28, 1991. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA ------------- ----------------------- 10.(viii) Line of Credit Incorporated by Agreement effective reference to Exhibit November 19, 1991 10.(viii) of the by and among Mont- Company's Annual gomery Ward & Co., Report on Form 10-K Incorporated, The for the fiscal year Northern Trust ended December 28, Company and The 1991. First National Bank of Chicago. 10.(ix) Employment Agreement Incorporated by effective December reference to Exhibit 31, 1993 between 10.(ix) of the Company's Montgomery Ward & Annual Report on Form Co., Incorporated 10-K for the fiscal year and Robert F. Connolly. ended January 1, 1994. 10.(xi) Employment Agreement Incorporated by effective March reference to Exhibit 1, 1994 between 10.(xi)(A) of the Montgomery Ward & Company's Registration Co., Incorporated Statement on Form S-1 and Richard Bergel. (No. 33-33252). 10.(xii) Employment Agreement effective April 12, 1994 between Montgomery Ward & Co., Incorporated, and G. Joseph Reddington. 11. Statement regarding computation of per share earnings. 12. Not applicable. 13. Not applicable. 16. Not applicable. 18. Not applicable. 19. Not applicable. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA ------------- ----------------------- 21. Subsidiaries of Incorporated by the Registrant. reference to Exhibit 21 of the Company's Registration Statement on Form S-1 (Registration No. 33-33252). 22. Not applicable. 23. Consent of independent public accountants. 24. Powers of attorney executed by direc- tors and officers of Registrant authorizing execu- tion of Annual Report on Form 10-K. 27. Financial Data Schedule. 28. Not applicable. EX-10 2 EXHIBIT 10.(ii)(K) ELEVENTH AMENDMENT TO THE ACCOUNT PURCHASE AGREEMENT AMENDMENT, made and entered into as of January 1, 1994, by and between MONTGOMERY WARD & CO., INCORPORATED ("Seller"), an Illinois corporation with its chief executive offices located at 619 West Chicago Avenue, Chicago, Illinois 60671, and MONTGOMERY WARD CREDIT CORPORATION ("MWCC"), a Delaware corporation with its chief executive offices located at 3720 Howard Hughes Parkway, Las Vegas, Nevada 89109. W I T N E S S E T H: WHEREAS, Seller and MWCC are parties to an Account Purchase Agreement dated as of June 24, 1988, as amended by a letter agreement dated April 21, 1989 (the "First Amendment"), an agreement dated December 26, 1989 (the "Second Amendment"), a letter agreement dated April 24, 1990 (the "Third Amendment"), a letter agreement dated as of December 26, 1990 (the "Fourth Amendment"), an agreement dated May 23, 1992 (the "Fifth Amendment"), a letter agreement dated December 29, 1992 (the Sixth Amendment"), a letter agreement dated April 29, 1993 (the "Seventh Amendment"), a letter agreement dated September 15, 1993 (the "Eighth Amendment"), an amendment dated as of February 16, 1994 (the "Ninth Amendment"), and an amendment dated as of June 16, 1994 (the "Tenth Amendment") (collectively, the "Purchase Agreement"), pursuant to which Seller has agreed to sell and has sold Accounts and Indebtedness to MWCC and MWCC agreed to purchase, establish and add and has purchased, established and added Accounts and Indebtedness upon the terms and subject to the conditions of the Purchase Agreement; and WHEREAS, Seller and MWCC desire to amend the Purchase Agreement to provide that, as of January 1, 1994 and thereafter until the Reversion Date if it occurs, all Indebtedness purchased, established or added by MWCC, which, as of that date, has not become Defaulted Indebtedness, shall be deemed to have been, and all Indebtedness purchased, established or added thereafter shall be purchased, established or added on a recourse basis; and WHEREAS, Seller and MWCC desire further to amend the Purchase Agreement to provide that in consideration for Seller's assumption of the entire bad debt risk until the Reversion Date if it occurs, with respect to Indebtedness which is not Defaulted Indebtedness as of January 1, 1994 and Indebtedness purchased, established or added by MWCC thereafter, MWCC will pay Seller, with respect to the period until the Reversion Date if it occurs, as specified herein, an amount equal to a portion of the finance charges which MWCC receives in connection with its ownership of the Indebtedness; and WHEREAS, Seller and MWCC desire that if the Reversion Date occurs, all Indebtedness purchased, established or added by MWCC which, as of that date, has not become Defaulted Indebtedness, shall be deemed to have been, and all Indebtedness purchased, established or added thereafter, shall be purchased, established or added on a non-recourse basis as specified herein; and WHEREAS, it is the mutual desire of Seller and MWCC that the Purchase Agreement be amended in accordance with the terms and conditions hereafter set forth. NOW, THEREFORE, in consideration of the mutual promises and subject to the terms and conditions hereinafter set forth, the parties hereto hereby agree as follows: 1. Capitalized terms used herein which are not otherwise defined shall have the same meaning as in the Purchase Agreement. 2. The following definition shall be added after the definition of "Aggregate Incremental Finance Charge Amount" in Section 1: "Aggregate Participation in Finance Charge Amount" shall mean the aggregate of the amounts owed by MWCC to Seller pursuant to Section 5.5(17) for the Fiscal Years 1994, 1995, 1996 and 1997 or, if the Reversion Date occurs prior to the end of the 1997 Fiscal Year, the aggregate of the amounts owed by MWCC to Seller pursuant to Section 5.5(17) for the period from January 1, 1994, to the Reversion Date." 3. The fourth sentence of the definition of "Annual Commercial Paper Rate" is deleted and the following sentence is added in lieu thereof: Where a Seller Note or Seller Recourse Note is paid prior to maturity or an amount as to which the Annual Commercial Paper Rate is to be applied is paid earlier than otherwise provided in Sections 5.5(6) and 5.5(18) hereof, and such Annual Commercial Paper Rate is to be applied for a period of less than twelve (12) months, such Annual Commercial Paper Rate shall be calculated using the methodology described above, based on amounts for the time beginning on the first day of the applicable Fiscal Year and ending on the last day of the GE Capital fiscal quarter immediately preceding the date of such payment; provided, that where an Annual Commercial Paper Rate is to be applied for a period ending on or prior to the last day of the first GE Capital fiscal quarter of a Fiscal Year, the Annual Commercial Paper Rate shall be the Annual Commercial Paper Rate for the immediately preceding Fiscal Year. 4. The definition of "Net Aggregate Defaulted Indebtedness Amount" is deleted and substituted in its place is the following: "Net Aggregate Defaulted Indebtedness Amount" shall mean, prior to the application of the Offset Amount pursuant to Section 4.6(2) hereof, (x) the aggregate of (i) Thirty-Six Million Dollars ($36,000,000.00), (ii) the amount paid or owed by Seller to MWCC pursuant to Section 4.4(2) hereof (excluding any interest paid or payable thereon), (iii) the amount, if any, owed by Seller to MWCC pursuant to Section 4.1 for Fiscal Year 1997, (iv) the amount, if any, paid or owed to MWCC pursuant to Section 4.5(2) (excluding any payments for Recoveries), in respect of each of Fiscal Years 1994, 1995, 1996, and 1997, less (y) the aggregate of (i) the amount of cash paid by Seller to MWCC pursuant to Section 4.4(1)(a) hereof, (ii) the amount of cash paid by Seller to MWCC in lieu of Seller Notes or Seller Recourse Notes pursuant to Sections 4.4(2) or 4.5(2) (excluding any payments for Recoveries) or 4.6(3) hereof, and (iii) the amount of cash, if any, paid by Seller to MWCC in pre-payment of Seller Notes or Seller Recourse Notes (excluding any interest paid or payable thereon). 5. The following definition shall be added after the definition of "Net Aggregate Defaulted Indebtedness Amount" in Section 1: "Net Amount" shall have the meaning set forth in Section 5.5(21). 6. The definition of "Offset Amount" is deleted and substituted in its place is the following: "Offset Amount" shall have the meaning set forth in Section 4.6(2) hereof. 7. The following definition shall be added after the definition of "Quarterly Balance Sheet" in Section 1: "Recoveries" shall have the meaning assigned to it in Section 5.3(7). 8. The following definition shall be added after the definition of "Retailer Department" in Section 1: "Reversion Date" shall mean the beginning of the first day of the Fiscal Year in which the earlier of the following election or event occurs during such Fiscal Year: (a) an election by either MWCC or Seller to have the Reversion Date occur which election shall be effective ninety (90) days after the party making the election gives notice to the other party of the election, or (b) a Seller Default. 9. The following definition shall be added after the definition of "Seller Notes" in Section 1: "Seller Recourse Notes" shall have the meaning set forth in Section 4.5(2) hereof. 10. Section 3.1(5) is deleted and substituted in its place is the following: (5) Except as otherwise provided in this Section or in Sections 3.4 and 4, all Accounts and/or Indebtedness sold to, or established and added by, MWCC pursuant to this Section 3.1 shall be sold to, or established and added by, MWCC on a non- recourse basis and without a guaranty of collection. Commencing as of the opening of business on January 1, 1994 and until the Reversion Date, if it occurs, Seller shall have a recourse obligation as provided in Section 4.5 with respect to (i) all Indebtedness owned by MWCC which was not Defaulted Indebtedness at January 1, 1994, and (ii) all Indebtedness which MWCC purchases, establishes or adds on or after January 1, 1994. Indebtedness which became Defaulted Indebtedness on or after January 1, 1994 shall be purchased by Seller as provided in Section 4.5. After the Reversion Date if it occurs, Section 4.5 shall not apply to any Indebtedness which becomes Defaulted Indebtedness after the Reversion Date, and (i) all Indebtedness owned by MWCC which was not Defaulted Indebtedness at that time, and (ii) all Indebtedness which MWCC purchases, establishes or adds after that time shall be on a non-recourse basis and without a guaranty of collection except as otherwise provided in Sections 3.4 and 4. 11. Section 3.3(2)(ii) is deleted and substituted in its place is the following: (ii) "Net Receivable Balance" means for the day in question the amount by which (A) the gross accounts receivable of MWCC and its Assignees (including the portion thereof comprised of finance and other credit charges), as of the close of business of such day, resulting from its purchase, establishment or addition of Accounts, as computed pursuant to MWCC's Accounting Practices exceeds (B) the amount of MWCC's allowance for bad debts with respect to such accounts receivable as though there were no recourse obligation to the extent provided in Sections 3.1(5) and 4.5, as of the close of business on such day, also as computed pursuant to MWCC's Accounting Practices. 12. In Section 3.4, a new second sentence is added providing as follows and the present second sentence shall be the third sentence and the remainder of the paragraph shall continue: The right of MWCC, as specified in the preceding sentence, to require Seller to purchase from MWCC Ineligible Indebtedness for the face value thereof, excluding any finance or, if agreed to by the parties hereto, other credit charges, shall include Ineligible Indebtedness purchased by Seller as Defaulted Indebtedness and Seller shall pay MWCC with respect to such Indebtedness the amount specified in the previous sentence. 13. In Section 4.1(1), the line beginning; "1993 and thereafter" is deleted, and substituted in its place is the following: Fiscal Years Percentages 1993 and Fiscal 0% through 3.9% of Years in which the Average Indebtedness Reversion Date occurs and thereafter if it occurs 14. In Section 4.1(1), the last two sentences are deleted, and substituted in its place is the following: "Net Defaulted Indebtedness" shall mean the amount of Defaulted Indebtedness first becoming Defaulted Indebtedness during the Fiscal Year in question less the gross amount (without deduction for attorneys' fees or other collection costs) of cash recoveries ("Gross Recoveries") received during the Fiscal Year in question under Section 5.3(7) or otherwise in respect of (a) Defaulted Indebtedness (regardless of when such Defaulted Indebtedness occurred), or (b) Indebtedness written off prior to the Stated Time. It is understood that Gross Recoveries would include payments made to MWCC by Seller (i) on Defaulted Indebtedness pursuant to Section 5.3(5), (ii) as proceeds of credit insurance, and (iii) in respect of Ineligible Indebtedness which was Defaulted Indebtedness previously included in the calculations pursuant to Section 4.1 or purchased by Seller. 15. In Section 4.1(2), the line beginning "1993 and thereafter" is deleted and substituted in its place is the following: Fiscal Years Percentages 1993 and Fiscal Over 3.9% through 5.0% of Years in which Average Indebtedness the Reversion Date occurs and thereafter if it occurs 16. Section 4.1(3) is deleted and substituted in its place is the following: (3) Through Fiscal Year 1993 and as to Fiscal Years in which the Reversion Date occurs and thereafter if it occurs, MWCC and Seller shall share equally the yearly total of Net Defaulted Indebtedness over five percent (5%) and up to and including eight percent (8%) of Average Indebtedness. 17. Section 4.1(4) is deleted and substituted in its place is the following: (4) Through Fiscal Year 1993 and as to Fiscal Years in which the Reversion Date occurs and thereafter if it occurs, MWCC shall bear one hundred percent (100%) of the yearly total of Net Defaulted Indebtedness in excess of eight percent (8%) of Average Indebtedness. 18. Section 4.3 is deleted and substituted in its place is the following: 4.3 When Determined; Payment. A State-by-State report of the amount of Net Defaulted Indebtedness for each Settlement Period of each Fiscal Year shall be provided by MWCC to Seller in writing no later than the last day of the month following each such Settlement Period, commencing with the first Settlement Period after the execution of this Amendment, and an estimate of the total amount of Net Defaulted Indebtedness and Average Indebtedness for such Fiscal Year, shall be provided by MWCC to Seller in writing no later than the last day of Seller's fiscal year coinciding with a Fiscal Year, provided however that if in a Fiscal Year the Reversion Date occurs and thereafter, MWCC in lieu of the foregoing need provide Seller in writing no later than the last day of Seller's fiscal year coinciding with a Fiscal Year a State-by-State report of the amount of Net Defaulted Indebtedness for the first eleven (11) months of each Fiscal Year, and an estimate of the total amount of Net Defaulted Indebtedness and Average Indebtedness for such Fiscal Year. In addition, upon request of Seller which may be made once for each Fiscal Year, MWCC shall provide a list by specific Account of each Account comprising the Net Defaulted Indebtedness for such Fiscal Year by the January 31st after the close of each Fiscal Year. The amount of Net Defaulted Indebtedness and Average Indebtedness shall be calculated by MWCC not later than January 31 following the end of the Fiscal Year in question and a statement on a state-by-state basis showing sufficient detail as reasonably requested by Seller shall be sent to Seller on or before said January 31. In connection with each such report and such statement, MWCC shall provide, as reasonably requested by Seller, information to Seller to assist Seller in estimating the amount of Net Defaulted Indebtedness constituting finance charges, insurance charges and other credit charges; provided, that it is understood that MWCC shall have no liability to Seller arising in connection with such information, and Seller shall protect, indemnify, and hold harmless MWCC, its Affiliates, the employees, officers, directors, shareholders, partners, attorneys and agents of MWCC and its Affiliates, and all of the respective heirs, legal representatives, successors and permitted assigns of the foregoing against any and all liabilities, costs and expenses (including reasonable attorneys' fees and expenses), judgments, damages, claims, demands, offsets, defenses, counterclaims, actions, or proceedings, by whomsoever asserted, including, without limitation, Account Debtors with respect to Accounts, and any Person who prosecutes or defends any actions or proceedings, whether as representative of or on behalf of a class or interested group or otherwise, arising out of, connected with, or resulting from MWCC's provision of such information to Seller and/or Seller's use thereof in accordance with the provisions of Section 11 hereof. Any payment due to MWCC from Seller shall be paid by Seller, subject to the provisions of Sections 4.4 and 4.5 hereof, on the next following February 28 after the delivery of such statement ("Payment Date"). Payments due under this Section 4 for 1988 shall be calculated for the separate stub period after the Stated Time, not taking into account any Net Defaulted Indebtedness that arose prior to the Stated Time, and the percentages used in this Section 4.1 other than one hundred percent (100%) shall be prorated based on the number of days in the stub period divided by three hundred sixty-five (365). If the final Fiscal Year to which this Section 4 applies is less than a full Fiscal Year, the calculations hereunder shall similarly not be done for the entire Fiscal Year in question but shall be done for the short stub year utilizing a calculation of Average Indebtedness and Net Defaulted Indebtedness only for the stub period, and the percentages used in this Section 4.1 other than one hundred percent (100%) shall be prorated based on the number of days in the stub period divided by three hundred sixty-five (365). 19. Section 4.4, together with all the subsections thereof, are deleted and substituted in its place is the following: 4.4 Seller Obligation. Notwithstanding the foregoing, with respect to obligations of the parties hereto under this Section 4 for Defaulted Indebtedness for the three (3) Fiscal Years 1991, 1992, 1993 and for such of Fiscal Years 1994, 1995, 1996 and 1997 in which a Reversion Date occurs and such Fiscal Years thereafter if a Reversion Date occurs: (1) With respect to Fiscal Year 1991, Seller shall owe MWCC Thirty-Six Million Dollars ($36,000,000.00), which shall be the full amount of Seller's obligations (which shall include, without limitation, any obligations of Signature Financial Marketing, Inc. relating thereto) pursuant to Section 4.1 hereof for Fiscal Year 1991. Seller shall give MWCC, on the first Tuesday after the date of execution of the Fifth Amendment, (a) Eighteen Million Dollars ($18,000,000.00) in cash, and (b) a note for an additional Eighteen Million Dollars ($18,000,000.00) due on February 28, 1998, in the form attached as Exhibit B hereto. Such note shall bear interest at the Annual Commercial Paper Rate applicable to each Annual Interest Earning Year, plus one percent (1%), per annum, for the period such note remains unpaid prior to maturity. Accrued interest shall be paid on each February 28 that such note is outstanding. (2) With respect to each of the Fiscal Years 1992 and 1993, and for such of Fiscal Years 1994, 1995 and 1996 in which a Reversion Date occurs and such Fiscal Years thereafter if it occurs, if Seller owes amounts to MWCC pursuant to Section 4.1 hereof for such Fiscal Year, or part thereof, Seller shall, as of the Payment Date with respect to such Fiscal Year, pay such amount to MWCC or give MWCC a note for the amount due. Each such note shall be due on February 28, 1998, and shall be in the form attached as Exhibit B hereto (such notes, as well as the note described in Section 4.4(1) above, as such notes come into existence, being collectively referred to hereinafter as the "Seller Notes"). Each Seller Note shall bear interest from the applicable Payment Date, at the Annual Commercial Paper Rate applicable to each Annual Interest Earning Year, plus one percent (1%), per annum, for the period such note remains unpaid prior to maturity. Accrued interest shall be paid on each February 28 that each Seller Note is outstanding. (3) On February 28, 1998, Seller shall pay to MWCC the principal and accrued but unpaid interest on Seller Notes, as well as the payment required under Section 4.5(3). (4) The determination of Defaulted Indebtedness under this Section 4 with respect to Fiscal Year 1991 and thereafter shall include, without limitation, any and all Indebtedness which would have been Defaulted Indebtedness under the so-called recency method but not under the Contractual Method in or prior to Fiscal Year 1990, but which became Defaulted Indebtedness under the Contractual Method in Fiscal Year 1991 or thereafter. The amount set forth in Section 4.4(1) hereof constitutes a compromise of all disputes between the parties hereto with respect to the proper amount due from Seller to MWCC pursuant to this Section 4 with respect to Fiscal Year 1991. 20. The following new Section 4.5 shall be added: 4.5 Recourse Against Seller. (1) Commencing with Fiscal Year 1994, and for each Fiscal Year thereafter during the term of this Agreement (except as provided in Section 15.2) for which there is Defaulted Indebtedness, Seller shall purchase from MWCC Indebtedness which becomes Defaulted Indebtedness during such Fiscal Year, by paying the purchase price in accord with Section 4.5(2); provided that Seller shall not purchase and shall not be deemed to have purchased under this Section 4.5 Indebtedness which becomes Defaulted Indebtedness in any Fiscal Year in which a Reversion Date occurs and thereafter. Subject to the Liens granted to MWCC pursuant to Section 7.1 hereof, upon any such purchase, MWCC hereby assigns Seller all of its rights, title, and interest in and to such Indebtedness, free and clear of any and all Liens created by MWCC or Assignees except those Liens with respect to securitizations, but such assignment is without any other warranty, and the ownership interest of MWCC in such Indebtedness shall be terminated to the extent of that interest. Subject to the first sentence of this Section 4.5(1), such purchases shall be made on credit monthly during each such Fiscal Year and the purchase price shall be paid annually as provided in Section 4.5(2); it being understood, however, that MWCC has been granted a Lien in and to such purchased Indebtedness, as further set forth in Section 7.1 hereof. Any obligation of Seller to purchase Defaulted Indebtedness shall be unconditional and shall not be waived, released or affected by any settlement, extension, compromise, variation in terms, forbearance or other indulgence or agreement made or granted by MWCC with or to any Account Debtor or other Persons obligated for an Account. Seller hereby expressly waives notice of nonpayment and nonperformance, demand, protest, notice of presentment, dishonor, default, maturity, release, compromise, settlement, extension, renewal, notice of intent to accelerate and notice of acceleration of any or all Accounts and guarantees at any time held by MWCC and all other rights and notices to which it may be entitled in connection therewith to the fullest extent permitted by applicable law. Seller does hereby ratify whatever action MWCC may take with respect thereto. The assignment of rights, title and interest in and to the Indebtedness purchased by Seller hereunder is subject to ownership of Accounts by third parties in connection with securitizations and, with respect to Defaulted Indebtedness in such securitizations, MWCC conveys whatever rights it has with respect to such Defaulted Indebtedness to Seller. (2) The purchase price for Defaulted Indebtedness purchased by Seller during a Fiscal Year shall be paid annually on the Payment Date with respect to such Fiscal Year, provided that if a Reversion Date occurs during a Fiscal Year no payment under Section 4.5(2) shall be made with respect to that Fiscal Year and Fiscal Years thereafter and Seller shall not be deemed to have purchased Defaulted Indebtedness under Section 4.5(1) with respect to that Fiscal Year and Fiscal Years thereafter, but Seller shall be obligated to make payment for such Fiscal Year and Fiscal Years thereafter to the extent provided in Sections 4.1 and 4.4. The purchase price payable for Defaulted Indebtedness for each Fiscal Year purchased by Seller pursuant to Section 4.5 shall be the amount of the Net Defaulted Indebtedness for that Fiscal Year, plus Recoveries during that Fiscal Year which Recoveries MWCC shall keep after they have been collected in satisfaction of Seller's obligation to make payment in respect of such Recoveries as specified in Sections 4.5(2) and 5.3(7). Notwithstanding the foregoing, with respect to each of the Fiscal Years 1994, 1995 and 1996 during which a purchase of Defaulted Indebtedness occurs under Section 4.5(1), Seller shall, as of the Payment Date with respect to such Fiscal Year, pay MWCC the amount Seller owes to MWCC pursuant to this Section 4.5(2), excluding Recoveries, or give MWCC a note for such amount due. Each such note shall be due on February 28, 1998, and shall be in the form attached as Exhibit B hereto (such notes, being collectively referred to hereinafter as the "Seller Recourse Notes"). Each Seller Recourse Note shall bear interest from the applicable Payment Date, at the Annual Commercial Paper Rate applicable to each Annual Interest Earning Year, plus one percent (1%), per annum, for the period such note remains unpaid prior to maturity. Accrued interest shall be paid on each February 28 that each Seller Recourse Note is outstanding. (3) On February 28, 1998, Seller shall pay to MWCC (a) the principal and accrued but unpaid interest on Seller Recourse Notes, and (b) the amount owed by Seller to MWCC for Fiscal Year 1997 with respect to Net Defaulted Indebtedness. 21. The following new Section 4.6 shall be added: 4.6 Payments Related To Notes And Other Obligations. (1) In the event a payment is not made under one or more Seller Notes, Seller Recourse Notes or as otherwise required under Sections 4.5(2) and 4.5(3) when due, whether before or after maturity, each such Seller Note, Seller Recourse Note, or other unpaid amount shall bear interest at the Default Rate, and the aggregate principal amount of each such Seller Note, Seller Recourse Note or other unpaid amount shall be deemed to be increased monthly by an amount equal to the unpaid interest thereon. (2) With respect to amounts to be paid by Seller pursuant to Sections 4.4(3) and 4.5(3) hereof, Seller shall be entitled to an offset in an amount equal to the Offset Amount. The "Offset Amount" shall be defined as Eighty Seven Million Dollars ($87,000,000.00) (i) increased by the excess of (a) the sum of the Aggregate Incremental Finance Charge Amount and the Aggregate Participation in Finance Charge Amount over (b) Eighty Seven Million Dollars ($87,000,000.00) or (ii) decreased by the excess of (a) Eighty Seven Million Dollars ($87,000,000.00) over (b) the sum of the Aggregate Incremental Finance Charge Amount and the Aggregate Participation in Finance Charge Amount. Seller shall not be entitled under this Section 4.6(2) to any payment from MWCC if the Offset Amount is greater than the amount to be paid by Seller to MWCC pursuant to Sections 4.4(3) and 4.5(3) hereof, but may be entitled to a payment by MWCC if the condition set forth in Section 5.5(10) has been met. An example of payments pursuant to this Section 4.6(2) is attached as Exhibit C hereto. (3) Notwithstanding the foregoing provisions of Sections 4.4 and 4.5, to the extent the aggregate outstanding principal amount of the sum of Seller Notes and Seller Recourse Notes with respect to any, some or all of Fiscal Years 1991, 1992, 1993, 1994, 1995 and 1996, less the amount owed by MWCC to Seller pursuant to Section 5.5(17) with respect to those Fiscal Years for which the calculation described in this Section 4.6(3) is made, would exceed Three Hundred Million Dollars ($300,000,000.00), Seller shall pay such excess to MWCC in cash on the Payment Date with respect to any such applicable Fiscal Year, and the amount of the Seller Note or Seller Recourse Note which would otherwise be required to be given with respect to the Fiscal Year for which such payment is made shall be reduced by such amount paid in cash. 22. Section 5.1(2) is deleted and substituted in its place is the following: (2) MWCC shall take reasonable efforts to collect, or cause to be collected, the Indebtedness owned by it and Assignees, as well as Defaulted Indebtedness purchased or to be purchased by Seller pursuant to Section 4.5, including collection of amounts from Seller pursuant to Section 5.3(5), and in connection therewith, MWCC shall conduct, or cause to be conducted, collection activities in such a manner and use, or cause to be used, such technology as is consistent with the consumer credit collection industry. 23. The first paragraph of Section 5.3(5) is deleted and substituted in its place is the following: (5) In no event shall Seller be required (except to the extent explicitly provided for below) to repossess or dispose of Merchandise in connection with the collection of Indebtedness. Upon the request of MWCC, Seller shall pay MWCC for Merchandise which is tangible personal property which was purchased through Indebtedness then owned by MWCC or Defaulted Indebtedness purchased by Seller, and which was repossessed by or at the direction of MWCC at its sole expense. Such payment shall be applied to reduce the Indebtedness in question or shall be deemed to be a Recovery if the Indebtedness was counted as Defaulted Indebtedness purchased by Seller. MWCC shall, at its sole expense, deliver such Merchandise to locations as from time to time specified by Seller. Upon such delivery MWCC shall assign, with any required documentation, title to such Merchandise, free and clear of all Liens, to Seller unless the Indebtedness was previously purchased by Seller, and Seller will make the required payment to MWCC within thirty (30) days after receipt by Seller of such Merchandise. The required payment will be calculated in accordance with the following: 24. The following new Section 5.3(7) shall be added: (7) With respect to any Defaulted Indebtedness purchased by Seller under Section 4.5, Seller hereby grants to MWCC the exclusive right to collect such Defaulted Indebtedness. Any funds collected from or with respect to Account Debtors with respect to such Defaulted Indebtedness, without deduction for attorneys fees or other collection costs, shall be deemed "Recoveries". Seller shall be obligated to pay any funds it directly receives with respect to Recoveries to MWCC. Recoveries shall be accounted for as specified in Section 4.5 and after the term of this Agreement shall be kept by MWCC and MWCC shall continue to have the right to collect with respect to Defaulted Indebtedness and keep Recoveries. 25. Section 5.4(2) is deleted and substituted in its place is the following: (2) MWCC shall directly incur, credit promotion expenses for mutually approved specific programs during each Fiscal Year during the term of this Agreement (except as provided in Section 15.2) in the amount of thirty-nine hundredths percent (.39%) of such current Fiscal Year's Credit Sales (or, as to 1988 as provided in (4) below, and as to the last Fiscal Year of this Agreement, the Credit Sales for the partial year if the termination occurs before the close of the Fiscal Year), provided that programs shall be mutually approved if they reasonably meet the criteria set forth below. MWCC, with respect to expending funds pursuant to this Section 5.4, shall provide to the Seller reasonable detail of such expenditures. Each such program is subject to the following criteria: (i) The primary purpose of each such program shall be to increase credit sales and/or open new Accounts. Programs will also be permitted which will encourage Account Debtors to increase their existing Indebtedness if such programs are coupled with an extra value or incentive offer to Account Debtors provided by Seller at its own expense. (ii) There shall be sufficient lead time for each such program to receive reasonably adequate planning, support and integra- tion to achieve its desired objectives. Semi-annually MWCC will account for payments required under this Section 5.4(2) with respect to each six (6) months of a Fiscal Year. 26. Section 5.4(5) is deleted and substituted in its place is the following: (5) In addition to the credit promotion expenses that MWCC is obligated directly to incur, during each Fiscal Year, pursuant to Section 5.4(2) hereof, commencing with the 1991 Fiscal Year and each Fiscal Year thereafter, MWCC shall, as reasonably requested by Seller, directly incur additional amounts for credit promotion; provided, that such amounts shall not exceed Six Million Dollars ($6,000,000.00) during the 1991 Fiscal Year, or Five Million Dollars ($5,000,000.00) during any subsequent Fiscal Year; and provided, further, that Seller shall incur, pay to MWCC or spend no less than the additional amount incurred or spent by MWCC during each such Fiscal Year pursuant to this Section 5.4(5). Semi-annually the parties will account for and make the payments required under this Section 5.4(5) with respect to each six (6) months of a Fiscal Year. 27. Section 5.5(2) is amended by deleting the date of September 1, 1993, where it appears in that Section and replacing it with the date of June 1, 1995. 28. Section 5.5(9)(a)(ii) is deleted and substituted in its place is the following: (ii) with respect to each Fiscal Year in which Net Defaulted Indebtedness is over 5% of Average Indebtedness, (x) (I) fifty percent (50%) of (II) the following amount, if any, for each State in which there is a Designated Incremental Yield Percentage: the product of (A) the Designated Incremental Yield Percentage for such State for each such Fiscal Year, multiplied by (B) the Average Billed Indebtedness for such State for such Fiscal Year, minus (y) an amount equal to (i) fifty percent (50%) of the amount by which Net Defaulted Indebtedness exceeds five percent (5%) of Average Indebtedness but is less than or equal to eight percent (8%) of Average Indebtedness, plus (ii) the amount by which Net Defaulted Indebtedness exceeds eight percent (8%) of Average Indebtedness; provided, that in no event shall the amount calculated pursuant to this Section 5.5(9)(a)(ii)(y) be greater than the amount calculated pursuant to Section 5.5(9)(a)(ii)(x) hereof. 29. Section 5.5(9)(b) is deleted and substituted in its place is the following: (b) In respect of a partial Fiscal Year, the calculation of Average Indebtedness and Net Defaulted Indebtedness shall be only for the partial Fiscal Year, and the "5%" referred to in Section 5.5(9)(a)(i) and (ii) above and the percentages referred to in Section 5.5(9)(a)(ii)(y), other than the reference to fifty percent (50%), shall be prorated based on the number of days in the partial Fiscal Year divided by three hundred sixty-five (365). 30. Section 5.5(10) is deleted and substituted in its place is the following: (10) If the Aggregate Incremental Finance Charge Amount plus the Aggregate Participation in Finance Charge Amount, if any, exceeds the Net Aggregate Defaulted Indebtedness Amount, MWCC shall pay such excess to Seller on February 28, 1998. Except with respect to the provisions of Sections 5.5(6) and 5.5(19), Seller shall not otherwise be entitled to any payments or credits from MWCC with respect to the Aggregate Incremental Finance Charge Amount and the Aggregate Participation in Finance Charge Amount. 31. The reference in Section 5.5(11) to Section 4.4(4)(ii) is deleted and in its place a reference to Section 4.6(2)(ii) is made. 32. Section 5.5(15) is deleted and substituted in its place is the following: (15) In the event a payment is not made of any amount due pursuant to Sections 5.5(5), (6), (7), (8), (9), (10), (17) and/or (18) hereof when due, such amount shall bear annual interest at the Default Rate, and the aggregate principal amount shall be deemed to be increased monthly by an amount equal to the unpaid interest. 33. Section 5.5(16) is deleted and substituted in its place is the following: (16) An example of payments pursuant to this Section 5.5(1) through 5.5(15) is attached as Exhibit F hereto. 34. The following new Sections 5.5(17), 5.5(18), 5.5(19), 5.5(20) and 5.5(21) are added: (17) Commencing with Fiscal Year 1994, with respect to each Fiscal Year during the term of this Agreement during which there is Defaulted Indebtedness (except as provided in Section 15.2), MWCC shall owe Seller on the Payment Date for such Fiscal Year (except as provided in Section 5.5(18)) an amount equal to: (a) if Net Defaulted Indebtedness is five percent (5.0%) or less of Average Indebtedness, the lesser of (i) the Net Defaulted Indebtedness or (ii) three and nine tenths percent (3.9%) of Average Indebtedness; (b) if Net Defaulted Indebtedness is over five percent (5%) but not in excess of eight percent (8%) of Average Indebtedness, (i) three and nine-tenths percent (3.9%) of Average Indebtedness, plus (ii) fifty percent (50%) of the amount by which Net Defaulted Indebtedness exceeds five percent (5%) of Average Indebtedness; or (c) if Net Defaulted Indebtedness is over eight percent (8%) of Average Indebtedness, (i) three and nine-tenths percent (3.9%) of Average Indebtedness, plus (ii) fifty percent (50%) of the amount by which Net Defaulted Indebtedness exceeds five percent (5%) of Average Indebtedness but is less than or equal to eight percent (8%) of Average Indebtedness, plus (iii) the amount by which Net Defaulted Indebtedness exceeds eight percent (8%) of Average Indebtedness; provided that MWCC shall not owe Seller any amounts under this Section 5.5(17) for such Fiscal Year in which the Reversion Date occurs and thereafter if it occurs. In applying the provisions hereof, the same Indebtedness may not become Defaulted Indebtedness more than one time. In the event finance charges billed during a Fiscal Year, minus the portion of the finance charge owed to Seller under Sections 5.5(5), 5.5(7), 5.5(8) and 5.5(9), as applicable, of this Agreement are less than the amount owed by MWCC to Seller under the first sentence of this Section 5.5(17), MWCC shall owe Seller pursuant to this Section 5.5(17) on the Payment Date for such Fiscal Year an amount equal to the finance charges billed during such Fiscal Year, minus the portion of finance charge owed to Seller under Sections 5.5(5), 5.5(7), 5.5(8) and 5.5(9), as applicable, of the Agreement. In respect of a partial Fiscal Year, the calculation of Average Indebtedness and Net Defaulted Indebtedness shall be only for the partial Fiscal Year, and the percentages referred to in this Section 5.5(17), except the reference to fifty percent (50%), shall be prorated based on the number of days in the partial Fiscal Year divided by three hundred and sixty-five (365). (18) Amounts calculated under Section 5.5(17), if any, for Fiscal Years 1994, 1995, 1996 and 1997 shall be due on February 28, 1998. Amounts calculated under Section 5.5(17), if any, for each Fiscal Year after 1997 shall be due on the Payment Date for that Fiscal Year. (19) Amounts calculated under Section 5.5(17) for Fiscal Years 1994, 1995 and 1996, shall bear interest from the Payment Date for such Fiscal Year at the Annual Commercial Paper Rate applicable to each Annual Interest Earning Year, plus one percent (1%) per annum, for the period such amount remains unpaid prior to the date when due. Accrued interest shall be paid by MWCC on each February 28 that such amount remains outstanding. (20) An example of payments pursuant to this Section 5.5(17) is attached as Exhibit H hereto. (21) Notwithstanding anything otherwise provided in Sections 4.3, 4.4(3), 4.5(2), 4.5(3), 4.6(3), 5.5(5), 5.5(6), 5.5(7), 5.5(8), 5.5(9), 5.5(10), 5.5(17), 5.5(18), 16.3(3) and 16.4(3), all obligations due Seller by MWCC under such Sections and all obligations due MWCC by Seller under such Sections shall be netted against each other, provided however that such netting is not intended to affect the accrual of interest with respect to obligations of the parties hereto. After giving effect to such netting calculation, the resulting net amount (the "Net Amount") shall be paid by the party responsible therefor when due. The parties expressly understand, acknowledge and agree that neither party hereto shall be obligated at any point in time (whether on a Payment Date, upon an acceleration or any other date on which a payment is due) to make any payment in respect of any such Sections until a netting calculation as described above is given effect such that only the Net Amount shall be due and payable. 35. Section 5.9(2) shall be amended to delete the last sentence and substituted in its place is the following: (2) If there is a change in credit policies pursuant to this Agreement that could have an impact on the percentages set forth in Sections 4.1, 5.5(9)(a)(ii) or 5.5(17), the percentages therein may be appropriately modified as mutually approved by Seller and MWCC. 36. Section 7.1. is deleted and substituted in its place is the following: 7.1. Security Interest. The parties hereto intend that the transactions contemplated by Section 3.1(1) shall be treated as a purchase and sale of Accounts and Indebtedness for all purposes and that the transactions contemplated by Section 3.1(2) hereof shall be treated as an extension of credit under Lender Credit Card Agreements to Account Debtors who wish to obtain financing to purchase Merchandise. The parties do not intend that the transactions contemplated by Section 3.1 of this Agreement be deemed a loan from MWCC to Seller. In recognition of the applicability of Article 9 of the Code to some of the contemplated transactions, and without conceding any such applicability to all of the property and interests specified herein, and as additional security for the payment of and performance by Seller of any and all obligations whatsoever to MWCC, Seller, to the extent of its interest, hereby grants to MWCC continuing first priority Liens in and to all Accounts and Indebtedness either purchased from Seller by MWCC or established and added by MWCC and in and to all Accounts and Indebtedness purchased by Seller from MWCC pursuant to Section 4.5 (all subject to the Morgan Lien, if any, and Liens resulting from an act or omission of MWCC or Assignees) which Liens are granted to secure the Obligations, together with an assignment to MWCC (subject to the Morgan Lien, if any) of Liens, if any, in and to all Merchandise purchased by Account Debtors pursuant to Accounts then owned by MWCC, to the extent of the Liens of Seller thereon; provided, however, that such Liens shall not include Liens, if any, on Merchandise purchased pursuant to Accounts after such Merchandise has been returned to Seller until such time as such Merchandise may again be sold pursuant to an Account creating Indebtedness then owned by MWCC. In addition, Seller grants to MWCC a continuing first priority Lien in and to the Liquidation Account, to the extent Seller has an interest in such Liquidation Account, as provided in Section 6.3(5). 37. Section 7.5 is amended to add a new sentence at the end to read as follows: MWCC may appoint GE Capital and/or its Affiliates to carry out in Seller's name the tasks in this Section. 38. Section 7.12 is deleted and substituted in its place is the following: Right of Setoff. Except as specifically provided in Sections 3.2 and 3.4, and except during the period that the other party has committed an unremedied Seller Default or MWCC Default, as the case may be, or an unremedied act has occurred or event is continuing which with the giving of notice or the passage of time or both, would be a Seller Default or MWCC Default, as the case may be, neither Seller nor MWCC shall have, and they each hereby waive, the right to set-off, and to appropriate and apply to the payment of amounts owing to it in connection with this Agreement, any and all money or property of the other then held by it; provided however that nothing in this Section 7.12 shall limit or otherwise affect the offset provided in Section 4.6(2) and the netting calculation required by Section 5.5(21). 39. Section 8.9 is deleted and substituted in its place is the following: Accounts. Each item of Indebtedness on an Account owned by MWCC (and, to the extent applicable, each Account pursuant to which such Indebtedness is incurred) at the time of a purchase, establishment or addition and after purchased by Seller from MWCC pursuant to Section 4.5: (a) is free and clear of any and all Liens, other than Liens resulting from an act or omission of MWCC or Assignees, in favor of any Person other than MWCC and the Morgan Lien (if any); (b) arises in connection with a bona fide sale and delivery of Merchandise by Seller, its Affiliates, or the Licensees, or the predecessors of any of the foregoing, to an Account Debtor; and (c) is for a liquidated amount as stated in the Account Documentation relating thereto, subject to returns, allowances and other adjustments in the ordinary course of business. 40. Section 11.1 shall be amended to delete the word "or" before "(f)" and add new subparts as follows: (g) the reporting of credit losses and/or sales taxes to federal, state or local governments or governmental units and payments made or due to or from the Seller to such governments or governmental units involving, relating to, or based in whole or in part on credit losses and/or sales taxes, or (h) any act or failure to act by a Person involved in selling or facilitating the sale of Merchandise on Accounts, including such Persons as Valuevision International, Inc., to the extent such act or failure to act arises out of, occurs, is connected with, or results from a sale or attempt to sell Merchandise on an Account or a solicitation or application for an Account, including failure of such a Person (i) to act in accordance with instructions given by MWCC to the extent permitted or contemplated by this Agreement or (ii) to perform Seller's obligations under this Agreement, provided, however, Seller shall have no liability under this subpart (h), if the act or failure to act is the result of MWCC's failure to comply with this Agreement. 41. Section 15.2(2)(iii). The sixth sentence in Section 15(2)(iii) is deleted and substituted in its place is the following: (2)(iii) Anything in Sections 4, 5.4 and 5.5(17) to the contrary notwithstanding, during the period that this subsection (iii) is operative, Seller shall have no obligation to pay any amounts accruing pursuant to Section 4 of this Agreement and MWCC shall have no obligation to pay any amounts accruing pursuant to Section 5.5 (17) of this Agreement, and the provisions of Section 5.4 shall not apply, including, without limitation, any obligation of MWCC to pay any amounts accruing thereunder during such period. 42. Section 15.2(7) is amended by adding a reference to Section 5.3(7) as a Section surviving termination of this Agreement in subparts (ii), (iii), (v), (vi), (vii) and (viii) of Section 15.2(7); provided however that if Seller or its designee purchases all existing Accounts and Indebtedness as provided in Section 15, Section 5.3(7) shall not survive such purchase by Seller or its designee. 43. Sections 15.2(7)(ii) and 15.2(7)(v) are amended by changing the reference to "5.5" to read "5.5, except Sections 5.5(17), (18) and (19). 44. Section 15.3 is amended by deleting the third sentence and substituting in its place the following: Sections 4.5 and 15.2 are to be read so as to be in harmony with the rights of and obligations to third parties in connection with securitizations. 45. Section 16.1(10) is deleted and substituted in its place is the following: (10) Seller shall fail to make any payment of principal of, or interest on or any amount owing in respect of, any one or more Seller Notes or Seller Recourse Notes and/or Seller's obligations pursuant to Sections 4.3, 4.4(3), 4.5(2), 4.5(3), 4.6(3), 5.3(7) and/or 5.5(13) hereof, when due and payable or declared due and payable, and the same shall remain unremedied for a period of ten (10) Business Days after MWCC shall have made written demand therefor, or, subject to the provisions of Section 7.11 hereof, such longer period as may be required to resolve any good faith dispute with respect to Seller's obligations pursuant to Sections 4.3, 4.4(3), 4.5(2), 4.5(3), 4.6(3), 5.3(7) and/or 5.5(13), as to whether any such amount is owed hereunder. 46. Section 16.2(10) is deleted and substituted in its place is the following: (10) MWCC shall fail to make any payment of any amount, including interest, owing in respect of Sections 5.5(5), (6), (7), (8), (9), (10), (17) and/or (18) hereof when due and payable or declared due and payable, and the same shall remain unremedied for a period of ten (10) Business Days after Seller shall have made written demand therefor, or, subject to the provisions of Section 7.11 hereof, such longer period as may be required to resolve any good faith dispute with respect to MWCC's obligations pursuant to Sections 5.5(5), (6), (7), (8), (9), (10), (17) and/or (18) as to whether any such amount is owed hereunder. 47. Section 16.3(3) is deleted and substituted in its place is the following: (3) MWCC may, without notice, declare Seller Notes, Seller Recourse Notes and Seller's obligations under Sections 4.3, 4.4(3), 4.5(2), 4.5(3), 4.6(3), 5.3(7) and 5.5(13) hereof to be forthwith due and payable, whereupon such Seller Notes, Seller Recourse Notes and obligations shall become due and payable, without presentment, demand, protest, or further notice of any kind, all of which are expressly waived by Seller, in which case MWCC shall have the right, at any time and from time to time thereafter, in its discretion, without notice thereof to Seller, to enforce payment of the Seller Notes, Seller Recourse Notes and/or such obligations. 48. Section 16.4(3) is deleted and substituted in its place is the following: (3) Seller may declare amounts under Sections 5.5(5), (6), (7), (8), (9), (10), (17) and/or (18) hereof to be forthwith due and payable, whereupon such amounts shall become due and payable, in which case Seller shall have the right, at any time and from time to time thereafter, in its discretion, without notice thereof to MWCC, to enforce payment of such amounts. 49. The reference to "February 27" or to "February 27, 1998", as applicable, in the following Sections shall be changed to "February 28" or to "February 28, 1998" respectively: a. Section 1 - definition of "Annual Interest Earning Year". b. Section 5.5(7). c. Section 5.5(13)(vi) 50. The title and first paragraph of Exhibit B is deleted and substituted in its place is the following: EXHIBIT B FORM OF SELLER NOTE AND SELLER RECOURSE NOTE NOTE U.S. $ Dated: , FOR VALUE RECEIVED, the undersigned, MONTGOMERY WARD & CO., INCORPORATED, an Illinois corporation (the "Obligor"), HEREBY PROMISES TO PAY to the order of MONTGOMERY WARD CREDIT CORPORATION (the "Obligee") the principal sum of _______________ United States Dollars ($ ), on February 28, 1998 (the "Maturity Date"). Capitalized terms used herein and not otherwise defined herein shall have the meaning set forth in the Account Purchase Agreement, dated as of June 24, 1988, by and between the Obligor and the Obligee, as amended (the "Purchase Agreement"). Payment of the principal amount of this Note shall be subject to an offset, pursuant to the provisions of Sections 4.6(2) and 5.5(21) of the Purchase Agreement. 51. Exhibit C is deleted and substituted in its place is the attached Exhibit C. 52. This ELEVENTH Amendment shall become effective as of the date hereof only if MWCC is provided with an executed opinion in the form attached hereto as Exhibit I. 53. Except as specifically provided herein, the terms and conditions of the Purchase Agreement shall continue in full force and effect and shall be fully binding on the parties hereto. Upon the execution of this Amendment, each reference in the Purchase Agreement to "this Agreement", "hereunder", "hereof", or words of like import, shall mean and be a reference to the Purchase Agreement as amended hereby. In the event of any conflict between the terms of the Purchase Agreement and the terms of this Amendment, the terms of this Amendment shall prevail. 54. Seller shall pay all reasonable expenses of MWCC and its Affiliates with respect to the systems and finance administrative cost of implementing changes required by this ELEVENTH Amendment, as well as the fees and expenses of their counsel, Weil, Gotshal & Manges, in connection with the preparation and execution of this ELEVENTH Amendment. 55. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument, and any of the parties hereto may execute this Amendment by signing any such counterpart. 56. Notwithstanding anything otherwise provided herein, this Eleventh Amendment to the Account Purchase Agreement shall not apply to or encompass Starter Card Accounts as specified in the Third Amendment to the Account Purchase Agreement and such Accounts shall continue to be governed by such Third Amendment. IN WITNESS WHEREOF, Seller and MWCC have executed this Amendment as of the date first set forth above. MONTGOMERY WARD & CO., INCORPORATED By:________________________________ Name:_____________________________ Title:_____________________________ MONTGOMERY WARD CREDIT CORPORATION By: Name: Title: General Electric Capital Corporation, as guarantor of MWCC's obligations under the Purchase Agreement, hereby acknowledges the terms of this Amendment, and agrees that its Guaranty is neither invalidated by the amendments heretofore made nor by this Eleventh Amendment to the Purchase Agreement and that its Guaranty continues in full force and effect in accordance with its terms with respect to the Purchase Agreement as so amended. GENERAL ELECTRIC CAPITAL CORPORATION By: Name: Title: EX-10 3 EXHIBIT 10.(iv)(D) MONTGOMERY WARD & CO., INCORPORATED RETIREMENT SECURITY PLAN (As amended and restated effective as of January 1, 1994) TABLE OF CONTENTS PREAMBLES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I Background Information. . . . . . . . . . . . . . . . . . 3 1.1 Purpose of Plan . . . . . . . . . . . . . . . . . . . . . 3 1.2 Application of Restatement and Determination of Retirement Benefits . . . . . . . . . . . . . . . . . . . 4 1.3 Other Effective Dates . . . . . . . . . . . . . . . . . . 6 ARTICLE II Definitions . . . . . . . . . . . . . . . . . . . . . . . 6 2.1 "Accrued Benefit" . . . . . . . . . . . . . . . . . . . . 6 2.2 "Actuarial Equivalent" or "Equivalent Actuarial Value". . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.3 "Actuary" . . . . . . . . . . . . . . . . . . . . . . . . 11 2.4 "Administrative Director" . . . . . . . . . . . . . . . . 11 2.5 "Affiliate" . . . . . . . . . . . . . . . . . . . . . . . 11 2.6 "Beneficiary" . . . . . . . . . . . . . . . . . . . . . . 11 2.7 "Board" . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.8 "Break in Service". . . . . . . . . . . . . . . . . . . . 11 2.9 "Cash Balance Account". . . . . . . . . . . . . . . . . . 12 2.10 "Code". . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.11 "Committee" . . . . . . . . . . . . . . . . . . . . . . . 12 2.12 "Company" . . . . . . . . . . . . . . . . . . . . . . . . 12 2.13 "Credited Service". . . . . . . . . . . . . . . . . . . . 12 2.14 "Direct Rollover" . . . . . . . . . . . . . . . . . . . . 13 2.15 "Distributee" . . . . . . . . . . . . . . . . . . . . . . 14 2.16 "Effective Date". . . . . . . . . . . . . . . . . . . . . 14 2.17 "Eligible Retirement Plan". . . . . . . . . . . . . . . . 14 2.18 "Eligible Rollover Distribution". . . . . . . . . . . . . 14 2.19 "Employee" or "Associate" . . . . . . . . . . . . . . . . 15 2.20 "ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . 15 2.21 "High Three-Year Pay" . . . . . . . . . . . . . . . . . . 15 2.22 "Hours of Service". . . . . . . . . . . . . . . . . . . . 15 2.23 "Immediate Cash Balance Account Annuity". . . . . . . . . 16 2.24 "Interest Credit(s)". . . . . . . . . . . . . . . . . . . 16 2.25 "Investment Manager". . . . . . . . . . . . . . . . . . . 16 2.26 "IRS" . . . . . . . . . . . . . . . . . . . . . . . . . . 16 2.27 "Jefferson Stores Plan" . . . . . . . . . . . . . . . . . 16 2.28 "Labor Department". . . . . . . . . . . . . . . . . . . . 16 2.29 "Lechmere Plan" . . . . . . . . . . . . . . . . . . . . . 16 2.30 "Long-Term Disability Plan" . . . . . . . . . . . . . . . 16 2.31 "Optional Retirement Benefit" . . . . . . . . . . . . . . 16 2.32 "Participant" . . . . . . . . . . . . . . . . . . . . . . 17 2.33 "Participating Company" . . . . . . . . . . . . . . . . . 17 2.34 "PBGC". . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.35 "Plan". . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.36 "Prior Plans" . . . . . . . . . . . . . . . . . . . . . . 17 2.37 "Regulations" . . . . . . . . . . . . . . . . . . . . . . 18 2.38 "Required Contributions". . . . . . . . . . . . . . . . . 18 2.39 "Retirement" or "Retire". . . . . . . . . . . . . . . . . 18 2.40 "Retirement Benefit". . . . . . . . . . . . . . . . . . . 18 2.41 "Retirement Security Plan". . . . . . . . . . . . . . . . 18 2.42 "Savings Plan". . . . . . . . . . . . . . . . . . . . . . 18 2.43 "Service" . . . . . . . . . . . . . . . . . . . . . . . . 18 2.44 "Surviving Spouse". . . . . . . . . . . . . . . . . . . . 19 2.45 "Total Earnings". . . . . . . . . . . . . . . . . . . . . 20 2.46 "Transferred Contribution Account". . . . . . . . . . . . 22 2.47 "Trust" . . . . . . . . . . . . . . . . . . . . . . . . . 22 2.48 "Trust Agreement" . . . . . . . . . . . . . . . . . . . . 22 2.49 "Trust Fund". . . . . . . . . . . . . . . . . . . . . . . 22 2.50 "Trustees". . . . . . . . . . . . . . . . . . . . . . . . 22 2.51 "Vest", "Vested" or "Vesting" . . . . . . . . . . . . . . 22 2.52 "Ward". . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.53 "Year". . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.54 "Year of Credited Service". . . . . . . . . . . . . . . . 23 2.55 "Year of Service" . . . . . . . . . . . . . . . . . . . . 23 ARTICLE III Effective Date. . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE IV Eligibility . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE V Participation . . . . . . . . . . . . . . . . . . . . . . 25 5.1 Enrollment. . . . . . . . . . . . . . . . . . . . . . . . 25 5.2 Suspension of Participation . . . . . . . . . . . . . . . 25 5.3 Break in Service. . . . . . . . . . . . . . . . . . . . . 26 ARTICLE VI Contributions . . . . . . . . . . . . . . . . . . . . . . 26 6.1 Cessation of a Participant's Contributions. . . . . . . . 26 6.2 Company Contributions . . . . . . . . . . . . . . . . . . 26 6.3 Actuarial Assumptions . . . . . . . . . . . . . . . . . . 26 ARTICLE VII Cash Balance Account. . . . . . . . . . . . . . . . . . . 27 7.1 In General. . . . . . . . . . . . . . . . . . . . . . . . 27 7.2 Interest Credits. . . . . . . . . . . . . . . . . . . . . 28 7.3 Immediate Cash Balance Account Annuity. . . . . . . . . . 28 ARTICLE VIII Retirement Dates. . . . . . . . . . . . . . . . . . . . . 29 8.1 Normal Retirement Date. . . . . . . . . . . . . . . . . . 29 8.2 Early Retirement Date . . . . . . . . . . . . . . . . . . 29 8.3 Postponed Retirement Date . . . . . . . . . . . . . . . . 30 ARTICLE IX Amount of Retirement Benefit. . . . . . . . . . . . . . . 30 9.1 Retirement Benefit Payable upon Retirement at Normal Retirement Date. . . . . . . . . . . . . . . . . . 30 9.2 Retirement Benefit Payable upon Retirement at Early Retirement Date . . . . . . . . . . . . . . . . . . 31 9.3 Retirement Benefit Payable upon Retirement at Postponed Retirement Date . . . . . . . . . . . . . . . . 32 9.4 Offset of Retirement Benefit. . . . . . . . . . . . . . . 32 9.5 Cessation of Benefit Payments Following Reemployment After Retirement . . . . . . . . . . . . . . 33 9.6 Retirement Benefit Payable upon Retirement Following Reemployment after Termination of Service . . . . . . . . . . . . . . . . . . . . . . . . . 33 9.7 Maximum Amount of Retirement Benefit. . . . . . . . . . . 33 ARTICLE X Eligibility for Retirement Benefit. . . . . . . . . . . . 37 10.1 Eligibility for Retirement Benefit at Normal Retirement Date . . . . . . . . . . . . . . . . . . . . . 37 10.2 Eligibility for Retirement Benefit at Early Retirement Date . . . . . . . . . . . . . . . . . . . . . 37 10.3 Eligibility for Retirement Benefit at Postponed Retirement Date . . . . . . . . . . . . . . . . . . . . . 38 10.4 Long-Term Disability Benefits . . . . . . . . . . . . . . 38 ARTICLE XI Methods of Payment. . . . . . . . . . . . . . . . . . . . 38 11.1 Qualified Joint and Survivor Benefit. . . . . . . . . . . 38 11.2 Optional Methods of Payment . . . . . . . . . . . . . . . 39 11.3 Election of Optional Method of Payment. . . . . . . . . . 42 11.4 Rules Regarding Distribution of Benefits. . . . . . . . . 43 11.5 Written Explanations of Survivor Benefit. . . . . . . . . 45 11.6 Cash Out. . . . . . . . . . . . . . . . . . . . . . . . . 45 11.7 Direct Rollover . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE XII Death Benefits. . . . . . . . . . . . . . . . . . . . . . 46 12.1 Pre-Retirement Death Benefit. . . . . . . . . . . . . . . 46 12.2 Designation of Beneficiary. . . . . . . . . . . . . . . . 47 ARTICLE XIII Termination of Service. . . . . . . . . . . . . . . . . . 48 13.1 Termination of Service by Non-Vested Participant. . . . . 48 13.2 Termination of Service by Vested Participant. . . . . . . 48 13.3 Termination of Service without a Break in Service . . . . 49 13.4 Termination of Service Following Reemployment . . . . . . 49 ARTICLE XIV Non-Assignability . . . . . . . . . . . . . . . . . . . . 50 ARTICLE XV Administration. . . . . . . . . . . . . . . . . . . . . . 51 15.1 In General. . . . . . . . . . . . . . . . . . . . . . . . 51 15.2 Appointment of Trustees . . . . . . . . . . . . . . . . . 51 15.3 Appointment of Administrative Director. . . . . . . . . . 52 15.4 Specific Responsibilities and Authority of the Committee . . . . . . . . . . . . . . . . . . . . . . . . 52 15.5 Rules of Procedure. . . . . . . . . . . . . . . . . . . . 54 15.6 Trust Fund. . . . . . . . . . . . . . . . . . . . . . . . 54 15.7 Claims Procedure. . . . . . . . . . . . . . . . . . . . . 56 15.8 Payment of Expenses . . . . . . . . . . . . . . . . . . . 58 15.9 Notices, etc. . . . . . . . . . . . . . . . . . . . . . . 58 15.10 Filing of Information . . . . . . . . . . . . . . . . . . 59 15.11 Claims Against Trust Fund . . . . . . . . . . . . . . . . 60 15.12 Agent for Service of Process. . . . . . . . . . . . . . . 60 ARTICLE XVI Termination of Participating Company's Participation . . . . . . . . . . . . . . . . . . . . . . 60 16.1 Right to Terminate. . . . . . . . . . . . . . . . . . . . 60 16.2 Effect of Termination and Payment of Distributable Reserve . . . . . . . . . . . . . . . . . . . . . . . . . 61 16.3 Transfer of Assets to Successor Plan. . . . . . . . . . . 62 ARTICLE XVII Amendment and Termination . . . . . . . . . . . . . . . . 62 17.1 Power to Amend. . . . . . . . . . . . . . . . . . . . . . 62 17.2 Retroactive Amendments. . . . . . . . . . . . . . . . . . 63 17.3 Notices of Amendments . . . . . . . . . . . . . . . . . . 64 17.4 Effect of Termination . . . . . . . . . . . . . . . . . . 64 17.5 Distribution of Assets If No ERISA Termination. . . . . . 64 17.6 Distribution of Assets Upon Termination . . . . . . . . . 65 17.7 Distribution of Assets Upon Termination Where Assets Not Sufficient . . . . . . . . . . . . . . . . . . 68 17.8 Effect of Partial Termination . . . . . . . . . . . . . . 68 ARTICLE XVIII Limitations in the Event of Early Discontinuance. . . . . 69 18.1 Application . . . . . . . . . . . . . . . . . . . . . . . 69 18.2 Restriction of Benefits . . . . . . . . . . . . . . . . . 69 18.3 Payment of Benefits . . . . . . . . . . . . . . . . . . . 70 18.4 Additional Reserves . . . . . . . . . . . . . . . . . . . 71 ARTICLE XIX Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 71 19.1 In General. . . . . . . . . . . . . . . . . . . . . . . . 71 19.2 Coordination of Payment of Benefits with Other Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 72 19.3 Incapacity. . . . . . . . . . . . . . . . . . . . . . . . 72 19.4 Inability to Locate Benefit Recipient . . . . . . . . . . 72 19.5 Benefit Provided by Insurance . . . . . . . . . . . . . . 73 19.6 Credit for Prior Employment . . . . . . . . . . . . . . . 73 19.7 Construction. . . . . . . . . . . . . . . . . . . . . . . 73 ARTICLE XX Top Heavy Provisions. . . . . . . . . . . . . . . . . . . 74 20.1 In General. . . . . . . . . . . . . . . . . . . . . . . . 74 20.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . 74 20.3 Vesting . . . . . . . . . . . . . . . . . . . . . . . . . 75 20.4 Distributions to Participants . . . . . . . . . . . . . . 76 20.5 Top Heavy Plan Years. . . . . . . . . . . . . . . . . . . 77 20.6 Duplication of Benefits . . . . . . . . . . . . . . . . . 77 ARTICLE XXI Transfer of Amounts Attributable to Contributions Under The Jefferson Stores Plan . . . . . . . . . . . . . 79 21.1 Transfer of Accrued Benefit . . . . . . . . . . . . . . . 79 21.2 Transfer Held in Trust. . . . . . . . . . . . . . . . . . 79 21.3 Payment of Benefits . . . . . . . . . . . . . . . . . . . 79 ARTICLE XXII Transfer of Amounts Attributable to Contributions Under the Lechmere Plan . . . . . . . . . . . . . . . . . 80 22.1 Transfer of Accrued Benefit . . . . . . . . . . . . . . . 80 22.2 Transfer Held in Trust. . . . . . . . . . . . . . . . . . 80 22.3 Payment of Benefits . . . . . . . . . . . . . . . . . . . 80 PREAMBLES WHEREAS, the Retirement Security Plan first became effective on February 1, 1957 and was thereafter from time to time amended; and WHEREAS, effective January 1, 1975, Ward amended and restated the Retirement Security Plan to provide greater retirement security for eligible associates of Ward and Participating Companies; and WHEREAS, the Profit-Sharing Plan was merged into the Retirement Security Plan effective as of January 1, 1975; and WHEREAS, effective as of January 1, 1976, Ward amended the Retirement Security Plan to satisfy the requirements of ERISA; and WHEREAS, effective January 1, 1979, the Retirement Security Plan was amended and restated to reflect certain corporate reorganization changes, assure continued compliance with ERISA and the final regulations issued thereunder, satisfy the requirements of the 1978 amendments to the Age Discrimination in Employment Act of 1967 and include administrative and clarifying amendments; and WHEREAS, Ward further amended and restated the Retirement Security Plan for service on or after January 1, 1981 as a separate and distinct retirement benefit plan for management, administrative and supervisory associates, and to establish distinct and separately funded retirement benefit plans for timecard associates and for represented associates, with three separate trust accounts commingled for investment purposes; and WHEREAS, Ward amended and restated the Plan, effective April 1, 1983, so that amounts attributable to associate contributions made to the Plan after December 31, 1980 and the Profit-Sharing Plan Balances hereunder shall be transferred to the Montgomery Ward & Co., Incorporated Savings and Profit Sharing Plan (the "Savings Plan"), adopted by Ward effective April 1, 1983, for the benefit of eligible associates, to eliminate associate contributions under the Plan, to require eligible associates to authorize salary reduction or payroll deduction contributions to the Savings Plan in order to be eligible for continued benefit accruals under the Plan, and to offset and reduce the benefits provided under the Plan by the benefits, if any, that are or could be provided by the Savings Plan funds attributable to the transferred associate contributions and the required salary reduction or payroll reduction contributions authorized by associates under the Savings Plan; and WHEREAS, Ward further amended the Plan, effective January 1, 1984, to provide a guaranteed minimum pension benefit for associates, to satisfy the requirements of the Tax Equity and Fiscal Responsibility Act of 1982, to comply with certain requirements regarding actuarial computations, and to make other technical changes; and WHEREAS, Ward further amended the Plan effective January 1, 1985, to merge the Retirement Plan for Employees of Jefferson Stores, Inc. into the Plan, to transfer amounts attributable to contributions under the Jefferson Stores Plan to the Plan for the benefit of eligible associates, to satisfy the requirements of the Deficit Reduction Act of 1984 and the Retirement Equity Act of 1984, and to make other technical changes; WHEREAS, Ward amended and restated the Plan, effective January 1, 1989, to merge the: (i) Montgomery Ward & Co., Incorporated Management Retirement Security Plan; (ii) Montgomery Ward & Co., Incorporated Timecard Retirement Security Plan; and (iii) Montgomery Ward & Co., Incorporated Represented Retirement Security Plan, to satisfy the requirements of the Tax Reform Act of 1986, and to make other technical changes; WHEREAS, Ward desires to amend and restate the Plan, effective January 1, 1994, to merge the Lechmere Plan into the Plan, effective as of August 1, 1994, to transfer amounts attributable to contributions under the Lechmere Plan to the Plan for the benefit of eligible associates, to satisfy the requirements of recent changes to the Code, and to make other technical changes; NOW, THEREFORE, the Plan is hereby amended and restated to read as follows: ARTICLE I Background Information 1.1 Purpose of Plan. The purpose of the Montgomery Ward & Co., Incorporated Retirement Security Plan is to provide retirement benefits for eligible associates of Ward and Participating Companies and to thereby encourage such associates to make and continue careers with Ward and Participating Companies. The Plan, as amended and restated herein, and the Trust is intended to qualify as a plan and trust which continue to meet the requirements of Sections 401(a) and 501(a) of the Code. 1.2 Application of Restatement and Determination of Retirement Benefits. This Restatement applies to Associates who are in the Service of the Company on any date after the Effective Date. Any benefits payable to a participant who retired or terminated service prior to January 1, 1981 without resuming service thereafter, or whose normal retirement date occurred on or before January 1, 1981, and the benefits payable to any Associate who was in the Service of the Company on December 31, 1980 but who has not enrolled in the Plan thereafter, will be paid from the Trust, but will be governed solely by the terms of the Retirement Security Plan. The total benefits payable from the Trust for any Participant enrolled in the Plan on any date after December 31, 1980 will be calculated in three parts or such lesser number of parts as may be applicable to the Participant: (i) the Participant's benefits determined as of December 31, 1980 under the Retirement Security Plan; provided that, in making such determination, Service after December 31, 1980 shall apply only for purposes of Vesting under the Retirement Security Plan, (ii) the Participant's Supplemental Retirement Benefit determined as of the date of the Participant's Retirement or termination of Service under the Retirement Security Plan, and (iii) the Participant's benefits determined under the Plan with respect to participation after December 31, 1980. Notwithstanding the foregoing, in the event of the death of any Participant who was enrolled in the Retirement Security Plan on December 31, 1980 and who became a Participant in the Plan on January 1, 1981, (i) if such Participant's Surviving Spouse is eligible to receive a Pre-Retirement Death Benefit, such Surviving Spouse shall be entitled to elect, in accordance with procedures established by the Committee, to receive in one lump sum the amounts attributable to associate contributions made prior to January 1, 1981 to the Retirement Security Plan, plus interest (determined in accordance with the Code and Regulations), and the amount of the Pre-Retirement Death Benefit payable to such Surviving Spouse shall be reduced by the Equivalent Actuarial Value of the lump sum payment if such election is made, and (ii) the Retirement Benefit, and form in which benefits, if any, will be paid, shall be determined solely under the terms of the Plan as in effect on the date of the Participant's termination of employment or retirement, unless such person is thereafter reemployed and again becomes a Participant. Benefits for all other Participants shall be determined under the terms of the Plan as in effect on the date of the Participant's termination of employment or retirement, unless such person is thereafter reemployed and again becomes a Participant. 1.3 Other Effective Dates. The Plan, as set forth herein, constitutes a restatement of the Plan through January 1, 1994. Although this restatement is generally effective January 1, 1994, the inclusion of amendments to conform with the Tax Reform Act of 1986 and other applicable laws necessitates different effective dates for certain Plan provisions. Accordingly, notwithstanding the general effective date of this restatement, the following Plan sections as amended, shall be effective as indicated below. Sections Effective Date 8.1 and 9.7 January 1, 1987 2.14, 2.15, 2.17, January 1, 1993 2.18 and 11.7 Article VII July 1, 1994 2.2 August 1, 1994 ARTICLE II Definitions The following terms shall have the following meanings: 2.1 "Accrued Benefit" means the amount of annual Retirement Benefit determined under Articles IX and X payable as a straight life annuity beginning at a Participant's Normal Retirement Date or, if applicable, the Participant's Postponed Retirement Date as determined in accordance with Article IX. The Accrued Benefit payable at Normal Retirement Date shall not be less than the Accrued Benefit of such Participant determined on the date preceding the Effective Date under the terms of the Plan or the terms of the Lechmere Plan determined on June 30, 1994. 2.2 "Actuarial Equivalent" or "Equivalent Actuarial Value" means, unless otherwise specified in the Plan, a benefit of equivalent value when computed on the basis of the actuarial tables and interest rates as set forth below; provided, however, that the interest rate used to determine whether the Equivalent Actuarial Value of a Retirement Benefit exceeds $3,500 for purposes of the Plan or to determine the Equivalent Actuarial Value of a lump sum option provided under Section 11.6 shall not be greater than: (a) For distributions prior to January 1, 1995: (i) the applicable interest rate if the accrued benefit (using such rate) is not in excess of $25,000; or (ii) 120% of the applicable interest rate if the accrued benefit exceeds $25,000 (as determined under subparagraph (i) above). In no event shall the present value determined under subparagraph (ii) be less than $25,000. The rate set forth in subparagraphs (i) and (ii) above may be referred to as the PBGC Rate. For purposes of subparagraphs (i) and (ii) above and Subsection (c) below, the applicable interest rate shall mean the interest rate or rates which would be used as of the first day of the calendar year in which the distribution commences by the PBGC for purposes of determining the present value of the Participant's benefits under the Plan if the Plan had terminated on the date distribution commences with insufficient assets to provide benefits guaranteed by the PBGC on that date ("PBGC Rate"). (b) For distributions after December 31, 1994, the annual rate of interest on 30-year Treasury securities ("30-Year Treasury Rate") for the month before the date of distribution or such other time as the Secretary of Treasury may by regulations prescribe. For purposes of determining whether the Equivalent Actuarial Value of a Retirement Benefit exceeds $3,500 for the purposes of the Plan or to determine the Equivalent Actuarial Value of a lump sum option provided under Section 11.6, to the extent the Administrative Director or Committee determines it is legally permissible, the 30-Year Treasury Rate shall be determined for the month before the first day of the calendar year in which the distribution commences. Until the Administrative Director or Committee makes the determination set forth in the preceding sentence, the Administrative Director or Committee will set the 30-Year Treasury Rate for distributions during the calendar year at a rate which it believes will be lower than the 30-Year Treasury Rate for the December of the preceding calendar year and each of the first eleven months of the calendar year through November of such calendar year or for such other period it determines appropriate. Pursuant to the preceding sentence, the 30-Year Treasury Rate set for the 1995 calendar year until a determination is made effective pursuant to the first sentence of this paragraph shall be 7%. (c) Subject to the other provisions of this Section 2.2, for purposes of distributions prior to January 1, 1995 of the Retirement Benefit other than that portion attributable to the Lechmere Frozen Benefit, as defined in Section 9.1(c), and the Immediate Cash Balance Annuity, "Actuarial Equivalent" or "Equivalent Actuarial Value" means the sex-neutral option factors listed below: Annuity Form Mortality Interest Rate Qualified Joint 1971 GAT 7.5% and Survivor (60% male/40% female) Annuity 100%, 75% or 50% 1971 GAT 7.5% Contingent Annuity (60% male/40% female) 10 Year Certain 1971 GAT 7.5% and Life Annuity (60% male/40% female) Level Income 1971 GAT 7.5% Annuity (60% male/40% female) Lump Sum Option 1983 GAM Applicable (males) Interest Rate (d) Subject to the other provisions of this Section 2.2, for purposes of distributions prior to January 1, 1995 of the Lechmere Frozen Benefit, as defined in Section 9.1(c), and the Immediate Cash Balance Annuity, "Actuarial Equivalent" or "Equivalent Actuarial Value" means the sex-neutral option factors listed below: Annuity Form Mortality Interest Rate 100%, 75% or 50% 1983 GAM 7.5% Contingent Annuity (males) 10 Year Certain 1983 GAM 7.5% and Life Annuity (males) Level Income 1983 GAM 7.5% Annuity (males) Lump Sum Option 1983 GAM PBGC Rate (males) (e) Subject to the other provisions of this Section 2.2, for distributions after December 31, 1994, "Actuarial Equivalent" of "Equivalent Actuarial Value" means the sex-neutral option factors listed below: Annuity Form Mortality Interest Rate 100%, 75% or 50% 1983 GAM 7.5% Contingent Annuity (50% male/50% female) 10 Year Certain 1983 GAM 7.5% and Life Annuity (50% male/50% female) Level Income 1983 GAM 7.5% Annuity (50% male/50% female) Lump Sum Option 1983 GAM 30-Year Treasury (50% male/50% female) Rate (f) The lump sum value of a Participant's Cash Balance Account as of a determination date shall be an amount equal to the accumulated balance in such Cash Balance Account as of such determination date. For purposes of converting the Cash Balance Account to an annuity form of payment, the 1983 GAM (males) mortality table and the PBGC immediate interest rate as in effect on the first day of the Plan Year in which the annualization occurs shall be used for distributions prior to January 1, 1995 and the 1983 GAM (50% male/50% female) mortality table and the 30-Year Treasury Rate as set forth in subparagraph (b) shall be used for distributions after December 31, 1994. (g) In no event shall the amount of any benefit or annuity determined hereunder exceed the maximum benefit under Section 415 of the Code. 2.3 "Actuary" means the enrolled actuary, within the meaning of ERISA, engaged by the Committee. 2.4 "Administrative Director" means the Administrative Director of the Plan appointed by the Committee in accordance with Section 15.3 hereof. 2.5 "Affiliate" means any corporation controlling, controlled by, or under common control with (within the meaning of Section 414(b), (c), (m) or (o) of the Code and the applicable Regulations), the Company or such successor, directly or indirectly through one or more intermediaries. 2.6 "Beneficiary" means the person or persons designated by a Participant or the Beneficiary of a Participant to receive the amount, if any, payable under the Plan in the event of the death of such Participant or Beneficiary, as the case may be. 2.7 "Board" means the Board of Directors of Ward. 2.8 "Break in Service" means (a) after January 1, 1976, the Year during which or immediately after which an associate terminates Service and does not perform Service during at least 12 weeks or (b) prior to January 1, 1976, a break in service under the rules then in effect under the Retirement Security Plan. Notwithstanding the preceding sentence, after January 1, 1976, any Associate who actually performs at least 500 Hours of Service during any Year shall not be considered as having incurred a Break in Service. Effective with respect to absences commencing on or after January 1, 1985, solely for purposes of determining whether a Break in Service has occurred, an individual shall be credited with the Hours of Service which such individual would have completed but for a maternity or paternity absence, as determined by the Committee in accordance with the Code and Regulations; provided, however, that the total Hours of Service so credited shall not exceed 501 hours and that the individual timely provide the Committee with such information as it shall require. Hours of Service credited for a maternity or paternity absence shall be credited entirely (i) in the Plan Year in which the absence began if such Hours of Service are necessary to prevent a Break in Service in such year, or (ii) in the following Plan Year. For purposes of this Section 2.8, maternity or paternity absence shall mean an absence from work by reason of the individual's pregnancy, the birth of the individual's child or the placement of a child with the individual in connection with adoption of the child by such individual, or for purposes of caring for a child for the period immediately following such birth or placement. 2.9 "Cash Balance Account" means the notional amount described in Section 7.1 and maintained for Participants who previously participated in the Lechmere Plan. 2.10 "Code" means the Internal Revenue Code of 1986, as amended, and any successor provisions thereto. 2.11 "Committee" means the Benefit Plans Committee of Ward. 2.12 "Company" means Ward and any Participating Company or any of them. 2.13 "Credited Service" means an Associate's Service as a Participant, excluding any authorized leave of absence, military leave, layoff or suspension in accordance with Subsections 2.43(a)-2.43(d) hereof. Credited Service shall not include any period of Service during which a Participant fails to make any contributions required prior to the Effective Date for participation in the Plan or fails to authorize Required Contributions to be made under the Savings Plan on or after the Effective Date. Beginning January 1, 1989, Credited Service shall include any period of disability leave of absence provided that the Associate was a Participant immediately prior to such leave or became eligible while on such leave and further provided that the Participant is receiving Long-Term Disability benefits from a plan sponsored by the Company. Credit under the Plan for the period of disability leave of absence during which the Participant is receiving long-term disability benefits from a plan sponsored by the Company shall be limited to (i) the duration of the disability leave of absence; (ii) the period prior to the Participant's Normal Retirement Date; (iii) one year if the Participant has less than ten years of continuous service, or (iv) two years if the Participant has ten or more years of continuous service prior to such disability leave of absence, whichever is less. Associates who were in Service of the Company as of January 1, 1988, and had completed at least one Hour of Service in 1988, and made investable basic contributions as defined in the Montgomery Ward & Co., Incorporated Savings and Profit Sharing Plan other than Associates employed by Signature Financial/Marketing Inc., accrued benefits for those contributions retroactive to their enrollment date in the Savings and Profit Sharing Plan. With respect to each Participant who was an associate of Jefferson Stores, Inc., Credited Service shall not include any period of Service prior to July 1, 1983. 2.14 "Direct Rollover" shall mean a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 2.15 "Distributee" shall mean an Associate or former Associate. In addition, the Associate's or former Associate's surviving Spouse and the Associate's or former Associate's Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the Spouse or former Spouse. 2.16 "Effective Date" means the date of effectiveness of this amendment and restatement, as provided in Article III hereof. 2.17 "Eligible Retirement Plan" means an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. 2.18 "Eligible Rollover Distribution" shall mean any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). 2.19 "Employee" or "Associate" means any individual who is employed by the Company, as determined by the Committee, excluding (a) any associate who is included in a unit of associates covered by a negotiated collective bargaining agreement which does not provide for the associate's membership in the Plan, (b) any associate of a division of the Company which the Committee has determined to treat as though it is an Affiliate which is not a Participating Company, and (c) any non-resident alien. 2.20 "ERISA" means the Employee Retirement Income Security Act of 1974, as from time to time amended. 2.21 "High Three-Year Pay" means a Participant's average annual amount of total taxable remuneration paid or payable by the Company or any Affiliate for the three consecutive calendar years for which he receives or received Credited Service and during which years such remuneration was the highest; provided that such remuneration for the last calendar year shall be annualized. 2.22 "Hours of Service" means each hour during which an Associate performs Service (or is treated as performing Service under Section 2.43) and for which he is paid, or entitled to payment for the performance of duties for the Company (including back pay irrespective of mitigation of damages). In addition, Hours of Service shall also include up to 501 hours of non-working time during any single continuous period of absence which does not otherwise constitute Service, but for which an associate is directly or indirectly paid or entitled to payment. The determination of Hours of Service to be credited hereunder shall be made by the Committee in accordance with the Regulations, including Section 2530.200b-2(b) and (c) of the Labor Department Regulations. 2.23 "Immediate Cash Balance Account Annuity" means an annuity as described in Section 7.3 with respect to a Participant who was a participant in the Lechmere Plan. 2.24 "Interest Credit(s)" means the interest amount credited to the Cash Balance Account of a Participant who was a participant in the Lechmere Plan. 2.25 "Investment Manager" means an Investment Manager, as that term is defined in ERISA, appointed by the Trustees. 2.26 "IRS" means the United States Internal Revenue Service. 2.27 "Jefferson Stores Plan" means the Retirement Plan for Employees of Jefferson Stores, Inc. amended effective as of January 1, 1984. 2.28 "Labor Department" means the United States Department of Labor. 2.29 "Lechmere Plan" means the Lechmere, Inc. Personal Retirement Account Plan, amended and restated effective January 1, 1992. 2.30 "Long-Term Disability Plan" means the Montgomery Ward & Co., Incorporated Long-Term Disability Plan, as from time to time in effect. 2.31 "Optional Retirement Benefit" means an alternative form of Retirement Benefit provided for in Section 11.2 hereof, which a Participant may elect to receive upon Retirement and which is the Actuarial Equivalent of a Retirement Benefit. 2.32 "Participant" means each Associate or former Associate who is enrolled for participation in the Plan or is entitled to receive or receiving benefit payments hereunder. 2.33 "Participating Company" means any company which is an Affiliate, designated by the Board as such, the board of directors or equivalent governing body of which shall adopt the Plan by appropriate action and the Associates of which shall be eligible to participate in the Plan in the manner and to the extent determined by the Board so long as that company remains so designated. Any such company so designated and which adopts the Plan shall be deemed thereby to appoint Ward, the Committee, the Administrative Director and the Trustees its exclusive agents to exercise on its behalf all of the powers conferred hereby or by the Trust Agreement upon the Company, the Committee, the Administrative Director and the Trustees, respectively, and shall make its allocable contributions to the Plan. The authority of the Company, the Committee, the Administrative Director and the Trustees, respectively, to act as such agent shall continue until the Plan has terminated as to such company and the relevant Trust Fund assets have been distributed by the Trustees as provided in Article XVI hereof. 2.34 "PBGC" means the Pension Benefit Guaranty Corporation. 2.35 "Plan" means this Retirement Security Plan, as herein set forth, and as from time to time in effect. 2.36 "Prior Plans" means the Management Retirement Security Plan, the Timecard Retirement Security Plan and the Represented Retirement Security Plan, each as in effect on December 31, 1988. 2.37 "Regulations" means the applicable proposed, temporary or final regulations issued under the Code or ERISA by the IRS, the PBGC, the Labor Department or any other governmental authority and any temporary rulings and questions and answers promulgated by such authorities pending the issuance of such regulations. 2.38 "Required Contributions" means contributions authorized by Participants to be made to the Savings Plan pursuant to Section 4.1 thereof. 2.39 "Retirement" or "Retire" means or refers to such time as a Participant is eligible to receive currently and elects to receive currently a Retirement Benefit or an Optional Retirement Benefit upon or after the Participant's termination of Service. 2.40 "Retirement Benefit" means a single life annuity determined upon a Participant's Retirement in accordance with the relevant Section of Article IX hereof, payable in accordance with the relevant Section of Article XI hereof. 2.41 "Retirement Security Plan" means the Montgomery Ward & Co., Incorporated Retirement Security Plan as amended through December 31, 1980. 2.42 "Savings Plan" means the Montgomery Ward & Co., Incorporated Savings and Profit Sharing Plan, effective as of April 1, 1983, and as amended from time to time. 2.43 "Service" means employment with the Company or with any Affiliate, excluding service performed by an individual prior to January 1, 1976, if such periods would have been disregarded under the break in service rules then in effect under the Retirement Security Plan or prior to January 1, 1985, if such periods would have been disregarded under the break in service rules then in effect under the Plan, and excluding Service which is disregarded under the Break in Service rules of the Plan, the Prior Plans, the Jefferson Stores Plan or the Lechmere Plan. Service shall include the following: (a) Any authorized leave of absence under rules determined by the Committee, which are uniformly applicable to all associates similarly situated and in accordance with the Regulations (including Sections 2530.200b-2(b) and (c) of the Labor Department Regulations and Sections 825.214 through 825.216 of the Family and Medical Leave Act ("FMLA") Regulations); provided the associate returns to active Service within the period authorized for such leave; (b) Service in any of the United States Armed Forces, if and to the extent required by the Military Selective Service Act, as amended, the FMLA, the Uniformed Services Employment and Reemployment Rights Act of 1994 or any other federal law, or as otherwise recognized by the Committee; (c) Any period of layoff not in excess of 12 months during which the associate retains reemployment rights and provided that the associate reports to work within three working days after recall; and (d) Any period of suspension of participation, as provided for in Section 5.2 hereof. 2.44 "Surviving Spouse" means the survivor of a deceased Participant to whom such deceased Participant was legally married, as determined by the Committee on the earlier of, (a) the date of the Participant's Retirement, or (b) for at least one year on the date of such Participant's death. 2.45 "Total Earnings" means the total of an Associate's compensation, including salary, wages, overtime premium, commissions, holiday pay, vacation pay, bonuses, cash incentives other than from contests, and salary continuance paid or payable by the Company and any Affiliates for Service during a calendar year prior to the earlier of the Associate's date of termination of Service or the Associate's Normal Retirement Date or, if applicable, Early Retirement Date, but excluding (a) amounts paid under the 1970 Marcor Stock Price Plan, under any stock option plan or stock award plan and under any other plans maintained exclusively for management Associates of Ward or of Ward and Affiliates which the Committee determines to exclude from Total Earnings, (b) amounts contributed by the Associate's employer to the Trust pursuant to the provisions of the Plan or paid or contributed to any group insurance plan or other employee benefit plan established or maintained by the Associate's employer or in which the Associate's employer participates, other than amounts contributed on behalf of a Participant under Section 4.1 of the Savings Plan, (c) amounts paid to the Associate from Jefferson Stores, Inc. while he was a participant under the Jefferson Stores Plan, (d) amounts paid during any period during which a Participant fails to make any contributions required prior to the Effective Date for participation in the Plan or fails to authorize Required Contributions to be made under the Savings Plan, and (e) amounts paid in a calendar year in excess of $200,000 (adjusted for cost of living to the extent permitted by the Code and Regulations). Effective for calendar years beginning after December 31, 1993, Total Earnings shall exclude amounts paid in a calendar year in excess of $150,000 (adjusted for cost of living in accordance with Section 401(a)(17) of the Code). In determining Total Earnings and applying the $150,000 limitation for a highly compensated employee (as defined in Section 414(q) of the Code) ("Highly Compensated Associate") who is either a 5% owner of the Company or one of the 10 most highly paid Highly Compensated Associates and is therefore subject to the family aggregation rules of Section 414(q)(6) of the Code, the Highly Compensated Associate's family unit shall be treated as a single employee with one Total Earnings. The term "family" shall include the Highly Compensated Associate and any Associate who is the Highly Compensated Associate's spouse or any lineal descendants of the Highly Compensated Associate who have not attained age 19 before the close of the Plan Year. If, as a result of applying the family aggregation rules, the adjusted $150,000 limitation is exceeded, then the adjusted $150,000 limitation will be allocated among the members of the family unit in proportion to each such member's Total Earnings as determined prior to the application of the $150,000 limitation. In the case of a Participant for whom long-term disability benefits are being paid under the Long-Term Disability Plan pursuant to the provisions of said plan, the Participant's Total Earnings for the period during which such benefits are being accrued by this Plan shall be deemed to continue at the same rate as the Participant's Total Earnings immediately prior to such disability. 2.46 "Transferred Contribution Account" means the account, established and maintained as part of a Participant's account under the Savings Plan to reflect amounts transferred with respect to a Member's Benefit derived from Associate Contributions, pursuant to Section 6.2 of the Savings Plan. 2.47 "Trust" means the Trust established by Ward as a part of the Plan. 2.48 "Trust Agreement" means the agreement with the Trustees establishing the Trust. 2.49 "Trust Fund" means all the assets held by the Trustees pursuant to the Trust Agreement. 2.50 "Trustees" means the trustees under the Trust Agreement appointed by the Committee in accordance with Section 15.2 hereof. 2.51 "Vest", "Vested" or "Vesting" means the acquisition by a Participant or the Participant's Beneficiary of a nonforfeitable right to a Retirement Benefit, except in the event of the Participant's death prior to the time prescribed for payment of such Retirement Benefit. For purposes of the Plan, Vesting occurs after five Years of Service with the fifth year being the completion of five months of service or upon Normal Retirement Date pursuant to the provisions hereof, whichever occurs first. In determining whether a Participant is Vested, the Years of Service prior to any Break in Service shall be disregarded if he was not then Vested and the number of consecutive Years in which he incurred a Break in Service equals or exceeds the greater of 5 or the aggregate number of the Participant's Years of Service prior to such Break in Service (excluding any Years of Service prior to January 1, 1976 which were disregarded under the break in service rules then in effect under the Retirement Security Plan, and excluding any Years of Service which are disregarded under the Break in Service rules of the Plan, the Prior Plans, the Jefferson Stores Plan or the Lechmere Plan). 2.52 "Ward" means the present Illinois corporation by the name of Montgomery Ward & Co., Incorporated and any successor to all or substantially all of its business and assets. 2.53 "Year" means the 12 consecutive month period beginning on the date an Associate's Service commenced or recommenced after a Break in Service (determined under the rules of the Plan, the Prior Plans, the Jefferson Stores Plan or the Lechmere Plan), as determined by the Committee, or an anniversary date thereof. Effective January 1, 1994, if the Associate does not complete 1,000 Hours of Service during the first 12 consecutive month period, the determining period shall be any 12 consecutive month period beginning with the first day of the calendar year beginning on or after the date of employment. 2.54 "Year of Credited Service" means a Year of Service for which an Associate receives Credited Service. Partial Years of Credited Service shall be taken into account on the basis of 1/12 Year's credit for each month of Service. 2.55 "Year of Service" means a Year in which an Associate performs Service and completes 1,000 Hours of Service. Any Associate who actually performs 1,000 Hours of Service during any Year shall be considered as having performed a Year of Service. ARTICLE III Effective Date The Effective Date of this amendment and restatement shall be January 1, 1994. ARTICLE IV Eligibility Each Associate who, immediately prior to the Effective Date, was a Participant shall continue to be a Participant on and after the Effective Date. Each other Associate who was in Service immediately prior to the Effective Date, but who was not then a Participant of the Plan shall be eligible for participation in the Plan on the later of the Effective Date or the first day of the month following the date on which he satisfies the requirements for participation in the Plan as in effect on December 31, 1993; provided, however, that any such Associate who does not submit an enrollment form on the earliest date prescribed by the Committee must satisfy the requirements for participation under this amendment and restatement before again being eligible for participation in the Plan. Each other Associate who was or is employed by the Company shall become eligible to participate in the Plan on the first day of the month following the later of (a) the date on which he attains age 21; or (b) the date on which he completes one Year of Service. Notwithstanding the foregoing, each participant of the Lechmere Plan on June 30, 1994 shall become a Participant on July 1, 1994. ARTICLE V Participation 5.1 Enrollment. Each Associate who becomes eligible to become a Participant under the Savings Plan shall become a Participant on the first day of the month following the Associate's submission of an enrollment form prescribed by the Committee. The Committee shall take any necessary or appropriate action to enroll each Associate who becomes eligible to become a Participant pursuant to this Section 5.1 and, if it is determined that an eligible Associate has not been enrolled in the Plan due to error, such Associate may be retroactively enrolled if the Committee receives notice of the error within a reasonable period of time following such error. 5.2 Suspension of Participation. No Participant may continue participation in the Plan in the event the Participant ceases to be an Associate or is transferred from the Company to an Affiliate which is not designated a Participating Company or who is on a leave of absence, except, to the extent provided in this Plan, for those Associates receiving long-term disability benefits from a plan sponsored by the Company. A Participant who becomes ineligible to participate in the Plan because of the application of the preceding sentence shall be suspended from further participation during the period of such ineligibility without forfeiting any benefits accrued prior to the date such Participant became ineligible to participate, unless the Committee shall determine, in accordance with rules established by the Committee which are uniformly applicable to all Associates similarly situated, that such Participant shall be deemed to have terminated the Participant's employment for purposes of participation in the Plan pursuant to Article XIII hereof. Such action shall not be applicable to any Participant who is transferred to an Affiliate. Credited Service shall exclude any such period of suspension, as provided in Section 2.13 hereof, but Service for purposes of Vesting and eligibility shall include such period. Notwithstanding any of the provisions of the Plan to the contrary, each Participant shall be entitled to the benefits provided under Sections 21.3 and 22.3, if applicable. 5.3 Break in Service. If a Participant's employment terminates and he is later rehired, he shall again be eligible to participate in the Plan as of the date of rehire. ARTICLE VI Contributions 6.1 Cessation of a Participant's Contributions. No Participant shall be required or permitted to contribute to the Plan on or after April 1, 1983. 6.2 Company Contributions. Subject to the provisions of Articles XVI and XVII hereof, Ward and each Participating Company shall contribute to the Trust, not less frequently than quarterly during each Plan Year, the amounts recommended by the Actuary to the Committee as necessary to maintain the Plan on a sound actuarial basis, consistent with the requirements of ERISA and the Code. The Committee shall arrange for such funding standard accounts as are required by ERISA in accordance with the recommendations of the Actuary. 6.3 Actuarial Assumptions. The Committee shall adopt and may change from time to time, in accordance with the provisions of ERISA and the Code, such actuarial assumptions and methods as are recommended by the Actuary for the purpose of actuarial valuations of the Plan. The Actuary shall make an annual actuarial valuation of the Plan and shall estimate the contributions required under Section 6.2 hereof on the basis thereof. At least once a year, the Actuary shall make an actuarial study of the mortality and other actuarial assumptions, service and compensation experience of the Participants in the Plan, the investment experience and any other relevant experience gains and losses under the Plan, including such calculations as may be necessary to determine whether the Plan is adequately funded, and shall report the results of its study to the Committee. Prior to termination of the Plan, forfeitures of benefits arising from termination of Service, death or any other reason under the Plan shall not be applied to increase the benefits that any Participants would otherwise be entitled to receive under the Plan, but may be anticipated in estimating costs under the Plan and shall be applied to reduce the Company's contributions under the Plan. ARTICLE VII Cash Balance Account 7.1 In General. A notional account (hereinafter referred to as the Cash Balance Account) shall be established and maintained for each Participant who was a participant in the Lechmere Plan. The initial Cash Balance Account for each Participant shall equal such Participant's Cash Balance Account under the Lechmere Plan as of June 30, 1994. Such Participant's Cash Balance Account shall be credited with Interest Credits in accordance with Section 7.2. 7.2 Interest Credits. Interest Credits equal to the rate of interest specified in this Section 7.2 multiplied by the amount of the Participant's Cash Balance Account as of the first day of each calendar year shall be added to each Participant's Cash Balance Account as of the last day of the calendar year. For any calendar year in which a distribution is made from the Plan on behalf of a Participant, interest shall be credited on the amount of the Participant's Cash Balance Account as of the first day of such year for the period from the first day of such year to the date of benefit distribution. The rate of interest used to determine the Interest Credit for a calendar year, shall be the 12- month average rate for six month Treasury Bills as of December 31 of the prior calendar year. In no event will the annual Interest Credit be less than 5.75% or more than 10.0%. 7.3 Immediate Cash Balance Account Annuity. The amount of annual retirement income payable with respect to the Cash Balance Account of a Participant is equal to the Immediate Cash Balance Account Annuity. The Immediate Cash Balance Account Annuity is the annual amount of retirement income payable as a Single Life Benefit as defined in Section 11.2(a). The annual amount of retirement income is determined as: (a) The Participant's Cash Balance Account divided by; (b) The immediate annuity factor for one dollar of annual benefit under the Single Life Benefit form of payment defined in Section 11.2(a), based on the Participant's age as of the Retirement Date. The immediate annuity factor referenced in Section 7.3 above shall be based on the actuarial assumptions described in Section 2.2. ARTICLE VIII Retirement Dates 8.1 Normal Retirement Date. A Participant's Normal Retirement Date shall be the first day of any month following the Participant's 65th birthday. Benefits accrued to a Participant under the Plan shall be nonforfeitable upon the attainment of age 65. Any Participant who, for at least two years before the Participant's Normal Retirement Date, is employed in an executive or other policy-making position and who, as of the Participant's Normal Retirement Date, is entitled to an aggregate anticipated annual retirement benefit, including benefits not provided under the Plan, of $44,000 or more, when expressed as a Single Life Benefit as defined in Subsection 11.2(a) hereof, all as determined by the Committee under uniform rules and in accordance with applicable law and Regulations, shall retire on the Participant's Normal Retirement Date, unless the Participant's employment thereafter has been approved by the Board or unless a state or federal law requires that such Participant be permitted to continue employment beyond his Normal Retirement Date. 8.2 Early Retirement Date. A Participant's Early Retirement Date may be the first day of any month following the Participant's termination of Service prior to the Participant's Normal Retirement Date, provided such Participant (a) has attained age 55, (b) has completed five Years of Service (except that this requirement shall not apply to an Associate of the Company or an Affiliate on December 31, 1968), and (c) has prior to such date elected to Retire on such date pursuant to rules adopted by the Committee in accordance with the Regulations. 8.3 Postponed Retirement Date. A Participant's Postponed Retirement Date shall be the first day of any month following termination of Service after Normal Retirement Date, pursuant to Section 8.1 hereof. ARTICLE IX Amount of Retirement Benefit 9.1 Retirement Benefit Payable upon Retirement at Normal Retirement Date. Subject to the provisions of this Article, in the event of the Retirement of a Participant on his Normal Retirement Date, the amount of the Retirement Benefit shall be the sum of (a), (b), (c) and (d) below: (a) the Participant's Retirement Benefit determined as of December 31, 1993; and (b) 1.5% of the Participant's Total Earnings while a participant during each year of Credited Service after the Effective Date; and (c) the Participant's Lechmere Plan frozen benefit as of June 30, 1994, excluding the benefit attributable to the Participant's Immediate Cash Balance Annuity ("Lechmere Frozen Benefit"); and (d) the Participant's Immediate Cash Balance Annuity, if any. The Retirement Benefit will be accrued each calendar year on the basis of the Participant's Credited Service and Total Earnings during such calendar year and, with respect to a Participant's Cash Balance Account, on the basis of Interest Credits. In no event shall a Participant's Retirement Benefit decrease after any date which could have been the Participant's Early Retirement Date. The minimum Retirement Benefit payable upon Retirement at Normal Retirement Date, including any benefit payable with respect to a Participant's credited service under the Retirement Security Plan prior to January 1, 1981, and any benefit payable under the Plan on or after such date, shall be $1,200 after an aggregate of 20 Years of Service during which the Participant received either Credited Service or credited service under the Retirement Security Plan, the Prior Plans or the Plan, with an additional $60 for each of the first five such Years of Service in excess of 20 and an additional $125 for each such Year of Service in excess of 25, but in no event shall such minimum benefit exceed $2,125, ending with Credited Service as of December 31, 1988. 9.2 Retirement Benefit Payable upon Retirement at Early Retirement Date. In the event of a Participant's Retirement on an Early Retirement Date, the amount of the Retirement Benefit payable, including the annual minimum, shall be the amount provided for in Section 9.1 hereof, provided that, in the event the Participant's Early Retirement Date occurs prior to the first day of the month following the Participant's 63rd birthday, the portion of the Retirement Benefit derived from Sections 9.1(a) and 9.1(b) shall be reduced by 5/12 of 1% for each month by which the Participant's Early Retirement Date precedes such first day and provided that in the event the Participant's Early Retirement Date occurs prior to the first day of the month following the Participant's 65th birthday, the portion of the Retirement Benefit derived from Section 9.1(c) hereof shall be reduced by 5/9 of 1% for each of the first 60 months by which the Participant's Early Retirement precedes such first day and 5/18 of 1% for each of the next 60 months. 9.3 Retirement Benefit Payable upon Retirement at Postponed Retirement Date. In the event of a Participant's Retirement on a Postponed Retirement Date, the amount of the Retirement Benefit payable, including the annual minimum, shall be the same amount which the Participant was entitled to receive on the Participant's Normal Retirement Date, as provided in Section 9.1 hereof, with additional credit for Service after such date. 9.4 Offset of Retirement Benefit. Notwithstanding any other provision of the Plan, the amount of the Retirement Benefit payable, including the minimum Retirement Benefit, to any Participant shall be reduced by the current annuity rates of a legal reserve life insurance company chosen by the Committee of that portion of the annuity which could be purchased for the Participant under the Savings Plan with the amount, if any, in the Participant's Transferred Contribution Account and the amount, if any, in the Participant's Account attributable to Required Contributions as determined by the Committee as of the date of the Participant's Retirement. Notwithstanding anything provided herein, effective January 1, 1984, the Retirement Benefit of associates of Montgomery Ward Insurance Company and its subsidiaries shall not be offset by benefits provided under the Savings Plan and effective October 1, 1984, the Retirement Benefit of associates of Signature Financial/Marketing, Inc. and its subsidiaries shall not be offset by the benefits provided under the Savings Plan except as set forth herein. In addition, effective as of such dates, associates of the aforesaid companies will accrue benefits under the Plan although they have not authorized payroll deduction contributions under the Savings Plan. The Retirement Benefit payable to associates of Montgomery Ward Insurance Company shall be reduced by Equivalent Actuarial Value of that portion of the annuity that could be purchased with the Transferred Contributions and their contributions made prior to January 1, 1984 (or October 1, 1984 for certain associates) under the Savings and Profit Sharing Plan. 9.5 Cessation of Benefit Payments Following Reemployment After Retirement. Upon reemployment of a former Associate who previously Retired hereunder, all benefit payments being made to the Associate which are permitted to be suspended under Regulations shall cease. 9.6 Retirement Benefit Payable upon Retirement Following Reemployment after Termination of Service. If a Participant who incurs a Break in Service is for any reason reemployed by the Company, then, upon the Participant's subsequent Retirement, the Participant's Retirement Benefit shall be based on the Participant's Credited Service after the Participant's reemployment plus the Retirement Benefit (after applying the offset) previously accrued as of the Participant's separation from Service. 9.7 Maximum Amount of Retirement Benefit. (a) The provisions of this Section shall govern the benefits to which it is applicable notwithstanding any other provision of the Plan to the contrary. The benefits to which this Section is applicable are: (i) any annuity payable to a Participant for life as a part of a Qualified Joint and Survivor Benefit or as a part of an Optional Retirement Benefit elected by the Participant under Section 11.2 hereof and having the effect of a qualified joint and survivor annuity within the meaning of Section 417(b) of the Code (excluding in either case any post-Retirement Surviving Spouse benefit); (ii) any Single Life Benefit elected by a Participant under Subsection 11.2(a) hereof; and (iii) any other Optional Retirement Benefit elected by a Participant under Section 11.2 hereof (including both the annuity payable to the Participant and any other annuity or benefit payable thereunder). This Section shall not limit the amount of any Supplemental Retirement Benefit, if any, which is payable by reason of the prior maintenance of the Profit-Sharing Plan, which benefit represents benefits under a "defined contribution plan", as that term is defined in ERISA. (b) The benefits to which this Section is applicable may not exceed the limitations set forth in Section 415 of the Code, which are incorporated by reference herein. For these purposes, the "limitation year" means the Plan Year. If a Participant also participates in any defined contribution plan (as defined in Sections 414(i) and 415(k) of the Code) maintained by the Company or any Affiliate, in the event that in any Plan Year the sum of the Participant's defined benefit fraction (as defined in Section 415(e)(2) of the Code) and the Participant's defined contribution fraction (as defined in Section 415(e)(3) of the Code) would otherwise exceed 1.0, then the benefit payable under this Plan shall be reduced so that the sum of such fractions in respect of that Member will not exceed 1.0. If the above reduction does not ensure that the limitation set forth in this Section is not exceeded, then the annual additions (as defined in Section 415(c)(2) of the Code) to any defined contribution plan maintained by the Company or any Affiliate in which the Participant participates, shall be reduced in accordance with the provisions of that plan, but only to the extent necessary to ensure that such limitation is not exceeded. If a Participant also participates in another defined benefit plan (as defined in Sections 414(j) and 415(k) of the Code) maintained by the Company or any Affiliate, in the event that in any Plan Year such Participant's aggregated accrued benefit under such plans exceeds the applicable limits under Section 415 of the Code, the benefit payable under such other plan shall be reduced to the extent necessary to comply with such limits. (c) For purposes of this Section, the benefits to which this Section is applicable shall be determined without regard to any amounts transferred from the Jefferson Stores Plan and the Lechmere Plan pursuant to Section 21.2. (d) In the case of any Associate who was a Participant under the Retirement Security Plan prior to October 3, 1973, the benefits to which this Section is applicable may not exceed the greater of (i) the limitations contained in Subsection 9.7(b) hereof, adjusted as described therein, or (ii) either (A) the Actuarial Equivalent of a Single Life Benefit, as described in Section 11.2 hereof, equal to 100% of the Participant's Total Earnings on October 2, 1973, or, if earlier, the date of his termination of Service, or (B) the Actuarial Equivalent of the benefits which would have been provided under the Retirement Security Plan as in effect on October 2, 1973, without taking into account any increases in the Associate's Total Earnings after such date. (e) The Committee shall, to the extent required by ERISA and in accordance with Regulations, apply the limitations contained in this Section, after giving due consideration to the wishes of the Participant, by taking into account the Supplemental Retirement Benefit, if any, and the benefits payable and the contributions made under any other plans maintained by Ward or any Affiliate which are qualified under Section 401(a) of the Code. If such other plan is a defined contribution plan, then the sum of the defined benefit plan fraction and the defined contribution plan fraction (each as described in Section 415(e) of the Code) shall not exceed 1.0. (f) Notwithstanding the foregoing provisions of this Section, the maximum limitation on Retirement Benefits, with respect to any person who was a Participant prior to December 31, 1982 and whose Retirement Benefit (determined without regard to any changes in the Plan after July 1, 1982 and without regard to cost- of-living adjustments, if any, occurring after July 1, 1982) as of December 31, 1982, exceeds the limitations set forth in Section 9.7(b), shall be such Participant's Retirement Benefit as of December 31, 1982; provided that, such Participant's Retirement Benefit did not exceed the maximum limitation thereon as of December 31, 1982. (g) Notwithstanding the foregoing provisions of this Section, the maximum limitation on Retirement Benefits, with respect to any person who was a Participant on or prior to December 31, 1994 and whose Retirement Benefit as of December 31, 1994 exceeds the limitations set forth in Section 9.7(b), shall not be less than such Participant's Retirement Benefit as of December 31, 1994; provided that, such Participant's Retirement Benefit did not exceed the maximum limitation thereon as of December 31, 1994. ARTICLE X Eligibility for Retirement Benefit 10.1 Eligibility for Retirement Benefit at Normal Retirement Date. Except as otherwise provided in Article IX hereof and Section 11.4, a Participant who Retires on the Participant's Normal Retirement Date shall be eligible for the Retirement Benefit provided for in Section 9.1 hereof or a benefit of Equivalent Actuarial Value thereto as provided for herein payable from and after the Participant's Normal Retirement Date. 10.2 Eligibility for Retirement Benefit at Early Retirement Date. Except as otherwise provided in Article IX hereof, a Participant who Retires on an Early Retirement Date shall be eligible for the Retirement Benefit provided for in Section 9.2 hereof or a benefit of Equivalent Actuarial Value thereto as provided for herein payable from and after the Participant's Early Retirement Date. A Participant who has attained age 55 and terminates Service prior to the Participant's Normal Retirement Date with five Years of Service shall be eligible for the Retirement Benefit provided for in Section 9.1(c) or a benefit of Equivalent Actuarial Value. Notwithstanding any other provisions of the Plan, no distribution of any amounts attributable to contributions paid on behalf of a Participant while he was a 5% owner shall be made to a Participant who is or has been a 5% owner prior to such Participant's attaining age 59 1/2, for any reason other than such Participant's death or disability. For purposes of this Section 10.2, a 5% owner shall mean a 5% owner of such Participant's employer as defined in Section 416(i)(1)(B)(i) of the Code. 10.3 Eligibility for Retirement Benefit at Postponed Retirement Date. Except as otherwise provided in Article IX hereof and Section 11.4, a Participant who Retires on a Postponed Retirement Date shall be eligible for the Retirement Benefit provided for in Section 9.3 hereof or a benefit of Equivalent Actuarial Value thereto as provided for herein payable from and after the Participant's Postponed Retirement Date. 10.4 Long-Term Disability Benefits. During any period when benefits would otherwise be payable under the Long-Term Disability Plan, no benefits shall be paid under this plan unless a Participant ceases to receive benefits under the Long-Term Disability Plan. ARTICLE XI Methods of Payment 11.1 Qualified Joint and Survivor Benefit. If a Participant is legally married, as determined by the Committee, on the date of the Participant's Retirement, the Equivalent Actuarial Value of any Retirement Benefit, to which such Participant is entitled under the Plan shall, except as otherwise provided in this Section or in Section 11.2 hereof, be payable in the form of a Qualified Joint and Survivor Benefit. The term "Qualified Joint and Survivor Benefit" means a benefit providing an annuity for the life of the Participant, ending with the payment due on the first day of the month in which the Participant's death occurs, and, if the Participant dies leaving a Surviving Spouse, a survivor annuity for the life of such Surviving Spouse, commencing on the first day of the month following the date of the Participant's death and ending with the payment due on the first day of the month in which such Surviving Spouse's death occurs. The survivor annuity payable to the Surviving Spouse shall be in an amount equal to one-half of the annuity payable for the life of the Participant under the Participant's Qualified Joint and Survivor Benefit. If a Participant is not legally married, as determined by the Committee, on the date of the Participant's Retirement, the Participant's Retirement Benefit shall, except as otherwise provided in Section 11.2 hereof, be payable to the Participant in the form provided for in Subsection 11.2(a) hereof. 11.2 Optional Methods of Payment. In lieu of the Qualified Joint and Survivor Benefit, a Participant may elect, subject to Sections 11.3 and 11.4 hereof, to receive the Actuarial Equivalent of the Retirement Benefit to which the Participant is entitled under the Plan in accordance with any one of the following options: (a) Single Life Benefit. An annuity for the Participant's life, ending with the payment due on the first day of the month in which the Participant's death occurs, with no monthly annuity payable to a beneficiary. (b) Contingent Annuitant Benefit. An annuity for life and an annuity for 100%, 75% or 50% of such amount after the Participant's death on or after the Participant's Normal Retirement Date or Early Retirement Date, if applicable, to the Participant's Beneficiary for the life of the Beneficiary (the "Contingent Annuitant Benefit" or "Joint and Survivor Benefit"). In no event shall the effect of the selection of a Contingent Annuitant Benefit in which the Beneficiary is not the Participant's spouse cause the benefit payable to the Participant to be reduced to a level less than 50% of the benefit to which the Participant would have been entitled if the Participant had not elected the Contingent Annuitant Benefit. The conditions governing the Contingent Annuitant Benefit shall be: (i) The effective date of the Contingent Annuitant Benefit (the "Option Effective Date") shall be the Participant's Retirement Date. (ii) The election shall be made in writing, dated the day the election is made, on the prescribed form and shall specify the 100%, 75% or 50% Contingent Annuitant Benefit and the name, social security number, sex and date of birth of the Participant's Beneficiary. (iii) Retirement income under the Contingent Annuitant Benefit shall commence effective the first day of the month following Retirement. (iv) The Contingent Annuitant Benefit shall become inoperative in the event the Participant cancels the benefit prior to the Option Effective Date or if either the Participant or the Beneficiary should die prior to the Option Effective Date. On the Option Effective Date, the Contingent Annuitant Benefit shall become noncancellable and the Beneficiary selection binding, and, if either the Participant or the Beneficiary should die after the Option Effective Date, the benefit shall nevertheless continue to be operative. (c) Level Income Benefit. Benefit from the Plan up to the earliest date age 62 that the Participant will be entitled to receive a retirement benefit from social security and a smaller benefit, or no benefit if so actuarially determined, from the Plan commencing after such date (the "Level Income Benefit"). If the Participant dies prior to age 62 or if benefits continue after age 62, the Annuity ceases with the payment due on the fist date of the month in which the Participant's death occurs. The Plan benefits payable both before and after the retirement benefit from social security as estimated for age 62 commencement becomes payable, in combination, are to have the Equivalent Actuarial Value of the reduced amount of Retirement Benefit provided for in Section 9.2 hereof commencing on the Early Retirement Date. (d) Ten Years Certain and Continuous Benefit. An annuity for life with the provision that, if the Participant should die before having received 120 monthly payments, the Participant's Beneficiary shall receive the balance of such payments (the "Ten Years Certain and Continuous Benefit"). The conditions governing the Ten Years Certain and Continuous Benefit shall be the same as those governing the Contingent Annuitant Benefit, except that the election form need not specify the social security number, sex and date of birth of the Participant's Beneficiary and the Participant may change the Participant's Beneficiary at any time before or after the Option Effective Date upon written notice to the Committee. (e) Lump Sum Benefit. For Participants who were participating in the Lechmere Plan as of June 30, 1994, to the extent that the Equivalent Actuarial Value of a Participant's Accrued Benefit from the Lechmere Plan determined as of June 30, 1994 is less than or equal to $7,000, the Participant or the Participant's Surviving Spouse may elect to receive such Accrued Benefit in one lump sum payment; or to the extent that a Participants' Accrued Benefit age 55 or older is $50.00 or less, the Participant may elect to receive the Equivalent Actuarial Value of such Accrued Benefit in one lump sum payment. 11.3 Election of Optional Method of Payment. Except as otherwise provided in Sections 11.2 and 11.5 hereof, any election or revocation of an election under this Article shall be made by the Participant at any time prior to the date that benefit payments to the Participant commence pursuant to the provisions of the Plan. If a Participant has elected a Contingent Annuitant Benefit or 10 Years Certain and Continuous Benefit in accordance with Section 11.2 and dies prior to the date payment of the Participant's Retirement Benefit commences without leaving a surviving Spouse, then such form of benefit shall become payable to the Participant's Beneficiary in the same amount, if any, that would have been payable to such Beneficiary if the payments thereunder had commenced to the Participant on the last day of the month coincident with or preceding the date of the Participant's death. If such a Participant dies prior to the date payment of the Participant's Retirement Benefit commences, leaving a Surviving Spouse and without having made a valid election under Section 12.1(b), then the election under Section 11.2, if any, shall be null and void, and the Surviving Spouse shall receive the Pre- Retirement Death Benefit in accordance with Section 12.1(a). 11.4 Rules Regarding Distribution of Benefits. (a) Notwithstanding any other provision of the Plan, unless otherwise provided by law, any benefit payable to a Participant shall commence no later than the April 1st of the calendar year following the calendar year in which such Participant attains age 70 1/2; provided, however, if a Participant attained age 70 1/2 prior to January 1, 1988, except as otherwise provided in Subsection 11.4(e), any benefit payable to such Participant shall commence no later than the April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the calendar year in which the Participant retires. Such benefit shall be paid, in accordance with the Regulations, over a period not extending beyond the life expectancy of such Participant and the Participant's Beneficiary. Life expectancy for purposes of this Section shall not be recalculated annually in accordance with the Regulations. Any additional Retirement Benefit Accrued beyond the Retirement Benefit Commencement date shall be paid in a lump sum. (b) If distribution of a Participant's benefit has commenced prior to a Participant's death, and such Participant dies before the Participant's entire benefit is distributed to the Participant, distribution of the remaining portion of the Participant's benefit to the Participant's Beneficiary shall be made at least as rapidly as under the method of distribution in effect on the date of the Participant's death. (c) If a Participant dies before distribution of the Participant's benefit has commenced, distributions to any Beneficiary shall be made on or before the December 31st of the calendar year which contains the 5th anniversary of the date of such Participant's death; provided, however, that any distribution to a Beneficiary designated under Section 12.2 may be made over the life of such Beneficiary or a period not extending beyond the life expectancy of such Beneficiary. Such distribution shall commence not later than the December 31st of the calendar year immediately following the calendar year in which the Participant died, or, in the event such Beneficiary is the Participant's Surviving Spouse, not later than the date of which such Participant would have attained age 70 1/2, if later (or, in either case, on any later date prescribed by Regulations). If such Participant's Surviving Spouse dies after such Participant's death but before distributions to such Surviving Spouse commence, this Section 11.4(c) shall be applied to require payment of any further benefits as if such Surviving Spouse were the Participant. (d) Pursuant to Regulations, any benefits paid to a child shall be treated as if paid to a Participant's Surviving Spouse if such amount will become payable to such Surviving Spouse on the child's attaining majority, or other designated event permitted by Regulations. (e) If a Participant who is 5% owner attained age 70 1/2 before January 1, 1988, any benefit payable to such Participant shall commence no later than the April 1st of the calendar year following the later of (i) the calendar year in which the Participant attained age 70 1/2 or (ii) the earlier of (A) the calendar year within which the Participant becomes a 5% owner or (B) the calendar year in which the Participant retires. For purposes of this Subsection (e), a 5% owner shall mean a 5% owner of such Participant's employer as defined in Section 416(i) of the Code at any time during the Plan Year in which such owner attains age 66 1/2 or any subsequent Plan Year. 11.5 Written Explanations of Survivor Benefit. The Committee shall furnish or cause to be furnished to each married Participant explanations of the Qualified Joint and Survivor Benefit and the Pre-Retirement Death Benefit in Section 12.1(a) under procedures developed by the Committee in accordance with the Code and Regulations. A Participant may with the written consent of the Participant's spouse (unless the Committee makes a written determination in accordance with the Code and Regulations that no such consent is required), elect in writing to receive the Participant's Retirement Benefit in one of the optional forms described in Section 11.2 in lieu of a Qualified Joint and Survivor Benefit within the 90-day period ending on the date payment of the Participant's Retirement Benefit commences. Any such election may be revoked by a Participant, without spousal consent, at any time within which such election could have been made. Such an election or revocation must be made in accordance with procedures developed by the Committee in accordance with the Code and Regulations, or both. 11.6 Cash Out. Payments of any Retirement Benefit with an Equivalent Actuarial Value of $3,500 or less will be made in a lump cash sum in full settlement of the Plan's liability therefor, provided, however, that in the case of a married Participant, no such lump-sum payment shall be made after benefits have commenced without the consent of the Participant and the Participant's spouse or, if the Participant has died, the Participant's Surviving Spouse. 11.7 Direct Rollover. Notwithstanding any provision of the Plan to the contrary, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. ARTICLE XII Death Benefits 12.1 Pre-Retirement Death Benefit. A Vested Participant who is in Service or who terminated Service but whose effective date of payment of Retirement Benefits has not yet occurred is entitled to a Pre-Retirement Death Benefit. The term "Pre-Retirement Death Benefit" means a benefit providing that, in the event of the Participant's death before the effective date of payment of the Participant's Retirement Benefit, the Participant's Surviving Spouse, if any, shall be entitled to receive a survivor annuity equal to one-half of the annuity which would have been payable for the life of the Participant under a Qualified Joint and Survivor Benefit, if payments thereunder had commenced on the first day of the month following the later of (i) the Participant's death or (ii) the Participant's attainment of age 55. Such Pre- Retirement Death Benefit shall become payable to the Surviving Spouse on the first day of the month coincident with or following the later of (i) the date of the Participant's death, or (ii) the day on which the Participant would have attained age 55 had he lived. 12.2 Designation of Beneficiary. Each Participant shall file with the Committee a written designation of one or more persons as the Beneficiary who, subject to Section 11.5, shall be entitled to receive the amount, if any, payable to the Participant's Beneficiary upon the death of the Participant. The designation of a Beneficiary for purposes of the Contingent Annuitant Benefit or Ten Years Certain and Continuous Benefit shall be deemed to be a Beneficiary designation for all purposes under the Plan unless otherwise specified by the Participant. Each Beneficiary of a Participant may file with the Committee a written designation of one or more persons as the Beneficiary who shall be entitled to receive the amount, if any, payable to such Beneficiary of the Beneficiary of the Participant upon the death of the Participant's Beneficiary. A Participant or the Beneficiary of a Participant may from time to time revoke or change his Beneficiary designation without the consent of any prior Beneficiary by filing a new designation with the Committee. The last Beneficiary designation received by the Committee shall be controlling; provided that, no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the death of the Participant or the Beneficiary of the Participant, as the case may be, or be effective as of the date prior to the date of such receipt. If no Beneficiary designation is in effect at the time of a Participant's death or if no Beneficiary survives the Participant, payment of the amount, if any, payable upon the death of the Participant shall be made to the Participant's estate. If no Beneficiary designation is in effect at the time of the death of the Beneficiary of a Participant or if no Beneficiary survives the Beneficiary of a Participant, payment of the amount, if any, payable upon the death of the Beneficiary of the Participant shall be made to the estate of the Beneficiary of the Participant. If the Committee is in doubt as to the right of any person to receive an amount payable pursuant to this Section, the Committee may direct the Trustees to retain such amount, without liability for any interest thereon, until the rights thereto are determined, or the Committee may direct the Trustees to pay such amount to any court of competent jurisdiction, which payment shall be a complete discharge of the liability under the Plan and of the Trust therefor. ARTICLE XIII Termination of Service 13.1 Termination of Service by Non-Vested Participant. If the Service of a Participant who is not and does not at the time thereof become Vested terminates, no Retirement Benefit shall be payable to the Participant under the Plan. 13.2 Termination of Service by Vested Participant. If the Service of a Participant who is Vested terminates prior to Retirement, such Participant may elect, subject to Sections 10.2 and 11.4, any of the following: (a) To receive a Retirement Benefit commencing upon the Participant's Normal Retirement Date, including the annual minimum if the Service requirement therefor is satisfied, based on the Participant's Years of Credited Service prior to the Participant's termination of Service and determined in accordance with Section 9.1 hereof; or (b) If such Participant is ineligible for benefits under the Long-Term Disability Plan (or has voluntarily elected to forego receipt of benefits otherwise payable thereunder), such Participant may elect to receive the benefits provided for in Section 9.2 hereof, including the annual minimum if the Service requirement therefor is satisfied, based on the Participant's Years of Service prior to the Participant's termination of Service, commencing on the first day of the month following attainment of age 55 or the first day of any subsequent month prior to the Participant's Normal Retirement Date, where such Participant has prior to such date elected to receive such benefits on such date pursuant to rules adopted by the Committee in accordance with the Regulations. 13.3 Termination of Service without a Break in Service. In the event the Service of a Participant terminates and he is reemployed without having incurred a Break in Service, such Participant's enrollment in the Plan shall be reinstated as of the effective date of the Participant's re-enrollment; the Retirement Benefit payable shall be the prior accrued Retirement Benefit reduced by the prior annuity offset plus any additional Retirement Benefit accruals of the amount previously paid to the Participant from the Trust Fund. 13.4 Termination of Service Following Reemployment. Notwithstanding the foregoing provisions of this Article, if the Service of a Participant who was reemployed following a termination of Service shall subsequently be terminated for any reason, the benefits payable to the Participant pursuant to the provisions of the Plan shall be reduced by the Equivalent Actuarial Value of all amounts theretofore paid to the Participant pursuant to the Plan. ARTICLE XIV Non-Assignability Except insofar as applicable law may otherwise require or pursuant to the terms of a Qualified Domestic Relations Order, no amount payable at any time under the Plan and Trust shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind, and any attempt to alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any such amount, whether presently or hereafter payable, shall be void. The Plan and Trust shall not be liable for or subject to the debts or liabilities of any person entitled to any amounts payable under the Plan. If any person shall attempt to, or shall, alienate, sell, transfer, assign, pledge or otherwise encumber any amount payable under the Plan and Trust, or any part thereof, or if by reason of the Participant's bankruptcy or other event happening at such time such amount would not be enjoyed by the Participant, then the Committee, if it so elects, may direct that such amount be withheld and shall hold or apply it to or for the benefit of such person, the Participant's spouse, children or other dependents, or any of them, in such manner and proportion as the Committee may deem proper. For purposes of the Plan, a Qualified Domestic Relations Order means any judgment, decree, or order (including approval of a property settlement agreement) which has been determined by the Committee in accordance with procedures established under the Plan, to constitute a qualified domestic relations order within the meaning of Section 414(p)(1) of the Code. ARTICLE XV Administration 15.1 In General. The Committee shall have authority and responsibility for the administration and interpretation of the Plan, and, for purposes of ERISA, shall be the "administrator" of the Plan and its "named fiduciary" with respect to matters for which it is responsible; provided that the Board shall have the sole authority to amend, suspend or terminate the Plan, except as otherwise provided in Subsection 15.4(c) hereof. The Committee shall consist of not less than three persons, who need not be directors of Ward, as from time to time appointed by the Board. Any Committee member may resign and the Board may remove any Committee member, with or without cause, at any time. To the maximum extent permitted by ERISA, every action and determination of the Committee in accordance with this Section shall be final and binding upon each Participant, Beneficiary, other Associate and every other person entitled to or claiming participation in the Plan or benefits from the Plan. No member of the Committee shall be entitled to act on or decide any matter relating solely to the Participant or to any of the Participant's rights or benefits under the Plan. 15.2 Appointment of Trustees. The Committee shall appoint the Trustees, and may remove any Trustees in accordance with the Trust Agreement. Upon acceptance of their appointments, the Trustees shall have exclusive authority to manage and control the Trust Fund, subject to the provisions of the Plan and the Trust Agreement and, for purposes of ERISA, shall be the "named fiduciary" of the Plan with respect to matters for which they are responsible; provided that, as provided in the Trust Agreement, the Trustees may appoint one or more Investment Managers and may delegate authority to the Investment Managers so appointed as provided therein and permitted by ERISA. 15.3 Appointment of Administrative Director. The Committee shall appoint an Administrative Director and may from time to time allocate or delegate to any subcommittee or member of the Committee, the Administrative Director and others, not necessarily Associates, such duties relative to compliance with the reporting and disclosure obligations of ERISA and the administration and interpretation of the Plan as it deems necessary or appropriate including matters involving the exercise of discretion. The Administrative Director may from time to time delegate to others, not necessarily Associates, such of the Administrative Director's duties as the Administrative Director deems necessary or appropriate. The Committee may remove, with or without cause, at any time the Administrative Director and any person to whom duties are delegated by the Committee or the Administrative Director in accordance with this Section. 15.4 Specific Responsibilities and Authority of the Committee. In furtherance of, and not by way of limitation on, the responsibilities and authority conferred on the Committee in Section 15.1 hereof, the Committee shall administer the Plan in accordance with its terms and provisions and shall have the following specific responsibilities and authorities: (a) to construe and interpret the Plan and determine all questions arising in its operation; (b) to develop and from time to time review a policy for funding the Plan recommended by the Actuary, which shall be consistent with the objectives of the Plan and the actuarial tables and interest rate assumptions from time to time recommended by the Actuary for the Plan in accordance with the Regulations and to advise the Trustees of such policy and of any changes therein from time to time; (c) to make such amendments in the Plan and the Trust Agreement as it deems necessary or appropriate in order to enable the Plan to comply with ERISA and any other applicable legal requirements; provided that such amendments would not significantly affect the cost of the Plan; (d) to receive reports from the Trustees and from the Administrative Director on the discharge of their duties and authority with respect to the Plan, including in the case of the Administrative Director the preparation, distribution and maintenance of all documents necessary or appropriate for compliance with the reporting, disclosure and recordkeeping requirements contained in ERISA, as well as such other records or data as may be necessary or appropriate for the proper administration of the Plan; (e) to employ the Actuary and such certified public accountants, legal counsel and other persons as may be required by ERISA or as it shall otherwise deem necessary or appropriate in connection with the operation of the Plan; (f) to adopt such rules and procedures as the Committee deems necessary or appropriate in order to fulfill its responsibilities with respect to the Plan; provided that such rules and procedures are uniformly and consistently applied to persons in similar circumstances; (g) to hold regular meetings designed to insure the discharge of its responsibilities hereunder, and to maintain an accurate written record of all such meetings; and (h) to furnish the Board with reports, including subjects reported upon to it by the Trustees and the Administrative Director. 15.5 Rules of Procedure. Subject to the by-laws of the Company and the resolutions of the Board, the Committee shall establish its own rules of procedure and the time and place of its meetings. A majority of the members of the Committee shall constitute a quorum for the transaction of business, and the act of a majority of the Committee members at a meeting at which a quorum is present shall be the act of the Committee. Any action which may be taken at a meeting of the Committee may be taken without a meeting if a consent, in writing, setting forth the action so taken, shall be signed by all of the members of the Committee. 15.6 Trust Fund. The Company has entered into the Trust Agreement with the Trustees providing for the administration and management of the Trust Fund. All benefits and other amounts payable hereunder shall be paid exclusively from the Trust Fund, and neither the Company, the Committee, any Trustee, the Administrative Director, nor any director, officer, Associate or agent of the Company assumes any responsibility or liability therefor. The Trust Fund may be commingled for investment purposes with like separate trust funds of any other plans and trusts of Ward or any Affiliate which meet the requirements of Sections 401(a) and 501(a) of the Code. Each Participant, each Beneficiary or each other person who shall claim the right to any payment under the Plan shall look exclusively to the Trust Fund therefor and shall not have any right or claim therefor against the Company, the Committee, any Trustee, the Administrative Director or any director, officer, Associate or agent of the Company. Except as otherwise required by ERISA, neither the Company, the Committee, the Administrative Director, nor any director, officer, Associate or agent of the Company shall be required to inquire into or be responsible for any act or failure to act of any Trustee or any Participant. To the maximum extent permitted by ERISA and applicable state law, each member of the Committee, each Trustee, the Administrative Director and each director and officer of the Company, and each Associate who performs services on behalf of the Plan or the Trust, shall be indemnified and saved harmless by the Company out of its own assets (including the proceeds of any insurance policy the premiums of which are paid by the Company) from and against any and all losses, costs and expenses (including any amounts paid in settlement of a claim with the Committee's approval) to which any of them may be subjected by reason of any act done or omitted to be done in good faith in their official capacities with respect to the Plan or the Trust Agreement, including all expenses reasonably incurred in their defense. 15.7 Claims Procedure. (a) Any claim for benefits shall be submitted on a prescribed claim form to the claimant's local personnel department. If the claim is wholly or partially denied, written notice of the denial shall be furnished within 90 days after receipt of the claim; provided that, if special circumstances require an extension of time for processing the claim, an additional 90 days from the end of the initial period shall be allowed for processing the claim, in which event the claimant shall be furnished with a written notice of the extension prior to the termination of the initial 90-day period indicating the special circumstances requiring an extension. The written notice denying the claim shall set forth the reasons for the denial, including specific reference to pertinent provisions of the Plan on which the denial is based, a description of any additional information necessary to perfect the claim and information regarding review of the claim and its denial. (b) All disputed claims for benefits shall be submitted within 60 days after receipt by the claimant of the written notice of denial to, and decided within a reasonable period of time by, the Administrative Director or one member of the Committee designated by its Chairman. Written notice of the decision on each such claim shall be furnished to the claimant within 60 days after receipt by the Administrative Director of a request for review, unless special circumstances require an extension of time for processing, in which event an additional 60 days shall be allowed for review and the claimant shall be so notified in writing. If the claim is wholly or partially denied, such written notice shall set forth an explanation of the specific findings and conclusions on which such denial is based. A claimant may review all pertinent documents and may request a review by the Committee of such a decision denying the claim. Such a request shall be made in writing and filed with the Committee within 60 days after delivery to the claimant of written notice of the decision. Such written request for review shall contain all additional information which the claimant wishes the Committee to consider. The Committee may hold a hearing or conduct an independent investigation, and the decision on review shall be made as soon as possible after the Committee's receipt of the request for review, but in no event later than the third regularly scheduled meeting of the Committee after the Committee's receipt of the request for review. Written notice of the decision on review shall be promptly furnished to the claimant and shall include specific reasons for the decision. For all purposes under the Plan, such decision on claims (where no review is requested) and decision on review (where review is requested) shall be final, binding and conclusive on all interested persons as to participation and benefits eligibility, the amount of benefits and as to any other matter of fact or interpretation relating to the Plan. In the case of a Participant covered by a collective bargaining agreement, a disputed claim for benefits shall be governed by the grievance and arbitration procedures established under such agreement; provided, however, that, if such agreement permits, the Committee will review such a claim before it is referred to formal grievance procedures. 15.8 Payment of Expenses. Except as otherwise provided in the Plan or the Trust Agreement, all expenses and charges incurred in the administration and operation of the Plan and the Trust Agreement shall be paid out of the Trust Fund. No compensation shall be paid by the Plan to any member of the Committee, any Trustee or the Administrative Director if employed by the Company or any Affiliate, but said persons may be reimbursed for their reasonable expenses incurred in carrying out their duties, responsibilities and authority hereunder, and the compensation, or a properly allocable portion thereof, paid to other Associates who are involved in the administration of the Plan and all other properly allowable expenses shall, to the extent not paid by the Company, be treated as administrative expenses. No bond shall be required of the members of the Committee, the Trustees or the Administrative Director, except as otherwise required by law. 15.9 Notices, etc. Any notice, election, application, instruction, designation or other form of communication required to be given or submitted by any Participant, other Associate or Beneficiary shall be in such form as is prescribed from time to time by the Committee, sent by first class mail or delivered in person to the Administrative Director of the Plan, 8-3, Montgomery Ward & Co., Incorporated, Montgomery Ward Plaza, Chicago, Illinois 60671, and shall be deemed to be duly given only upon actual receipt thereof by the Administrative Director. Any notice, statement, report and other communication from the Company, the Committee or the Administrative Director to any Participant, other Associate or Beneficiary required or permitted by the Plan shall be deemed to have been duly given when delivered to such person or mailed by first class mail to such person at the person's address last appearing on the records of the Company. Each person entitled to receive a payment under the Plan shall file in accordance herewith the person's complete mailing address and each change therein. A check or communication mailed to any person at such person's address on file with the Administrative Director shall be deemed to have been received by such person for all purposes of the Plan, and neither the Committee, the Administrative Director nor any Associate or agent of the Company shall be obliged to search for or ascertain the location of any such person except as required by ERISA. If the Administrative Director shall be in doubt as to whether payments are being received by the person entitled thereto, it may, by registered mail addressed to such person at the person's address last known to the Administrative Director, notify such person that all future payments will be withheld until such person submits to the Administrative Director the person's proper mailing address and such other information as the Administrative Director may reasonably request. 15.10 Filing of Information. Each Participant shall file with the Committee such pertinent information concerning the Participant and the Participant's Beneficiary, and each Beneficiary shall file with the Committee such information concerning the Beneficiary, as the Committee or the Administrative Director may specify, and in such manner and form as the Committee or Administrative Director may specify or provide, and no Participant or Beneficiary shall have any right or be entitled to any benefits or further benefits under the Plan unless such information is filed by the Participant or Beneficiary or on behalf of the Participant or Beneficiary. 15.11 Claims Against Trust Fund. If the Committee receives notification from the Trustees of any trust fund established by the Company as a part of an employee benefit plan other than the Trust Fund that such Trustees have a claim against the Trust Fund by reason of overpayment or otherwise, then the Committee may direct the Trustees to withhold further payments under the Plan, pay the amount of such claim to any court of competent jurisdiction or take any other action which the Committee shall deem appropriate. 15.12 Agent for Service of Process. The agent for the service of legal process of the Plan shall be the Secretary of Ward. ARTICLE XVI Termination of Participating Company's Participation 16.1 Right to Terminate. Any Participating Company may terminate its participation in the Plan by giving the Committee prior written notice specifying a termination date which shall be the last day of the month at least 60 days subsequent to the date such notice is received by the Committee. The Committee may terminate any Participating Company's participation in the Plan, as of any termination date specified by the Committee, for the failure of the Participating Company to make proper contributions or to comply with any other provision of the Plan. 16.2 Effect of Termination and Payment of Distributable Reserve. To the maximum extent permitted by ERISA, any rights of Participants no longer employed by the Participating Company, former Participants and their Beneficiaries, Surviving Spouses and other eligible survivors under the Plan shall be unaffected by a termination of the Plan as to any Participating Company. Subject to the provisions of Section 16.8, the benefits provided under the Plan with respect to each Participant in Service with such Participating Company as of the termination date will be paid or forfeited in accordance with the Plan as if such termination had not occurred except that the Committee may direct the Trustees to segregate such portion of the assets of the Trust (the "Distributable Reserve") as the Actuary shall determine to be properly allocable in accordance with ERISA to the active Associates of such Participating Company and direct the Trustees to apply the Distributable Reserve for the benefit of the Participants employed by the Participating Company as of the termination date in such manner as the Committee shall determine including, without limitation, payment to such Participants in lump cash sums, cash installments, or the purchase of immediate or deferred annuities, a transfer to a successor employee benefit plan which is qualified under Section 401(a) of the Code, or any combination thereof; provided, however, that in the event of any transfer of assets to a successor employee benefit plan the provisions of Section 16.3 will apply. Any such payments or transfers of the Distributable Reserve shall constitute a complete discharge of all liabilities under the Plan with respect to such Participating Company's participation in the Plan and any Participant then employed by such Participating Company. To the maximum extent permitted by ERISA, the termination of the Plan as to any Participating Company shall not in any way affect any other Participating Company's participation in the Plan. 16.3 Transfer of Assets to Successor Plan. No transfer of the Plan's assets and liabilities to a successor employee benefit plan (whether by merger or consolidation with such successor plan or otherwise) shall be made unless each Participant would, if either the Plan or such successor plan then terminated, receive a benefit immediately after such transfer which (after taking account of any distributions or payments to them as part of the same transaction) is equal to or greater than the benefit he would have been entitled to receive immediately before such transfer if the Plan had then been terminated. The Committee may also request appropriate indemnification from the employer or employers maintaining such successor plan before making such a transfer. ARTICLE XVII Amendment and Termination 17.1 Power to Amend. (a) Subject to the provisions of Subsection 15.4(c) hereof, the Board reserves the right at any time to amend, suspend, discontinue or terminate the Plan, any contributions thereunder, the Trust or any contract issued by an insurance carrier forming a part of the Plan, in whole or in part and for any or no reason and without the consent of any Participating Company, Participant or Beneficiary; and the Committee may adopt amendments necessary or appropriate to qualify or maintain the Plan, the Trust and any contract with an insurance carrier which may form a part of the Plan as a plan and trust meeting the requirements of Sections 401(a) and 501(a) of the Code or any other applicable section of law, including ERISA, as now in effect or hereafter amended or adopted and the Regulations. Each Participating Company by its adoption of the Plan shall be deemed to have delegated this authority to the Board and the Committee, respectively. (b) No amendment or modification shall be made which would (i) retroactively impair any right to any benefit under the Plan which any Participant or Beneficiary would otherwise have had at the date of such amendment by reason of the contributions theretofore made, except to such extent as may be necessary or appropriate to qualify or maintain the Plan, the Trust and any contract with an insurance carrier which may form a part of the Plan as a plan and trust meeting the requirements of Sections 401(a) and 501(a) of the Code or any other applicable section of law, including ERISA, as now in effect or hereafter amended or adopted and the Regulations or (ii) make it possible for any part of the funds of the Plan (other than such part as is required to pay taxes, if any, and administrative expenses as provided in Section 15.8 hereof) to be used for or diverted to any purposes other than for the exclusive benefit of Participants and their Beneficiaries prior to the satisfaction of all liabilities with respect thereto. 17.2 Retroactive Amendments. Subject to the provisions of Section 17.1 hereof, any amendment, modification, suspension or termination of any provisions of the Plan may be made retroactively if necessary or appropriate to qualify or maintain the Plan, the Trust and any contract with an insurance company which may form a part of the Plan as a plan and trust meeting the requirements of Sections 401(a) and 501(a) of the Code or any other applicable section of law, including ERISA, as now in effect or hereafter amended or adopted and the Regulations. 17.3 Notices of Amendments. Notice of any amendment, modification, suspension or termination of the Plan shall be given by the Board or the Committee, whichever adopts the amendment, to the other and to the Trustees and all Participating Companies and, where and to the extent required by law, to Participants and other interested parties. 17.4 Effect of Termination. Upon termination of the Plan, no amount shall thereafter be payable under the Plan to or in respect of any Participant except as provided in this Article, and, to the maximum extent permitted by ERISA, transfers or distributions of the assets of the Plan as provided in this Article shall constitute a complete discharge of all liabilities under the Plan. The Committee shall remain in existence, and all of the provisions of the Plan which in the opinion of the Committee are necessary for the execution of the Plan and the distribution or transfer of the assets of the Plan shall remain in force. All distributions and notifications referred to in this Article shall be in form and substance satisfactory to counsel for the Plan. 17.5 Distribution of Assets If No ERISA Termination. If the Committee receives a determination from the PBGC that the termination of the Plan does not constitute a plan termination for purposes of Title IV of ERISA, then, upon receipt by the Committee of IRS approval of such termination, the assets of the Plan shall be applied for the benefit of Participants and Beneficiaries in such manner as the Committee shall determine, provided that, in the event of any transfer of assets to a successor employee benefit plan, the provisions of Section 16.3 hereof will apply. 17.6 Distribution of Assets Upon Termination. (a) If the termination of the Plan does not constitute a plan termination for purposes of Title IV of ERISA, then the rights of all Participants (including any person or persons whose benefits are paid from the Trust regardless of the plan under which the benefits are calculated) to their Retirement Benefits accrued to the date of such termination shall thereupon be nonforfeitable, but only to the extent that such Retirement Benefits have then been funded by contributions made prior to such termination and that funds are available to provide such Retirement Benefits upon the allocations hereinafter provided in this Section. (b) Upon receipt by the Committee of (i) all necessary PBGC regulatory approvals that the assets of the Plan are sufficient to discharge when due all obligations thereunder with respect to benefits which are guaranteed by the PBGC under Title IV of ERISA and (ii) IRS approval of such termination, the assets of the Plan which remain after reservation of an amount sufficient to apply all expenses of final administration shall be allocated, to the extent sufficient, in the following order of priority: (A) To provide for the benefits which are payable to or in respect of Participants who Retired or died, who could have Retired, or who, having terminated Service, either began receiving payments of such benefits or could have begun receiving such payments at least three years prior to the termination date, determined in each case on the basis of the provisions of the Plan at any time during the five-year period ending on the termination date when such benefits were or would have been the lowest and without regard to any increases in such benefits which accrued less than three years prior to the termination date; then (B) To provide all other benefits under the Plan which are guaranteed by the PBGC under Title IV of ERISA or which would be guaranteed if Sections 4022(b)(5) and 4022(b)(6) were not applicable, but which have not been allocated under Clause (A) of this Section; then (C) To provide all other benefits which had become nonforfeitable under the Plan prior to the termination date but which have not been allocated under Clause (A) or (B) of this Section; then (D) To provide all other benefits which had accrued under the Plan prior to the termination date but which have not been allocated under Clause (A), (B) or (C) of this Section; then (E) Any surplus assets of the Plan remaining after the payment of all expenses of final administration and after the satisfaction of all liabilities accrued to the termination date with respect to Participants and their Beneficiaries shall, upon receipt of the IRS approval therefor, revert ratably to each Participating Company in such manner and in such proportion as the Committee, upon the advice of the Actuary, shall determine. The foregoing allocations shall be made by the Committee in accordance with the determinations of the Actuary pursuant to the Regulations. If the balance remaining for allocation under any of the foregoing Clauses is insufficient to provide in full the allocations under such Clause, individual allocations shall be reduced pro rata (except that, under Clause (C) only, such balance shall first be allocated to provide the benefits described therein determined on the basis of the provisions of the Plan which were in effect at the beginning of the five-year period ending on the termination date and then, if the balance remaining for allocation is sufficient, to provide the benefits described therein which result from each successive amendment to the Plan during such five-year period under the first such amendment as to which such balance is insufficient before reducing such allocation pro rata), and no allocations shall be made under subsequent clauses. The assets of the Plan allocated in accordance with Clauses (A), (B), (C) and (D) of this Section shall be distributed in such manner as the Committee shall determine, including without limitation, lump-sum payments, cash installments, the purchase of immediate or deferred annuities or any combination of the foregoing. 17.7 Distribution of Assets Upon Termination Where Assets Not Sufficient. Notwithstanding the provisions of Section 17.6 hereof, if the PBGC notifies the Committee that it is unable to determine whether the assets of the Plan are sufficient or that such assets are insufficient to discharge when due all obligations thereunder with respect to benefits which are guaranteed by the PBGC under Title IV of ERISA, then the assets of the Plan shall be allocated and distributed only as a court having competent jurisdiction of the Plan or Trust or a trustee appointed by such court shall direct or permit or as otherwise provided in an agreement satisfactory to the Committee. 17.8 Effect of Partial Termination. In the event that any governmental authority, including without limitation the IRS and PBGC, determines that a partial termination, within the meaning of ERISA, of the Plan has occurred as to any Participating Company, then (i) the rights of all Participants affected thereby to their Retirement Benefits accrued to the date of such partial termination shall thereupon be nonforfeitable, but only to the extent that such Retirement Benefits have then been funded by such portion of the assets of the Trust as are determined to be properly allocable to such Participants and that such portion of assets is available to provide such Retirement Benefits upon the allocations provided in Section 17.6 hereof, and (ii) the provisions of Sections 17.2, 17.3, 17.4, 17.6, and 17.7 hereof and Section 16.3 hereof which in the opinion of the Committee are necessary for the execution of the Plan and the allocation and distribution of the assets of the Plan shall apply. To the maximum extent permitted by ERISA, if any liability arises as a result of such partial termination, only the Participating Company as to which the partial termination of the Plan has occurred shall be liable to the PBGC for any insufficiency of assets. ARTICLE XVIII Limitations in the Event of Early Discontinuance 18.1 Application. In order to qualify the Plan and the Trust as a qualified plan and trust under the Code, the benefits to be provided to certain Participants will be subject to the limitations set forth in this Article XVIII. 18.2 Restriction of Benefits. (a) In the event the Plan is terminated, the benefit of any active or former Participant who was a Highly Compensated Associate (as defined in Section 414(q) of the Code) shall be limited to that benefit that is nondiscriminatory under Section 401(a)(4) of the Code. (b) The annual payments to a Participant described in (c) below are restricted to an amount equal to the payments that would be made on behalf of that Participant under a straight life annuity that is the Actuarial Equivalent of the Participant's Accrued Benefit under the Plan. The restrictions in this Section 18.2 do not apply, however, if: (i) After payment to a Participant described in (c) below of all benefits described in (d) below, the value of Plan assets equals or exceeds 110% of the value of current liabilities (as defined in Section 412(1)(7) of the Code), or (ii) The value of the benefits described in (d) below for a Participant described in (c) below is less than 1% of the value of current liabilities, or (iii) The value of benefits described in (d) below for a Participant described in (c) below does not exceed the amount described in Section 411(a)(11)(A) of the Code. (c) The Participants whose benefits are restricted pursuant to this Article XVIII on distribution are the 25 Highly Compensated Associates and former Highly Compensated Associates (as defined in Section 414(q) of the Code) with the greatest compensation in the current or any prior year. Plan provisions defining or altering the group of Participants whose benefits are restricted under this Section 18.2 may be amended at any time without violating the requirements of Section 411(d)(6) of the Code. (d) For purposes of this Section 18.2, the term "benefit" includes loans in excess of the amounts set forth in Section 72(p)(2)(A) of the Code, any periodic income, any withdrawal values payable to a living Participant and any death benefits not provided for by insurance on the Participant's life. 18.3 Payment of Benefits. The limitations established under this Article XVIII shall not restrict either the payment of any monthly benefit due prior to the termination of the Plan or the payment of benefits to a Participant's Beneficiary or Surviving Spouse under the Plan at any time, if such payment commenced prior to the date of such termination. If the foregoing limitations would otherwise become applicable the Committee may, if it so elects, nevertheless pay full benefits to or in respect of any Participant who executes an agreement with the Trustees, in form and in substance satisfactory to the Committee, which is adequately secured and which guarantees the repayment of any payment subject to such limitations. 18.4 Additional Reserves. Any additional reserves arising by the application of the foregoing limitations shall be used and applied for the benefit of the other Participants and their Beneficiaries and Surviving Spouses under the Plan; provided, however, that if sufficient funds are available to provide in full for the benefits accrued for all such other Participants and their Beneficiaries and Surviving Spouses under the Plan, then such additional reserves shall be used, to the extent available, to provide the benefits under the Plan of the Participants whose benefits would otherwise have been restricted by operation of this Article XVIII. ARTICLE XIX Miscellaneous 19.1 In General. Any and all rights or benefits accruing to any person under the Plan shall be subject to all terms and conditions of the Plan and the Trust Agreement. The adoption and maintenance of the Plan shall not constitute a contract between the Company and any associate or be a consideration for, or an inducement or condition of, employment of any associate. Neither participation nor anything contained in the Plan shall give any associate the right to be retained in the employ of the Company, nor shall it interfere with the right of the Company to discharge any associate at any time. 19.2 Coordination of Payment of Benefits with Other Plans. Notwithstanding any other provision of this Plan, the payment of benefits to Participants and their Beneficiaries, Surviving Spouses and other eligible survivors under the Plan shall be paid as a part of and concomitantly with any benefits to which he is entitled in accordance with the terms of the Prior Plans. 19.3 Incapacity. If the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for such person's affairs because of illness or accident, is a minor or has died, then any payment due to the person or the person's estate (unless a prior claim therefor has been made by a duly appointed legal representative) may be paid to the spouse, a child, a relative, an institution maintaining or having custody of such person or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liabilities of the Plan and Trust Fund. 19.4 Inability to Locate Benefit Recipient. If the Committee cannot ascertain the whereabouts of any person to whom an amount is payable under the Plan, and if, after five years from the date such payment is due, a notice of such payment due is mailed to the last known address of such person as shown on the records of the Company and within three months after such mailing such person has not made a written claim therefor, the Committee, if it so elects and after receiving advice from counsel to the Plan, may assume that such person is deceased and direct that such payment be made in accordance with the applicable provisions of Article XI hereof. 19.5 Benefit Provided by Insurance. If the payment of any benefit under the Plan is provided as an annuity benefit under a contract with an insurance company, the payment of such benefit shall be subject to all the provisions of such contract. 19.6 Credit for Prior Employment. Upon such terms and conditions as the Committee and the Internal Revenue Service may approve, credit may be given for service and benefits provided under the Plan to a Participant with respect to any period of the Participant's prior employment by an organization, and such credit and benefits may be provided for in whole or in part by funds transferred, directly or indirectly (including a rollover from an individual retirement account, or an individual retirement annuity as described in Section 408 of the Code), to the Trust Fund from an employee benefit plan of such organization which qualifies under Section 401(a) of the Code. 19.7 Construction. To the maximum extent permitted by ERISA, the Plan shall be construed in accordance with the laws of the State of Illinois. As used herein, the masculine form shall, where appropriate, include the feminine and neuter genders. All Article and Section headings herein have been inserted for convenience only and shall not affect the meaning of the language contained herein. ARTICLE XX Top Heavy Provisions 20.1 In General. The Plan will be considered a Top Heavy Plan for any Plan Year if its determined to be a Top Heavy Plan as of the last day of the preceding Plan Year. For purposes of determining whether the Plan is a Top Heavy Plan, uniform actuarial assumptions which reflect interest rate, as prescribed in Section 2.1, shall be used. The present value of a Participant's Retirement Benefit shall be determined as of the last valuation date used for computing Plan costs for minimum funding purposes which occurs within the Plan Year in which the determination is being made, and shall include amounts distributed to or on behalf of the Participants within the four preceding Plan Years. Notwithstanding any other provisions in the Plan, the provisions of this Article XX shall apply and supersede all other provisions of the Plan with respect to a Plan Year with respect to which the Plan is determined to be a Top Heavy Plan. 20.2 Definitions. For purposes of this Article XX and as otherwise used in this Plan, the following terms shall have the meanings set forth below: (a) "Affiliate" shall mean any entity affiliated with the Company within the meaning of Section 414(b), 414(c) or 414(m) of the Code, except that for purposes of applying the provisions hereof with respect to the limitation on benefits, Section 415(h) of the Code shall apply. (b) "Aggregation Group" shall mean the group composed of each qualified retirement plan of the company or an Affiliate in which a Key Associate is a participant and each other qualified retirement plan of the Company or an Affiliate which enables a plan of the Company or an Affiliate in which a Key Associate is a participant to satisfy Sections 401(a)(4) and 410 of the Code with such plan being taken into account. (c) "Key Associate" shall mean a "Key Employee" as defined in Section 416(i)(1) and (5) of the Code and Regulations promulgated thereunder. (d) "Top Heavy Plan" shall mean a "Top Heavy Plan" as defined in Sections 416(g) of the Code and Regulations promulgated thereunder. 20.3 Vesting. (a) If a Plan is a Top Heavy Plan with respect to any Plan Year, a Participant's nonforfeitable right to the Participant's Retirement Benefit derived from the Company's contributions shall not be less than the amount determined in accordance with the following vesting schedule: Years of Service Percentage Less than 3 0% 3 or more 100% (b) In the event the vesting schedule provided in Section 2.51 is amended, or changed on account of the Plan becoming or ceasing to be a Top Heavy Plan, any Participant who has completed at least 5 Years of Service for purposes of determining a Participant's nonforfeitable right to the Participant's Retirement Benefit derived from the Company's contributions under Sections 2.51 and 20.3 may elect to have the Participant's nonforfeitable percentage determined under the Plan without regard to such amendment or change by notifying the Committee in writing within the election period hereinafter described. The election period shall begin on the date such amendment is adopted or the date such change is effective, as the case may be, and shall end no earlier than the latest of the following dates. (1) The date which is 60 days after the day such amendment is adopted; (2) The date which is 60 days after the day such amendment or change becomes effective; or (3) The date which is 60 days after the day the Participant is given written notice of such amendment or change by the Committee. Any election made pursuant to this Section 20.3(b) shall be irrevocable. 20.4 Distributions to Participants. (a) Subject to Section 20.5, for each Plan Year that the Plan is a Top Heavy Plan, the Retirement Benefit for each Participant who has completed a Year of Service and who is not a Key Associate shall not be less than such Participant's Average Compensation, multiplied by the lesser of (i) 2% multiplied by the number of Years of Service with the Company or (ii) 20%. For purposes of the preceding sentence, Years of Service shall not include any Year of Service completed prior to the Plan Year beginning prior to January 1, 1984, or any Year of Service if the Plan was not a Top Heavy Plan for any Plan Year ending during such Year of Service. (b) For purposes of this Section 20.4, "Average Compensation" shall mean the average of a Participant's compensation (as described in Section 415 of the Code) for the period of 5 consecutive years (or, if the Participant does not have 5 consecutive years, the Participant's actual number of consecutive years) during which the Participant had the greatest aggregate compensation. Compensation earned during a Plan Year beginning before January 1, 1984, or during a Plan Year which begins after the last Plan Year in which the Plan was not a Top Heavy Plan shall be disregarded for purposes of determining Average Compensation. 20.5 Top Heavy Plan Years. (a) For each Plan Year that the Plan is a Top Heavy Plan, 1.0 shall be substituted for 1.25 as the multiplicand of the dollar limitation in determining the denominator of the defined benefit plan fraction and of the defined contribution plan fraction for purposes of Section 415(e) of the Code. (b) If, after substituting 90% for 60% wherever the latter appears in Section 416(g) of the Code, the Plan is not determined to be a Top Heavy Plan, the provisions of paragraph (a) shall not be applicable if the Retirement Benefit for each Participant who is not a Key Associate is determined in accordance with Section 20.4(a), substituting "3%" for "2%" in Section 20.4(a) and increasing "20%" in Section 20.4(a) by 1 for each Plan Year described in the last sentence of Section 20.4(a), but not beyond "30%". 20.6 Duplication of Benefits. The Committee shall, to the extent permitted by the Code and in accordance with Regulations, apply the provisions of this Article XX by taking into account the benefits payable and the contributions made under any other plans maintained by the Company or any of its subsidiaries or affiliated or associated entities which are qualified under Section 401(a) of the Code to prevent inappropriate omissions or duplication of minimum benefits or contributions. ARTICLE XXI Transfer of Amounts Attributable to Contributions Under The Jefferson Stores Plan 21.1 Transfer of Accrued Benefit. Each Participant who was a participant of the Jefferson Stores Plan on December 31, 1984 had an amount equal to the Participant's accrued retirement benefit under the Jefferson Stores Plan, if any, transferred from the trust established as part of the Jefferson Stores Plan to the Trust. 21.2 Transfer Held in Trust. The Committee shall establish and maintain or cause to be established and maintained, as part of the Trust, such accrued benefits which are allocable to the amounts transferred pursuant to Section 21.1, if any, and all relevant data pertaining thereto. All such transferred amounts shall be held by the Trustee for the exclusive benefit of such Participants in accordance with the terms of the Plan, to be commingled, managed, invested and reinvested with the other assets of the Plan. Upon such transfer, and except as otherwise provided in the Jefferson Stores Plan, the Trustees of the Jefferson Stores Plan shall have no further liability whatsoever with respect to such transferred amounts or the benefits which had been based thereon, and the Participant shall look solely to the Plan for any payment or other benefit in respect of the amount so transferred. 21.3 Payment of Benefits. The accrued benefit attributable to any amounts transferred from the Jefferson Stores Plan, if any, shall be nonforfeitable and shall be paid from the Trust Fund to the Participant or the Participant's Beneficiary or Surviving Spouse at the same time and in the same manner as any payment made in accordance with Articles XI, XII or XIII. ARTICLE XXII Transfer of Amounts Attributable to Contributions Under the Lechmere Plan 22.1 Transfer of Accrued Benefit. Each Participant who was a participant of the Lechmere Plan on June 30, 1994 had an amount equal to the Participant's accrued retirement benefit under the Lechmere Plan, if any, transferred from the trust established as part of the Lechmere Plan to the Trust. 22.2 Transfer Held in Trust. The Committee shall establish and maintain or cause to be established and maintained, as part of the Trust, such accrued benefits which are allocable to the amounts transferred pursuant to Section 22.1, if any, and all relevant data pertaining thereto. All such transferred amounts shall be held by the Trustees for the exclusive benefit of such Participants in accordance with the terms of the Plan, to be commingled, managed, invested and reinvested with the other assets of the Plan. Upon such transfer, and except as otherwise provided in the Lechmere Plan, the Participant shall look solely to the Plan for any payment or other benefit in respect of the amount so transferred. 22.3 Payment of Benefits. The accrued benefit attributable to any amounts transferred from the Lechmere Plan, if any, shall be nonforfeitable and shall be paid from the Trust Fund to the Participant or the Participant's Beneficiary or Surviving Spouse at the same time and in the same manner as any payment made in accordance with Articles XI, XII or XIII. EX-10 4 EXHIBIT 10.(iv)(H) Montgomery Ward & Co., Incorporated Savings and Profit Sharing Plan (Amended and Restated Effective as of January 1, 1994) Montgomery Ward & Co., Incorporated Savings and Profit Plan TABLE OF CONTENTS Section Page 1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3 Membership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4 Required Basic Contributions . . . . . . . . . . . . . . . . . . . . 21 5 Pre-Tax Supplemental Contributions and After-Tax Supplemental Contributions . . . . . . . . . . . . . . 22 6 Company Contributions. . . . . . . . . . . . . . . . . . . . . . . . 31 7 Transfer of Amounts Attributable to Members' Contributions and Profit-Sharing Plan Balances Under the Retirement Security Plan . . . . . . . . . . . . . . . . . 41 8 Transfer of Amounts Attributable to Members' Account Balance Under the Lechmere Plan. . . . . . . . . . . . . . . 43 9 Investment of Contributions. . . . . . . . . . . . . . . . . . . . . 45 10 Valuations and Maintenance of Members' Accounts. . . . . . . . . . . 48 11 Eligibility for Benefits . . . . . . . . . . . . . . . . . . . . . . 51 12 Method of Payment of Benefits. . . . . . . . . . . . . . . . . . . . 58 13 Maximum Amount of Allocation . . . . . . . . . . . . . . . . . . . . 64 14 Designation of Beneficiaries . . . . . . . . . . . . . . . . . . . . 66 15 Loans to Members . . . . . . . . . . . . . . . . . . . . . . . . . . 68 16 Administration of the Plan . . . . . . . . . . . . . . . . . . . . . 73 17 Termination of Employer Participation. . . . . . . . . . . . . . . . 84 18 Amendment or Termination of the Plan and Trust . . . . . . . . . . . 87 19 General Limitations and Provisions . . . . . . . . . . . . . . . . . 90 20 Top Heavy Provisions . . . . . . . . . . . . . . . . . . . . . . . . 95 SECTION 1. PURPOSE 1.1 The purpose of the Montgomery Ward & Co., Incorporated Savings and Profit Sharing Plan is to encourage associates to make and continue careers with Montgomery Ward & Co., Incorporated and its participating subsidiaries and other participating companies by providing eligible associates with a convenient way to save on a regular and long-term basis, all as set forth herein, and in the Trust Agreement adopted as a part of this Plan. This Plan is an amendment and restatement of the Montgomery Ward & Co., Incorporated Savings and Profit Sharing Plan as in effect on December 31, 1993. This Plan also reflects the merger of the Lechmere, Inc. Supplemental Retirement and Savings Plan (the "Lechmere Plan") into the Plan as of August 1, 1994. The benefits provided under this Plan are supplemented by the transfer to the Trust of amounts attributable to associate contributions under this Plan made after December 31, 1980 and before April 1, 1983, by amounts attributable to the Profit- Sharing Plan Balances under certain defined benefit pension plans maintained by the Company for the benefit of eligible associates, and by the transfer to the Trust of account balances under the Lechmere Plan. This Plan, and the Trust established thereunder, are intended to qualify as a plan and trust which meet the requirements of Sections 401(a), 401(k), 401(m) and 501(a), respectively, of the Internal Revenue Code of 1986, as now in effect or hereafter amended, or any other applicable provisions of law including, without limitation, the Employee Retirement Income Security Act of 1974, as now in effect or hereafter amended. The rights of any person who terminated employment or who retired on or before the effective date of a particular amendment, including his eligibility for benefits and the time and form in which benefits, if any, will be paid, shall be determined solely under the terms of the Plan as in effect on the date of his termination of employment or retirement, unless such person is thereafter reemployed and again becomes a Member. 1.2 Although this restatement is generally effective January 1, 1994, the inclusion of amendments to conform with the Tax Reform Act of 1986 and other applicable laws necessitates different effective dates for certain Plan provisions. Accordingly, notwithstanding the general effective date of this restatement, the following Plan sections as amended shall be effective as indicated below. Sections Effective Date 7 June 30, 1994 11.2 July 1, 1994 12.1(d) January 1, 1993 SECTION 2. DEFINITIONS When used herein the following terms shall have the following meanings: 2.1 "Account" means the Account established and maintained in respect of a Member pursuant to Section 3.7. 2.2 "Administrative Director" means the Administrative Director of the Plan appointed by the Committee in accordance with Section 16.3 hereof. 2.3 "Affiliate" means any corporation which is a member of a controlled group of corporations, as determined in accordance with Section 414(b) of the Code, which includes the Company; any trade or business (whether or not incorporated) which, as defined in Section 414(c) of the Code is under common control with the Company, any organization (whether or not incorporated) which is a member of an affiliated service group as defined in Section 414(m) of the Code, which includes the Company; and any other entity required to the aggregated with the Company pursuant to Regulations under Section 414(o) of the Code. For purposes of Section 13, Section 414(b) and (c) of the Code shall be applied as modified by Section 415(h) of the Code. 2.4 "After-Tax Supplemental Contribution" and "After-Tax Supplemental Contribution Account" mean those Member contributions made on or before June 30, 1994 pursuant to Section 5.1(c) and that portion of the Member's Account to which such contributions are credited. 2.5 "Annual Net Profit" means the amount of net profit of a Participating Company or any Affiliate for a particular taxable year, calculated in accordance with generally accepted accounting principles by the Company's chief of accounting or fiscal officer, and certified by the independent auditor or auditors engaged by the Committee. For purposes of said calculation, there shall be excluded from gross earnings any investment income and any gains realized on the sale or other disposition of capital or depreciable assets, and there shall be deducted from gross earnings all costs, expenses and charges, including contributions made under any group insurance or other benefit plan, except that no deduction shall be made for contributions to this Plan or for Federal income and state and local franchise, gross receipts or income taxes. 2.6 "Basic Contribution" and "Basic Contribution Account" mean those Member contributions made pursuant to Section 4.1 and that portion of the Member's Account to which such contributions are credited. For purposes of Sections 9.2, 9.3, 9.4, 9.5, 9.6, 11.6(c) and 12, the Basic Contributions made while an Associate of Signature/Financial Marketing, Inc. shall be treated as either After-Tax Supplemental Contributions or Pre-Tax Supplemental Contributions, as appropriate. 2.7 "Beneficiary" means the beneficiary or beneficiaries designated by a Member pursuant to Section 14 to receive the amount, if any, payable under the Plan upon the death of such Member. 2.8 "Benefit Derived from Associate Contributions" means the Benefit Derived from Associate Contributions as determined by enrolled actuaries under the Retirement Security Plan as of March 31, 1983. 2.9 "Board of Directors" means the Board of Directors of Ward. 2.10 "Break in Service" means the year during which or immediately after which an Associate terminates Service and does not perform Service during at least 12 weeks. Notwithstanding the preceding sentence, any Associate who actually performs at least 500 Hours of Service during any Plan Year, as determined by the Committee in accordance with the Regulations, shall not be considered as having incurred a Break in Service. Effective with respect to absences commencing on or after January 1, 1985, solely for purposes of determining whether a Break in Service has occurred, an individual shall be credited with the Hours of Service which such individual would have completed but for a maternity or paternity absence, as determined by the Committee in accordance with this Section 2.10 and the Code and Regulations, provided, however, that the total Hours of Service so credited shall not exceed 501 hours and that the individual timely provide the Committee with such information as it shall require. Hours of Service credited for a maternity or paternity absence shall be credited entirely (i) in the Plan Year in which the absence began if such Hours of Service are necessary to prevent a Break in Service in such year, or (ii) in the following Plan Year. For purposes of this Section 2.10, maternity or paternity absence shall mean an absence from work by reason of the individual's pregnancy, the birth of the individual's child or the placement of a child with the individual in connection with adoption of the child by such individual, or for purposes of caring for a child for the period immediately following such birth or placement. 2.11 "Code" means the Internal Revenue Code of 1986, as now in effect or as hereafter amended. All citations to sections of the Code are to such sections as they may from time to time be amended or renumbered. 2.12 "Committee" means the Benefit Plans Committee provided for in Section 16. For purposes of ERISA, the members of the Benefit Plans Committee shall be the named fiduciaries (with respect to the matters for which they are hereby made responsible under the Plan) of the Plan, and shall be the administrator of the Plan. 2.13 "Company" means Montgomery Ward & Co., Incorporated and each other Participating Company, or any of them. 2.14 "Compensation" means for each Plan Year, an Associate's first $150,000 (adjusted for cost of living to the extent permitted by the Code and Regulations) of compensation, including salary, wages, overtime premium, commissions, holiday pay, vacation pay, bonuses, cash incentives other than from contests, and salary continuance, paid or payable to or on behalf of, or otherwise includable in the gross income of an Associate for Service while an Associate and a Member during that Plan Year, as determined by the Committee. Compensation shall not include amounts contributed to the Trust Fund pursuant to the Plan or paid or contributed to any group insurance plan or other employee benefit plan, if any, established or maintained by the employer of an individual, and excludable from his or her gross income, other than amounts contributed on behalf of a Member under Section 5.1 of the Plan. In determining Compensation for a Highly Compensated Associate who is either a 5% owner of the Company or one of the 10 most highly paid Highly Compensated Associates and is therefore subject to the family aggregation rules of Section 414(q)(6) of the Code, the Highly Compensated Associate's family unit shall be treated as a single employee with one Compensation. The term "family" shall include the Highly Compensated Associate and any Associate who is the Highly Compensated Associate's Spouse or any lineal descendants of the Highly Compensated Associate who have not attained age 19 before the close of the Plan Year. If, as a result of applying the family aggregation rules, the adjusted $150,000 limitation is exceeded, then the adjusted $150,000 limitation will be allocated among the members of the family unit in proportion to such member's Compensation as determined prior to the application of the $150,000 limitation. 2.15 "Direct Rollover" means a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 2.16 "Distributee" means an Associate or former Associate. In addition, the Associate's or former Associate's surviving Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, are Distributees with regard to the interest of the Spouse or former Spouse. 2.17 "Effective Date" means January 1, 1994. 2.18 "Eligible Retirement Plan" means an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, or a qualified trust described in Section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving Spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. 2.19 "Eligible Rollover Distribution" means any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated Beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). 2.20 "Employee", "Associate", "Eligible Employee" or "Eligible Associate" means any individual who is employed by the Company, as determined by the Committee, excluding (a) any associate who is included in a unit of associates covered by a negotiated collective bargaining agreement which does not provide for his membership in the Plan, (b) any associate who actively participates in any other tax-qualified pension or profit-sharing plan maintained by the Company (other than the Jefferson Stores Plan and the Retirement Security Plan), (c) any associate of a division of the Company which the Committee has determined to treat as though it is an Affiliate which is not a Participating Company, and (d) any nonresident alien. Notwithstanding the foregoing, associates who are on the Company payroll and who work at Montgomery Ward Hong Kong, Ltd. shall be eligible to participate in the Plan. A director of the Company is not eligible for membership in the Plan unless he is also an associate. 2.21 "ERISA" means the Employee Retirement Income Security Act of 1974, as now in effect or as hereafter amended. 2.22 "Highly Compensated Associate" means an Associate or Member who, during the relevant period, is treated as a highly compensated employee under Section 414(q) of the Code. 2.23 "Hours of Service" means any hour during which an Associate performs Service (or is treated as performing Service under Section 2.43) and for which he is paid, or entitled to payment for the performance of duties for the Company (including back pay irrespective of mitigation of damages). In addition, Hours of Service shall also include up to 501 hours of non-working time during any single continuous period of absence which does not otherwise constitute Service, but for which an Associate is directly or indirectly paid or entitled to payment. The determination of Hours of Service to be credited hereunder shall be made by the Committee in accordance with the Regulations, including Sections 2530.200b-2(b) and (c) of the Labor Department Regulations and Sections 825.214 through 825.216 of the Family and Medical Leave Act ("FMLA") Regulations. 2.24 "Investment Fund" means the Funds provided for in Section 9 or any of them. 2.25 "Investment Manager" means an Investment Manager, as that term is defined in ERISA, appointed by the Trustees in accordance with Section 16.2 hereof. 2.26 "IRS" means the United States Internal Revenue Service. 2.27 "Jefferson Stores Plan" means the Retirement Plan for Employees of Jefferson Stores, Inc., as amended effective January 1, 1984. 2.28 "Labor Department" means the United States Department of Labor. 2.29 "Lechmere Plan" means the Lechmere, Inc. Supplemental Retirement and Savings Plan, as amended and restated as of February 28, 1994. 2.30 "Lechmere Account" means the account, if any, established and maintained as part of a Member's Account to reflect amounts transferred with respect to a Member's Account Balance under the Lechmere Plan pursuant to Section 8.2. 2.31 "Matching Contribution" and "Matching Contribution Account" mean those contributions made pursuant to Section 6.1 and that portion of a Member's Account to which such contributions are credited. 2.32 "Member" means any Associate who is enrolled in the membership of the Plan as provided in Section 3. 2.33 "Participating Company" means any company which is an Affiliate, designated by the Board of Directors as such, the board of directors or equivalent governing body of which shall adopt the Plan by appropriate action and the Associates of which shall be eligible to participate in the Plan in the manner and to the extent determined by the Board of Directors so long as that company remains so designated. Any such company so designated and which adopts the Plan shall be deemed thereby to appoint Ward, the Committee, the Administrative Director and the Trustees its exclusive agents to exercise on its behalf all of the powers conferred hereby or by the Trust Agreement upon the Company, the Committee, the Administrative Director and the Trustees, respectively, and shall make its allocable contributions to the Plan. The authority of Ward, the Committee, the Administrative Director and the Trustees, respectively, to act as such agent shall continue until the Plan has terminated as to such company and the relevant Trust Fund assets have been distributed by the Trustees as provided in Section 18.4 hereof. 2.34 "Plan" means the Montgomery Ward & Co., Incorporated Savings and Profit Sharing Plan, as the same may be amended from time to time. 2.35 "Plan Year" means the nine-month period beginning April 1, 1983 and ending December 31, 1983, and thereafter, shall mean the calendar year. 2.36 "Pre-Tax Supplemental Contribution" and "Pre-Tax Supplemental Contribution Account" mean those Member contributions made pursuant to Section 5.1(a) and that portion of the Member's Account to which such contributions are credited. 2.37 "Profit Sharing Contribution" and "Profit Sharing Contribution Account" mean those contributions made pursuant to Section 6.2 and that portion of the Member's Account to which such contributions are credited. 2.38 "Profit-Sharing Plan Balance" means the fair market value of the amounts credited to a Member's account under the Retirement Security Plan which were transferred to the Retirement Security Plan and attributable to a Member's service under the Montgomery Ward & Co., Incorporated Profit-Sharing Plan as of December 31, 1974, reduced by any portion thereof withdrawn prior to the Effective Date, plus interest on such net amount compounded annually at the rate of 6% per annum from December 31, 1974 to the date such amount was transferred to the Trust from the Retirement Security Plan pursuant to Section 7. 2.39 "Profit-Sharing Plan Balance Account" means the account, if any, established and maintained as a part of a Member's Account to reflect amounts transferred with respect to a Member's Profit-Sharing Plan Balance pursuant to Section 7. 2.40 "Regulations" means the applicable regulations issued under the Code, ERISA or other applicable law, by the IRS, the Labor Department or any other governmental authority and any proposed or temporary regulations or rules promulgated by such authorities pending the issuance of such regulations. 2.41 "Retirement Security Plan" means the Montgomery Ward & Co., Incorporated Retirement Security Plan, effective January 1, 1994, and as amended from time to time. 2.42 "Salary Reduction Account" means the salary reduction account, if any, established and maintained as part of a Member's Account to reflect salary reduction contributions contributed to the Plan prior to January 1, 1989. 2.43 "Service" means employment with the Company or with any Affiliate. Service shall also include the following: (a) Any authorized leave of absence under rules determined by the Committee, which are uniformly applicable to all associates similarly situated and in accordance with the Regulations (including Sections 2530.200b-2(b) and (c) of the Labor Department Regulations and Sections 825.214 through 825.216 of the FMLA Regulations; provided the associate returns to active Service within the period authorized for such leave; (b) Service in any of the United States Armed Forces, if and to the extent required by the Military Selective Service Act, as amended, the FMLA, the Uniformed Services Employment and Reemployment Rights Act of 1994 or any other federal law, or as otherwise recognized by the Committee; (c) Any period of layoff not in excess of 90 days during which the associate retains reemployment rights and provided that the associate reports to work after recall and within the 90 day period; (d) Any period of suspension of participation, as provided for in Section 5.2 hereof; and (e) Any period of a Member's prior employment by any organization upon such terms and conditions as the Committee may approve and subject to any required IRS approval. 2.44 "Spouse" means the legal spouse of a Member as determined in accordance with applicable state law. 2.45 "Surviving Spouse" means the survivor of a deceased former Member to whom such deceased former Member had been legally married (as determined by the Committee) on the earlier of (i) the time payments commenced under the Plan or (ii) for at least one year at the date of the Member's death. 2.46 "Transferred Contribution Account" means the account, established and maintained as part of a Member's Account, to reflect amounts transferred with respect to a Member's Benefit Derived from Associate Contributions, pursuant to Section 7. 2.47 "Trust" or "Trust Fund" means the trust established by the Company as a part of the Plan. 2.48 "Trustees" means the trustees of the Trust. 2.49 "Unit" means the unit measuring the value of a Member's proportionate interest in the Investment Funds. 2.50 "Valuation Date" means the last day of each Plan Year and the last day of any month or months in a Plan Year as the Committee in its discretion may from time to time determine or any other day as the Committee in its discretion may from time to time determine. 2.51 "Ward" means Montgomery Ward & Co., Incorporated, an Illinois corporation, and any successor to all or substantially all of its business and assets. 2.52 "Year" means the 12 consecutive month period beginning on the date an Associate's Service commenced or recommenced after a Break in Service, as determined by the Committee, or an anniversary date thereof. 2.53 "Year of Service" means a Year in which an associate performs 1,000 Hours of Service. SECTION 3. MEMBERSHIP 3.1 (a) Subject to the following provisions of this Section 3, each Associate who was a Member of the Plan immediately prior to the Effective Date shall continue to be a Member on and after the Effective Date. Each other Eligible Associate in Service immediately prior to the Effective Date, but who was not a Member of the Plan, shall be eligible for membership in the Plan on the later of the Effective Date or the first day of the month following the date on which he satisfies the requirements for membership in the Plan as set forth in Section 3.1(b). (b) Each Associate who commences Service on or after the Effective Date shall be eligible to participate in the Plan (other than with respect to contributions made under Sections 7 and 8 of the Plan), subject to the following provisions of this Section 3 and provided he is then an Eligible Associate, on the first day of the month following the later of (i) the date on which he attains age 21; or (ii) the date on which he completes one Year of Service. If an individual becomes an Eligible Associate after the later of the dates specified in (i) and (ii) above and after completing one Year of Service, he shall be eligible to participate in the Plan as of the first day of the month following the date on which he becomes an Eligible Associate. Notwithstanding the above, with respect to transfers made under Sections 7 and 8 of the Plan, the individual with respect to which such transfers are made shall be treated as a Member with respect to such transfers. (c) Notwithstanding the foregoing, each participant in the Lechmere Plan on July 1, 1994 shall become a Member in the Plan as of July 1, 1994. 3.2 An Eligible Associate shall be enrolled in the membership of the Plan as of the first day of the month coincident with or next following the date on which he becomes eligible for membership and duly files the written enrollment form prescribed by the Committee. 3.3 An Eligible Associate shall duly file the prescribed written enrollment form, in accordance with procedures adopted by the Committee. The written enrollment form shall include an election to reduce the Member's Compensation, specifying the amount of his contributions under Sections 4.1 and 5.1, and authorizing any necessary payroll deductions, an investment direction, a beneficiary designation, and an agreement to be bound by all the terms and conditions of the Plan and Trust and any agreement with any other funding agency, including an insurance company, constituting a part of the Plan and Trust Fund. If a Member does not elect to reduce his Compensation in his application, he shall, notwithstanding any provisions of the Plan to the contrary, be entitled solely to the benefits provided under Sections 7.4 and 8.4, if applicable. 3.4 The Committee shall notify each Associate when he becomes eligible for membership, shall furnish an enrollment application form, and shall take any other necessary or appropriate action to enroll each Associate eligible to be enrolled under Section 3. If it is determined that an Eligible Associate has not been enrolled in the membership of the Plan due to error, such Associate may be retroactively enrolled. The Account of an Associate who is retroactively enrolled shall upon such enrollment, consist solely of the aggregate amount of contributions which would have been allocated to his Account had he been enrolled when first eligible, which shall be paid within the time and upon the conditions prescribed by the Committee under rules of uniform applicability to all such Associates. 3.5 The membership of a Member shall cease upon payment to the Member of the entire balance in his Account or upon the Member's death prior to such payment. 3.6 If a Member who terminates Service and incurs a Break in Service shall again become an Associate, he shall become eligible for membership in the Plan as of the first day of the month coincident with or next following the date he again became an Eligible Associate. 3.7 The Committee shall establish and maintain or cause to be established and maintained in respect to each Member an Account showing his interest under the Plan and in the Trust Fund (including separate accounts showing his respective interests, if any, in each of the Investment Funds) with respect to (a) contributions made under Section 4.1, (b) contributions made under Sections 5.1(a) and 5.1(c), (c) contributions made under Sections 6.1 and 6.2, (d) all amounts transferred to the Plan pursuant to Sections 7 and 8 and (e) all amounts contributed to the Plan prior to the Effective Date and all other relevant data pertaining thereto. Each Member shall be furnished with a written statement of his Account at least annually and upon any distribution to him. In maintaining the Accounts under the Plan or causing them to be maintained, the Committee can conclusively rely on the valuations of the Trust Fund in accordance with the Plan and the terms of the Trust. 3.8 The establishment and maintenance of, or allocations and credits to, the Account of any Member shall not vest in any Member any right, title or interest in and to any Plan assets or benefits except at the time or times and upon the terms and conditions and to the extent expressly set forth in the Plan and in accordance with the terms of the Trust. SECTION 4. REQUIRED BASIC CONTRIBUTIONS 4.1 Each Member other than a Member working at Electric Ave. & More is required to contribute an amount equal to three percent (3%) of his Compensation. Commencing on or after January 1, 1989, these required Basic Contributions shall be made on an after-tax basis. Prior to January 1, 1989, required Basic Contributions were made on a salary-reduction basis. No Member working at Electric Ave. & More is permitted to make Basic Contributions. SECTION 5. PRE-TAX SUPPLEMENTAL CONTRIBUTIONS AND AFTER-TAX SUPPLEMENTAL CONTRIBUTIONS 5.1 (a) A Member may elect to reduce his Compensation by an amount not less than one percent (1%) and not more than ten percent (10%) of such Compensation for such Plan Year in any whole percentage in accordance with procedures adopted by the Committee, which procedures may include limitations on the elections of Highly Compensated Associates, and the Employer shall contribute such amount to the Plan on behalf of the Member as a Pre-Tax Supplemental Contribution. Notwithstanding the foregoing, the Committee may amend or revoke a Member's election to reduce his Compensation if such revocation or amendment is necessary to ensure that a Member's contributions for any Plan Year will not exceed the limitations of Section 415 of the Code, to ensure that the discrimination tests of Section 401(k) of the Code are met for such Plan Year, to ensure that no more than $7,000, as adjusted for increases in the cost of living in accordance with Section 402(g)(5) of the Code, is deferred by any Member for any calendar year, or, to ensure that the Company contributions for the Plan Year do not exceed the amount deductible by the Company with respect to such year for federal income tax purposes under section 404(a)(3)(A) of the Code. In the event that the aggregate amount of Pre-Tax Supplemental Contributions for a Member exceeds the limitation of Section 402(g)(5) of the Code, the amount of such excess ("excess deferrals"), increased by any income and decreased by any losses attributable thereto, shall be refunded to the Member no later than the April 15th of the calendar year following the calendar year for which the Pre-Tax Supplemental Contributions were made. If a Member also participates, in any calendar year, in any other plans subject to the limitations set forth in Section 402(g) of the Code and has made excess deferrals under this Plan when combined with the other plans subject to such limits, to the extent the Member, in writing submitted to the Committee no later than the March 1 of the Plan Year following the Plan Year for which the Pre-Tax Supplemental Contributions were made, designates any Pre-Tax Supplemental Contributions under this Plan as excess deferrals, the amount of such designated excess, increased by any income and decreased by any losses attributable thereto, shall be refunded to the Member no later than the April 15 of the calendar year following the calendar year for which the Pre-Tax Supplemental Contributions were made. (b)(i) Notwithstanding any other provision of this Section 5.1, the actual deferral percentage for the Plan Year for Highly Compensated Associates who are eligible to participate in the Plan shall not exceed the greater of the following actual deferral percentage tests: (a) the actual deferral percentage for such Plan Year of those Eligible Associates who are not Highly Compensated Associates multiplied by 1.25; or (b) the actual deferral percentage for the Plan Year of those Eligible Associates who are not Highly Compensated Associates multiplied by 2.0, provided that the actual deferral percentage for Highly Compensated Associates does not exceed the actual deferral percentage for such other Eligible Associates by more than 2%. For purposes of this Section 5.1, the "actual deferral percentage" for a Plan Year means, for each specified group of Associates, the average of the actual deferral ratios (calculated separately for each Associate in such group) of (a) the amount of contributions made to the Member's Pre-Tax Supplemental Contribution Account for the Plan Year, to (b) the amount of the Member's compensation (as defined in Section 414(s) of the Code) for the Plan Year. An Eligible Associate's actual deferral percentage shall be zero if no Pre-Tax Supplemental Contribution is made on his behalf for such Plan Year. In calculating the actual deferral percentage for a Plan Year, Pre-Tax Supplemental Contributions shall be taken into account only if they are allocated to a Member's Account within such Plan Year. (ii) The Committee shall determine as of the end of the Plan Year, and at such time or times in its discretion, whether one of the actual deferral percentage tests specified in Subsection 5.1(b)(i) is satisfied for such Plan Year and shall maintain records sufficient to demonstrate satisfaction of such actual deferral percentage tests. This determination shall be made after first determining the treatment of excess deferrals within the meaning of Section 402(g) of the Code under Section 5.1(a). In the event that neither of such actual deferral percentage tests is satisfied, the Committee shall, to the extent permissible under the Code and the Regulations, and to the extent any such recharacterization would not cause a violation of Section 6.3(a), if the Member so elects, recharacterize such excess contributions as After-Tax Supplemental Contributions, in the manner described in Subsection 5.1(b)(iii) or, to the extent such recharacterization is not possible or the Member does not so elect, refund the excess contributions in the manner described in Subsection 5.1(b)(iv). For purposes of this Section 5.1, "excess contributions" means, with respect to any Plan Year, the excess of the aggregate amount of Pre-Tax Supplemental Contributions (and any earnings and losses allocable thereto) made to the Pre- Tax Supplemental Contribution Accounts of Highly Compensated Associates for such Plan Year, over the maximum amount of such contributions that could be made to the Pre-Tax Supplemental Contribution Accounts of such Members without violating the requirements of Subsection 5.1(b)(i), determined by reducing Pre- Tax Supplemental Contributions made on behalf of Highly Compensated Associates in order of the actual deferral percentages beginning with the highest of such percentages. (iii) To the extent provided in Subsection 5.1(b)(ii), in accordance with the Code and the Regulations, if a Highly Compensated Associate so elects in writing no later than the March 1 following the Plan Year for which such excess contributions were made, the Committee may recharacterize excess contributions of such Member for a Plan Year as After-Tax Supplemental Contributions in order to satisfy the requirements of Subsection 5.1(b)(i), in which event the amount of excess contributions so recharacterized shall, to the extent permitted by the Code and the Regulations, be treated as having been refunded to the Member and then contributed by the Member to the Member's After-Tax Supplemental Contribution Account. Any excess contributions not so recharacterized shall be distributed before the end of the Plan Year immediately following the Plan Year for which such excess contributions were made. (iv) If a Highly Compensated Associate does not elect recharacterization under Section 5.1(b)(iii), or, if required in order to comply with the provisions of Subsection 5.1(b)(i) and the Code, the Committee shall refund excess contributions for a Plan Year. The distribution of such excess contributions shall be made to Highly Compensated Associates to the extent practicable before the 15th day of the third month immediately following the Plan Year for which such excess contributions were made, but in no event later than the end of the Plan Year following such Plan Year. Any such distribution shall be made to each Highly Compensated Associate on the basis of the respective portions of such amounts attributable to each such Highly Compensated Associate. (v) The amount of excess contributions for a Highly Compensated Associate shall be determined as follows: (1) the actual deferral ratio of the Highly Compensated Associate with the highest actual deferral ratio shall be reduced to the extent necessary to satisfy the actual deferral percentage test or cause the actual deferral ratio to equal the actual deferral ratio of the Highly Compensated Associate with the next highest actual deferral ratio. This procedure shall be repeated until the actual deferral percentage test is satisfied. The amount of excess contributions for a Highly Compensated Associate is then equal to the total amount of Pre-Tax Supplemental Contributions taken into account for the actual deferral percentage test, minus the product of the Highly Compensated Associate's actual deferral ratio and the Highly Compensated Associate's Compensation. The amount of excess contributions to be refunded shall be reduced by the amount of excess deferrals previously distributed for the taxable year ending in the same Plan Year, and excess deferrals to be distributed for a taxable year shall be reduced by excess contributions previously refunded for the Plan Year beginning in such taxable year. In the case of a Highly Compensated Associate whose actual deferral ratio is determined under the family aggregation rules of Section 414(q)(6) of the Code, the determination of the amount of excess contributions shall be made by reducing the actual deferral ratio in accordance with the "leveling" method described in Regulation Section 1.401(k)- 1(f)(2) and allocating the excess contributions among the family members in proportion to the contributions of each family member that have been combined. (vi) For purposes of determining whether the Plan satisfies the actual deferral percentage test, all salary reduction contributions that are made under two or more plans that are aggregated for purposes of Section 401(a)(4) or 410(b) of the Code (other than Section 401(b)(2)(A)(ii) of the Code) shall be treated as made under a single plan and, if two or more plans are permissively aggregated for purposes of Section 401(k) of the Code, the aggregated plans must also satisfy Section 401(a)(4) or 410(b) of the Code as though they were a single plan; provided, however, that plans may be aggregated to satisfy the actual deferral percentage test only if they have the same plan year. In calculating the actual deferral percentage, a Highly Compensated Associate's actual deferral ratio shall be determined by treating all cash or deferred arrangements of the Company or any Affiliate under which the Highly Compensated Associate is eligible to participate (other than those which may not be permissively aggregated) as a single arrangement. (vii) In the case of a Highly Compensated Associate who is either a 5% owner or one of the 10 most highly-paid Highly Compensated Associate and is thereby subject to the family aggregation rules of Section 414(q)(6) of the Code, the actual deferral ratio for the family group (which is treated as one Highly Compensated Associate) is the actual deferral ratio determined by combining the salary reduction contributions and compensation of all family members (as defined in Section 414(q)(6) of the Code). (viii) If required under (ii) above, the Committee shall refund excess contribution for a Plan Year to the affected Highly Compensated Associates. The distribution of such excess contributions shall be made to Highly Compensated Associates to the extent practicable before the 15th day of the third month immediately following the Plan Year for which such excess contributions were made, but in no event later than the last day of the Plan Year following such Plan Year. Any such distribution shall be made to each Highly Compensated Associate on the basis of the respective portions of such amounts attributable to each such Highly Compensated Associate. (c) On or before June 30, 1994, subject to Subsections 5.1(d) and 6.3(a), a Member may elect to make After- Tax Supplemental Contributions to the Plan of an amount of up to ten percent (10%) of his Compensation in any whole percentage through payroll deductions, in accordance with procedures adopted by the Committee. Effective July 1, 1994, After-Tax Supplemental Contributions may not be made to the Plan. (d) The aggregate percentage of the Pre-Tax Supplemental Contribution made on behalf of a Member and such Member's After-Tax Supplemental Contribution must not exceed ten percent (10%) of the Member's Compensation. 5.2 A Member may temporarily suspend the reduction of his Compensation and any payroll deduction contributions elected under Section 5.1, as of the first day of any month without terminating his membership in the Plan, by giving at least 30 days' prior written notice thereof to the Committee. A Member may resume reduction of his Compensation and any payroll deduction contributions under Section 5.1 the first day of any month following the date of such suspension and must give the Committee prior written notice of any subsequent election under Section 5.1, specifying the first day of the month in which his Compensation is to be reduced and any deduction to be made from his paycheck. A Member may not temporarily suspend the reduction of his Compensation and any payroll deduction contributions more often than once in any Plan Year. SECTION 6. COMPANY CONTRIBUTIONS 6.1 The Company shall contribute in respect of each pay period on behalf of each of the Associates who are Members, twenty-five percent (25%) of the amount of the Basic Contributions made by the Member pursuant to Section 4.1 as Matching Contributions. No contributions shall be made by the Company with respect to any Member's contributions pursuant to Section 5. 6.2 (a) In addition to contributions under Sections 4.1 and 5.1, the Company may make Profit Sharing Contributions, as determined by the Board of Directors in its sole discretion. Any such Profit Sharing Contributions may not exceed the maximum amount permitted for deductions under the Code. The Board of Directors may designate all or a portion of the Profit Sharing Contributions as Electric Ave. & More Profit Sharing Contributions. (b) All Profit Sharing Contributions under Section 6.2(a) other than Electric Ave. & More Profit Sharing Contributions shall be allocated among the Eligible Associates who are Members in Service as of the last day of the Plan Year other than those Members working at Electric Ave. & More (and if necessary for the Plan to meet the requirements of Section 410(b) of the Code, such additional Members with the highest number of Hours of Service other than those Members working at Electric Ave. & More with the number of Members as required to meet the requirements of Section 410(b) of the Code, whether or not in Service as of the last day of the Plan Year) in the proportion that the Basic Contributions made on behalf of or by each such Member pursuant to Section 4.1 bears to the total of the contributions made pursuant to Section 4.1 for such Plan Year on behalf of or by all such Members in Service as of the last day of the Plan Year other than those Members working at Electric Ave. & More. All Electric Ave. & More Profit Sharing Contributions under Section 6.2(a) shall be allocated among the Eligible Associates who are Members working at Electric Ave. & More and in Service as of the last day of the Plan Year (and if necessary for the Plan to meet the requirements of Section 410(b) of the Code, such additional Members working at Electric Ave. & More and with the highest number of Hours of Service with the number of Members as required to meet the requirements of Section 410(b) of the Code, whether or not in Service as of the last day of the Plan Year) in the proportion that the Pre-Tax Supplemental Contributions made on behalf of or by each such Member working at Electric Ave. & More pursuant to Section 5.1 up to three percent (3%) of such Member's Compensation bears to the total of the Pre- Tax Supplemental Contributions (with no Member's Pre-Tax Supplemental Contributions in excess of three percent (3%) of such Member's Compensation counted for this purpose) made on behalf of or by all such Members working at Electric Ave. & More in Service as of the last day of the Plan Year pursuant to Section 5.1 for such Plan Year. 6.3 (a) Notwithstanding any other provision of this Section 6, the average contribution percentage for the Plan Year for Highly Compensated Associates shall not exceed the greater of the following average contribution percentage tests: (a) the average contribution percentage for such Plan Year of those Eligible Associates who are not Highly Compensated Associates multiplied by 1.25; or (b) the average contribution percentage for the Plan Year of those Eligible Associates who are not Highly Compensated Associates multiplied by 2.0, provided that the average contribution percentage for Highly Compensated Associates does not exceed the average contribution percentage for such other Eligible Associates by more than 2%. For purposes of this Section 6.3, the "average contribution percentage" for a Plan Year means, for each specified group of Associates, the average of the actual contribution ratios (calculated separately for each Associate in such group) of (a) the sum of (I) Matching Contributions and Profit Sharing Contributions described in Sections 6.1 and 6.2 respectively credited to his Employer Contribution Account for the Plan Year, (II) after-tax Basic Contributions credited to his Basic Contribution Account for the Plan Year, (III) After-Tax Supplemental Contributions credited to his After-Tax Supplemental Contribution Account for the Plan Year, and (IV) if the Committee so elects in accordance with and to the extent permitted by the Regulations, Pre-Tax Supplemental Contributions credited to his Pre-Tax Supplemental Account, to (b) the amount of the Member's compensation (as defined in Section 414(s) of the Code) for the Plan Year. An Eligible Associate's average contribution percentage shall be zero if no contributions are made on his behalf for such Plan Year. In calculating the average contribution percentage for a Plan Year, contributions shall be taken into account only if they are allocated to a Member's Account within such Plan Year. For this purpose, contributions are considered allocated as of a date within a Plan Year if the allocation is not contingent on participation or performance of services after such date and the contributions are actually paid to the Trust no later than 12 months after the close of the Plan Year to which the contributions relate. (b) For purposes of determining whether the Plan satisfies the average contribution percentage test, all employee and employer matching contributions that are made under two or more plans that are aggregated for purposes of Section 401(a) or 410(b) of the Code (other than Section 410(b)(2)(A)(ii) of the Code) shall be treated as made under a single plan and, if two or more such plans are permissively aggregated for purposes of Section 401(m) of the Code, the aggregated plans must also satisfy Sections 401(a)(4) and 410(b) of the Code as though they were a single plan; provided, however, that plans may be aggregated to satisfy the average contribution percentage test only if they have the same plan year. (c) In the case of a Highly Compensated Associate who is either a 5% owner or one of the 10 most highly- paid Highly Compensated Associates and is thereby subject to the family aggregation rules of Section 414(q)(6) of the Code, the actual contribution ratio for the family group (which is treated as one Highly Compensated Associate) shall be the greater of (i) the actual contribution ratio determined by combining contributions and compensation for the Plan Year of all eligible family members who are Highly Compensated Associates without regard to family aggregation, or (ii) the actual contribution ratio determined by combining the contributions and compensation for the Plan Year of all the eligible family members. Except to the extent taken into account in the preceding sentence, the contributions and compensation of all family members shall be disregarded in determining the average contribution percentage for the groups of Highly Compensated Associates and non-Highly Compensated Associates. For purposes of calculating the average contribution percentage, the actual contribution ratio of a Highly Compensated Associate shall be determined by treating all plans of the Company and any Affiliate under which the Highly Compensated Associate participates as a single plan. (d) The Committee shall determine as of the end of the Plan Year, and at such time or times in its discretion, whether one of the average contribution percentage tests specified in Subsection 6.3(a) is satisfied for such Plan Year. This determination shall be made after first determining the treatment of excess deferrals within the meaning of Section 402(g) of the Code under Section 5.1(a) and then determining the treatment of excess contributions under Section 5.1(b). In the event that neither of the average contribution percentage tests is satisfied, the Committee shall refund or forfeit the excess contributions in the manner described in Subsection 6.3(c). For purposes of this Section 6.3, "excess aggregate contributions" means, with respect to any Plan Year and with respect to any Member, the excess of the aggregate amount of contributions (and any earnings and losses allocable thereto) made to (a) the Matching Contribution Account, (b) the Profit Sharing Contribution Account, (c) the after-tax Basic Contribution Account, (d) After-Tax Supplemental Contribution Account and (e) the Pre-Tax Supplemental Contribution Account (if the Regulations permit and the Committee elects to take into account Pre-Tax Supplemental Contributions when calculating the average contribution percentage) of Highly Compensated Associates for such Plan Year, over the maximum amount of such contributions that could be made to the Matching Contribution Account, Profit Sharing Contribution Account, after-tax Basic Contribution Account, After-Tax Supplemental Contribution Account and Pre-Tax Supplemental Contribution Account of such Members without violating the requirements of Subsection 6.3. The amount of each Highly Compensated Associate's excess aggregate contributions shall be determined by reducing the average contribution percentage of each Highly Compensated Associate whose average compensation percentage is in excess of the percentage otherwise permitted under Subsection 6.3(a) to the maximum amount permitted by that Subsection. (e) If the Committee is required to refund excess aggregate contributions for any Highly Compensated Associate for a Plan Year in order to satisfy the requirements of Subsection 6.3(a), then the refund of such excess aggregate contributions shall be made with respect to such Highly Compensated Associates to the extent practicable before the 15th day of the third month immediately following the Plan Year for which such excess aggregate contributions were made, but in no event later than the end of the Plan Year following such Plan Year. For each of such Associates, the amounts so refunded shall be made in the following order of priority (A) by distributing amounts contributed to the After-Tax Supplemental Contribution Account, and earnings thereon; (B) by distributing amounts contributed to the Pre-Tax Supplemental Account (to the extent such amounts are included in the average contribution percentage), and earnings thereon; (C) by distributing amounts contributed to the after-tax Basic Contribution Account, and earnings thereon and Matching Contributions related thereto; (D) by distributing amounts contributed to the Matching Contribution Account, and earnings thereon; and (E) by distributing amounts contributed to the Profit Sharing Contribution Account and earnings thereon. All such distributions shall be made to Highly Compensated Associates on the basis of the respective portions of such amounts attributable to each such Highly Compensated Associate. (f) Notwithstanding any other provision of the Plan, the sum of the actual deferral percentage determined in accordance with Subsection 5.1(b)(i) of those Highly Compensated Associates and the average contribution percentage determined in accordance with Section 6.3(a) of those Highly Compensated Associates shall not exceed the Aggregate Limit (as defined below). The actual deferral percentage and the average contribution percentage of the Highly Compensated Associates are determined after any corrections required to meet the actual deferral percentage and average contribution percentage tests are made. (g) For purposes of Section 6.3(d) above, "Aggregate Limit" for a Plan Year means the greater of: (1) the sum of (A) 1.25 times the greater of the actual deferral percentage of those non-Highly Compensated Associates eligible to participate in the Plan ("eligible NHCAs") or the average contribution percentage of the eligible NHCAs, and (B) two percentage points plus the lesser of the actual deferral percentage of the eligible NHCAs or the average contribution percentage of the eligible NHCAs. In no event, however, may this amount exceed twice the lesser of the actual deferral percentage of the eligible NHCAs or the average contribution percentage of the eligible NHCAs; or (2) the sum of (A) 1.25 times the lesser of the actual deferral percentage of the eligible NHCAs or the average contribution percentage of the eligible NHCAs, and (B) two percentage points plus the greater of the actual deferral percentage of the eligible NHCAs or the average contribution percentage of the eligible NHCAs. In no event, however, may this amount exceed twice the greater of the actual deferral percentage of the eligible NHCAs or the average contribution percentage of the eligible NHCAs. (h) The Committee shall determine as of the end of the Plan Year, and at such time or times in its discretion, whether the Aggregate Limit has been exceeded. In the event that the Aggregate Limit is exceeded, the average contribution percentage of the eligible Highly Compensated Associates shall be reduced in the same manner as described in Section 6.3(c). 6.4 The Company's contributions under Sections 5.1, 6.1 and 6.2, and any Member's contributions under Sections 4.1 and 5.1, if any, shall be paid directly to the Trustee under the Trust during the month in respect of which they are made, or during the month next following, as the Committee may determine, provided that the total amount of the Company's contributions under the Plan for any taxable year shall be paid in full on or before such date as the federal income tax laws applicable to such payment require the payment to be made in order to permit deduction of such payment for such taxable year. 6.5 The Company's contributions made for a taxable year pursuant to Sections 5.1, 6.1 and 6.2, if any, and any Member's contributions under Sections 4.1 and 5.1, shall be paid directly by the Company to the Trustee in cash, or, at the option of the Company, in whole or in part in other property acceptable to the Trustee. SECTION 7. TRANSFER OF AMOUNTS ATTRIBUTABLE TO MEMBERS' CONTRIBUTIONS AND PROFIT-SHARING PLAN BALANCES UNDER THE RETIREMENT SECURITY PLAN 7.1 The Committee shall establish and maintain or cause to be established and maintained, as part of a Member's Account, a Transferred Contribution Account and a Profit-Sharing Plan Balance Account, showing the Member's interest under the Plan and in the Trust Fund allocable to the amounts transferred from the trust established as part of the Retirement Security Plan and attributable to the Member's Benefit Derived from Associate Contributions and Profit Sharing Plan Balance, if any, as determined by the Committee in its sole discretion, and all relevant data pertaining thereto. The amount transferred with respect to a Member's Benefit Derived from Associate Contributions shall be credited by the Committee to the Member's Transferred Contribution Account. The amount transferred with respect to a Member's Profit-Sharing Plan Balance shall be credited by the Committee to the Member's Profit-Sharing Plan Balance Account. All such transferred amounts shall be held by the Trustee for the exclusive benefit of such Member in accordance with the terms of the Plan, to be commingled, managed, invested and reinvested with the other assets of the Plan. Upon such transfer, the trustees of the Retirement Security Plan shall have no further liability whatsoever with respect to the respective transferred amounts or the benefits which had been based thereon, and the Member shall look solely to the Plan for any payment or other benefit in respect of the amount so transferred. 7.2 Except to the extent otherwise determined by the Committee with respect to payments from a Member's Account, adjustments, charges or allocations to the Member's Transferred Contribution Account and Profit-Sharing Plan Balance Account shall be made by adding thereto, or deducting therefrom, as the case may be, such proportion of any adjustments, charges or allocations as the amount therein as of the last preceding Valuation Date bears to the total amount in the Member's Account as of such preceding Valuation Date. In making such adjustments, charges or allocations the Committee can conclusively rely on the valuations of the Trust Fund by the Trustee and in accordance with the Plan and the terms of the Trust. 7.3 Except as otherwise provided in Section 11.5, any amount credited to a Member's Transferred Contribution Account and Profit-Sharing Plan Balance Account, if any, shall be paid from the Trust Fund to the Member or his Beneficiary or Surviving Spouse at the same time and in the same manner as any payment made in accordance with Section 12. SECTION 8. TRANSFER OF AMOUNTS ATTRIBUTABLE TO MEMBERS' ACCOUNT BALANCE UNDER THE LECHMERE PLAN 8.1 Each Member who was a member of the Lechmere Plan on June 30, 1994 shall have an amount equal to his account balance under the Lechmere Plan, if any, transferred from the trust established as part of the Lechmere Plan to the Trust. 8.2 The Committee shall establish and maintain or cause to be established and maintained, as part of the Account of a Member, a Lechmere Account, which shall provide for a separate accounting in the name of each such Member which shall reflect all contributions of such Member during his participation in the Lechmere Plan, all amounts contributed by a participating employer of the Lechmere Plan on his behalf, earnings on all such contributions, any distributions, withdrawals and any expenses charged against such contributions (the "Lechmere Account"). The separate accounting in the name of each Member who was a participant in the Lechmere Plan shall include a separate accounting for pre-tax contributions, after-tax contributions, rollover contributions and matching contributions made on behalf of such Member under the Lechmere Plan. The amount transferred to the Trust pursuant to Section 8.1 with respect to a Member's account balance under the Lechmere Plan shall be credited by the Committee to the Member's Lechmere Account. All such transferred amounts shall be held by the Trustee for the exclusive benefit of such Member in accordance with the terms of the plan, to be commingled, managed, invested and reinvested with the other assets of the Plan. Upon such transfer, the Member shall look solely to the Plan for any payment or other benefit in respect of the amount so transferred. 8.3 Except to the extent otherwise determined by the Committee with respect to payments from a Member's Account, adjustments, charges or allocations to the Member's Lechmere Account shall be made by adding thereto, or deducting therefrom, as the case may be, such proportion of any adjustments, charges or allocations as the amount therein as of the last preceding Valuation Date bears to the total amount in the Member's Account as of such preceding Valuation Date. In making such adjustments or charges, the Committee can conclusively rely on the valuations of the Trust Fund by the Trustee and in accordance with the Plan and the terms of the Trust. 8.4 Except as otherwise provided in Section 11.5, any amount credited to a Member's Lechmere Account, if any, shall be paid from the Trust Fund to the Member or his Beneficiary or Surviving Spouse at the same time and in the same manner as any payment made in accordance with Section 12. SECTION 9. INVESTMENT OF CONTRIBUTIONS 9.1 All amounts of money, securities or other property received under the Plan, including any amounts transferred to the Plan under Sections 7 and 8, shall be delivered to the Trustee under the Trust, to be managed, invested, reinvested and distributed for the exclusive benefit of the Members and their Beneficiaries in accordance with the Plan, the Trust and any agreement with an insurance company or other financial institution constituting a part of the Plan and Trust. The Trustee shall cause to be established and maintained six funds or such other number of funds as the Committee shall determine, to be designated respectively as Fund A, Fund B, Fund C, Fund D, Fund E, and Fund F, or as otherwise designated by the Committee, for the investment of all such amounts. 9.2 A Member may, by filing a written direction with the Committee, specify the percentage (in multiples of 25 percent or such other percentage as the Committee may determine) of all contributions which are made by the Company under Sections 6.1 and 6.2 of the Plan, of all supplemental contributions made by the Member under Section 5 and of all amounts in his Profit- Sharing Plan Balance Account, Salary Reduction Account and Lechmere Account that shall be invested in Funds A-F. Unless an effective investment direction is made by the Member pursuant to this Section 9.2, all such contributions shall be invested in Fund A. 9.3 Any investment direction given by a Member shall be deemed to be a continuing direction until changed. A Member may change an investment direction as to future contributions once in each calendar quarter, by filing a written notice of such change in investment direction with the Committee or by such other method as the Committee may permit at least 30 days prior to the date such change is to be effective or such other period as the Committee may permit. Such change in investment direction shall be effective on the last day of the calendar quarter in which the Member changes an investment direction. 9.4 Notwithstanding anything contained herein to the contrary, effective July 1, 1994, if a Member changes an investment direction as to future contributions of or in respect of such Member pursuant to Section 9.3, such change in investment direction shall be deemed a change in investment direction with regard to contributions of or in respect of such Member pursuant to Sections 5 and 6. 9.5 The Plan is intended to constitute a plan described in Section 404(c) of ERISA and Title 29 of the Code of Federal Regulations Section 2550.404c-1. A Member may direct as of the last day of a calendar quarter that all, or any multiple of 25 percent (or such other percentage as the Committee may determine), of his interest in any of the Funds which is attributable to contributions made by or on behalf of such Member under Sections 5, 6.1 and 6.2, amounts transferred to the Plan on behalf of such Member pursuant to Section 8 and amounts in such Member's Profit-Sharing Plan Balance Account, be liquidated and the proceeds thereof transferred to the other of such Funds, in one lump sum as of such Valuation Date, provided that such direction is given in writing to the Committee at least 60 days prior to such Valuation Date or such other period as the Committee may permit. Notwithstanding the foregoing, a Member may direct, as of the last day of a calendar quarter, that all, or any multiple of 25 percent (or such other percentage as the Committee may determine), of his interest in any of the Funds which is attributable to contributions under Sections 5 and 6.1 of the Plan, be liquidated and the proceeds thereof transferred to the other of such funds, in one lump sum as of the last day of such calendar quarter, provided that such direction is given in writing to the Committee at least 30 days prior to the last day of such calendar quarter or such other period as the Committee may permit. 9.6 All Basic Contributions made on behalf of or by Members under Section 4.1, and all amounts in his Transferred Contribution Account pursuant to Section 7, shall be invested, in such percentages as the Committee shall specify, in any of the Funds. SECTION 10. VALUATIONS AND MAINTENANCE OF MEMBERS' ACCOUNTS 10.1 As of each Valuation Date, the Trust Fund shall be valued pursuant to the terms of the Trust to reflect the effect of income received and accrued, realized and unrealized profits and losses, and all other transactions of the preceding period, but such valuation shall not include any contributions received by the Trustee during such month. Such valuation shall be conclusive and binding upon all persons having an interest in the Trust Fund. 10.2 All contributions made on behalf of, or allocated to, a Member shall be credited to his Account. The value of a Member's Account may be determined by aggregating the value of his separate interests, if any, in each Fund. 10.3 (a) For the first month for which contributions are received in an Investment Fund under the Plan, a Unit in each Investment Fund shall be valued at one dollar and there shall be credited to each Member as of the Valuation Date in such month one Unit in each Fund for each dollar of the contributions made by him or on his behalf and received by the Trustee during such month which is invested in such Investment Fund in accordance with the Plan. As of each subsequent Valuation Date, the value of a Unit in each Investment Fund shall be determined by dividing (1) the sum of the cash and the fair market value of any other property, as determined by the Trustee in accordance with Section 10.1, then held in such Investment Fund, by (2) the total number of outstanding Units for such Investment Fund immediately prior to such Valuation Date. (b) As soon as practicable after the end of each month following the first month during which contributions are received by the Trustee, there shall be credited to each Member a number of Units (or fractions thereof) in each such Investment Fund calculated by dividing (1) the portion of the contributions made by him or on his behalf and received by the Trustee for such month which is invested in such Investment Fund in accordance with the Plan, by (2) the value of a Unit in such Investment Fund as of the Valuation Date in such month. A Member's Account at any time shall reflect all Units credited thereto as provided in the foregoing provisions of Section 10 less all Units the value of which has been previously withdrawn by him from such Account. 10.4 The expenses of administering the Plan, including (i) the fees and expenses of any Associate and of the Trustee for the performance of their duties under the Plan and Trust, (ii) the expenses incurred by the members of the Committee in the performance of their duties under the Plan (including reasonable compensation for any legal counsel, certified public accountants, consultants, and agents and cost of services rendered in respect of the Plan), and (iii) all other proper charges and disbursements of the Trustee or the members of the Committee (including settlements of claims or legal actions approved by counsel to the Plan) may be paid out of the Trust Fund, and allocated to and deducted from the Accounts of Members by the Committee in accordance with the provisions of Section 10.3 above, if the Company does not pay such expenses directly. 10.5 Brokerage fees, transfer taxes and other expenses incident to the purchase or sale of securities by the Trustee shall be deemed to be part of the cost of such securities, or deducted in computing the proceeds therefrom, as the case may be. Taxes, if any, of any and all kinds whatsoever, which are levied or assessed on any assets held or income received by the Trustee shall be allocated to and deducted from the Accounts of Members by the Committee in accordance with the provisions of Section 10.3 above. SECTION 11. ELIGIBILITY FOR BENEFITS 11.1 At all times, each Eligible Associate who became a Member before July 1, 1994 shall have a nonforfeitable interest in all amounts credited to his Account. 11.2 Each Eligible Associate who becomes a Member of the Plan after June 30, 1994 shall have a nonforfeitable interest in amounts credited to his Matching Contribution Account in accordance with the following schedule: Years of Vested Service Percentage less than 3 0% 3 or more 100% Notwithstanding the foregoing, a Member who is employed by the Company on his (i) normal retirement date, as determined under the Retirement Security Plan, (ii) death, or (iii) disability, shall have a nonforfeitable interest in this Matching Contribution Account as of such normal retirement date, death or disability. Furthermore, an Associate who terminates in his third Year of employment shall have a nonforfeitable interest in this Matching Contribution Account if he performs 2 Years of Service and at least 20 weeks of Service in his third (final) Year of employment. 11.3 Notwithstanding the foregoing, the nonforfeitable interest of a Member who was employed by the Company on or before July 1, 1994 in amounts credited to his Matching Contribution Account shall not be less than his vested percentage determined as of June 30, 1994. In addition, notwithstanding the foregoing, a Member who was a participant in the Lechmere Plan shall have a nonforfeitable interest in the portion of his Lechmere Account attributable to matching contributions under the Lechmere Plan in accordance with the following schedule to the extent that the following schedule results in a greater nonforfeitable interest in such contributions: Years Vested of Service Percentage Less than 1 0% 1 but less than 2 20% 2 but less than 3 40% 3 or more 100% 11.4 Subject to Section 12.2, upon termination of a Member's Service an amount equal to the value of the Member's vested Account as of the Valuation Date coincident with or preceding the date on which his Service is terminated shall be paid from the Trust Fund. Such payment shall be made by one of the methods of distribution described and at the time specified in Section 12 below. 11.5 If a former Member dies before payment of the full value of his vested Account from the Trust Fund, an amount equal to the value of the unpaid portion thereof as of the Valuation Date coincident with or preceding the date of his death or the date payment is made shall be paid to his Beneficiary from the Trust Fund. Such payment shall be made by one of the methods of distribution described and at the time specified in Section 12 below. 11.6 (a) A Member may, while in Service, withdraw out of the Trust Fund amounts permitted by the Committee, pursuant to paragraphs (b), (c) or (f) below, under rules uniformly applicable to all Members similarly situated, by giving prior notice to the Committee and the Participating Company that employs him, and in the case of each such withdrawal, which shall be not less than 30 days following the date such notice is given to the Committee, as of which the withdrawal is to be made, and explaining the reason for such withdrawal. (b) Profit Sharing Plan Balance Account. Subject to paragraph (a) above, the Committee may permit a Member to withdraw all or part of the amount credited to his Profit-Sharing Plan Balance Account for any reason listed in paragraph (d) below or for any of the following reasons: (i) The Member's entrance into the United States Armed Forces; (ii) To purchase a place of residence for the Member; (iii) To provide for the college expenses for the Member's children; (iv) Death in the Member's immediate family; or (v) Extreme financial hardship of any nature, as determined solely by the Committee. (c) Supplemental Contribution Accounts. Subject to paragraph (a) above, upon a showing of immediate and heavy financial hardship caused by unusual expenses beyond the control of a Member, the Committee may permit a Member to withdraw amounts credited to his After-Tax Supplemental Contribution Account and amounts credited to his Pre-Tax Supplemental Contribution Account exclusive of earnings thereon credited on or after January 1, 1989. The amount of any such withdrawal may not exceed the amount required to meet the immediate and heavy financial need created by such hardship and not reasonably available from other resources of the Member, including amounts available for withdrawal under paragraph (b) above and (f) below and amounts available for loan under Section 15 of this Plan or any other plan maintained by a Participating Company. Such withdrawals shall be charged against the Member's Account, and such charge shall be made first against the Member's After-Tax Supplemental Account and then against the Member's Pre-Tax Supplemental Contribution Account, exclusive of earnings thereon credited on or after January 1, 1989. The amount available for withdrawal under this paragraph (c) shall be limited by the amounts reflected in the positions of the Member's Account set forth in the preceding sentence. (d) For purposes of paragraph (c) above, hardship withdrawals shall be available only if the withdrawal is made on account of an immediate and heavy hardship of the Member resulting from: (i) uninsured medical expenses described in Section 213(d) of the Code incurred by the Member, his spouse or any dependent of the Member (as defined in Section 152 of the Code), (ii) the purchase (excluding mortgage payments) of a principal residence of the Member, (iii) payment of tuition, related educational fees, and room and board expenses, for the next twelve (12) months of post- secondary education for the Member or his Spouse, children or dependents, (iv) the need to prevent the eviction of the Member from his principal residence or foreclosure on the mortgage of the Member's principal residence, (v) death in Member's immediate family; "immediate family" means Spouse, Children, or Parents of Member; or (vi) such other events as may be prescribed by Regulations or other procedures under the Code and adopted by the Committee. (e) Any Member who makes a hardship withdrawal pursuant to paragraph (d) shall not be permitted to make Pre-Tax Supplemental Contributions under the Plan until the first day of the Plan Year following the 12-month period immediately following the date on which the hardship withdrawal is received. (f) Lechmere Account. Subject to paragraph (a) above, the Committee may permit a Member to withdraw all or part of the balance in his Lechmere Account as of June 30, 1994 for any of the reasons listed in paragraph (d) above or for any of the following reasons: (i) The Member's attainment of age 59-1/2; or (ii) The permanent disability of the Member. Notwithstanding the foregoing, any Member who has after-tax contributions and rollover contributions in his Lechmere Account, may withdraw the portion of his Lechmere Account as of June 30, 1994 attributable to such after-tax contributions and rollover contributions in accordance with paragraph (a). (g) No Other Withdrawals Permitted. A Member may not withdraw any amounts from his Account except as provided in this Section 11.6 or in 11.7. Without limiting the foregoing, no Member may withdraw any amounts from his Basic Contribution Account or Matching Contribution Account. 11.7 Notwithstanding any of the provisions of this Plan, including Section 11.6 above, any Member who remains in Service after his normal retirement date, as determined under the Retirement Security Plan, may elect, no later than 60 days after his normal retirement date, to receive in one lump sum, the value of his Profit-Sharing Plan Balance Account. SECTION 12. METHOD OF PAYMENT OF BENEFITS 12.1 (a) Any benefit payable under the Plan shall be paid in one of the following methods of distribution, as the Member (or in the case of the Member's death, the Member's Beneficiary) may elect: (1) The purchase therewith and delivery to the Member (or Beneficiary) by the Trustee of a single premium immediate or deferred annuity (fixed or variable) contract issued by such insurance company and containing such provisions as the Committee shall designate, which contract shall (i) provide for monthly payments continuing, in the case of a Member, for the life of the Member or the joint lives of the Member and his Beneficiary or for a period not in excess of the life expectancy, as determined under the Regulations, of such Member, or the joint life expectancy, as determined under the Regulations, of such Member and his Beneficiary, if any, and, in the case of a Beneficiary, for the life of such Beneficiary or for a period not in excess of the life expectancy, as determined under the Regulations, of such Beneficiary, (ii) contain, if the Committee so determines, provisions which prevent the cash surrender thereof and which make the payments due thereunder nonassignable, (iii) provide that the actuarial value of any payments to a contingent annuitant other than the spouse of the Member shall not exceed one-half of the actuarial value of the monthly payments which the Member would otherwise have received without optional modification; (2) One lump sum payment thereof from the Trust Fund; or (3) In any combination of (1) or (2) above; provided that, the entire Basic Account Balance must be paid by either (1) or (2), and all other Account Balances must be paid by either method (1) or (2). (4) Notwithstanding the foregoing, if the total value of the Member's Account Balances is $3,500, or such other amount prescribed in the Regulations, or less, payment shall be made to the Member in one lump-sum. (b) Notwithstanding the foregoing, any Member who was a Participant in the Lechmere Plan (or Beneficiary thereof) may elect, by completing such form as required by the Committee, to have his benefit payable under the Plan in a series of substantially equal monthly or annual installments. If such Member (or Beneficiary thereof) elects the form of distribution under this Section 12.1(b), the period over which payments are to be made shall not exceed the life expectancy, as determined under the Regulations, of the Member, or the joint life expectancy, as determined under the Regulations, of the Member and his Beneficiary, if any, and, in the case of a Beneficiary, for the life of such Beneficiary or for a period not in excess of the life expectancy, as determined under the Regulations, of such Beneficiary. (c) The Committee, in its sole discretion, may direct the Trustee to make one or more advances from the Trust Fund to a terminated Member, Beneficiary or Member's estate prior to the date upon which a final distribution would otherwise be made from the Trust Fund in accordance with the Plan. Such advances shall be based upon the Committee's estimate of the benefit amount which would be payable, and shall reduce the amount which becomes payable as of the date of such final distribution. In any case where installment payments are to be paid or are being paid to a Beneficiary, any balance of unpaid installments upon or after said Beneficiary's death shall be payable to the estate of such Beneficiary. (d) Notwithstanding any provision of the Plan to the contrary, a Distributee may elect, at the time and in the manner prescribed by the Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. 12.2 (a) Notwithstanding any other provision of the Plan, unless otherwise provided by law, any benefit payable to a Member shall commence no later than the April 1st of the calendar year following the calendar year in which such Member attains age 70.5; provided, however, if a Member attained age 70.5 prior to January 1, 1988, except as otherwise provided in Subsection 12.2(e), any benefit payable to such Member shall commence no later than the April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70.5 or (ii) the calendar year in which the Member retires. Such benefit shall he paid, in accordance with the Regulations, over a period not extending beyond the life expectancy of such Member or the joint life expectancies of such Member and his Beneficiary. Life expectancy for purposes of this Section shall not be recalculated annually in accordance with the Regulations. (b) If distribution of a Member's benefit has commenced prior to a Member's death, and such Member dies before his entire benefit is distributed to him, distribution of the remaining portion of the Member's benefit to the Member's Beneficiary shall be made at least as rapidly as under the method of distribution in effect on the date of the Member's death. (c) If a Member dies before distribution of his benefit has commenced, distributions to any Beneficiary shall be made on or before the December 31st of the calendar year which contains the 5th anniversary of the date of such Member's death; provided, however, that any distribution to a Beneficiary may be made over the life of the Beneficiary or a period not extending beyond the life expectancy of the Beneficiary. Such distribution shall commence not later than the December 31 of the calendar year immediately following the calendar year in which the Member died, or, in the event such Beneficiary is the Member's Surviving Spouse, not later than the date on which such Member would have attained age 70.5, if later (or, in either case, on any later date prescribed by Regulations). If such Member's Surviving Spouse dies after such Member's death but before distributions to such Surviving Spouse commence, this paragraph (c) shall be applied to require payment of any further benefits as if such Surviving Spouse were the Member. (d) Pursuant to Regulations, any benefits paid to a child shall be treated as if paid to a Member's Surviving Spouse if such amount will become payable to such Surviving Spouse on the child's attaining majority, or other designated event permitted by Regulations. (e) If a Member who is a 5% owner attained age 70.5 before January 1, 1988, any benefit payable to such Member shall commence no later than the April 1st of the calendar year following the later of (i) the calendar year in which the Member attains age 70.5 or (ii) the earlier of (A) the calendar year within which the Member becomes a 5% owner or (B) the calendar year in which the Member retires. For purposes of this Subsection (e), a 5% owner shall mean a 5% owner of such Member's employer as defined in Section 416(i) of the Code at any time during the Plan Year in which such owner attains age 66.5 or any subsequent Plan Year. 12.3 Subject to Section 12.1(a)(4) and the third sentence of this Section 12.3, after a Member's termination of Service, the Member must make an election before payments will commence pursuant to the provisions of the Plan; provided, however, if the payee is the Member, the Member's spouse must consent, in writing, to such election or any revocation or change therein (unless the Committee makes a written determination in accordance with the Code and Regulations that no such consent is required). In no event shall payment commence later than sixty (60) days after the close of the Plan Year during which the later of the Member's attainment of age sixty-five (65) or the termination of the Member's Service occurs, unless specifically authorized by the Member. In the case of a Beneficiary, all benefits shall be paid in one lump cash sum unless other optional methods of distribution which may be permissible under the Code and Regulations are made available to the Member or his Beneficiary by the Committee. 12.4 In any case where distribution of any benefit amount from the Trust Fund is to be deferred, the Committee shall, upon the written request of the former Member, direct the Trustee to invest such benefit amount in the same manner as the normal Accounts maintained for Members pursuant to the Plan, from which account such payment shall be made. Any benefit amount so deferred pursuant to the foregoing sentence shall be held in the normal Accounts maintained for Members pursuant to the Plan. SECTION 13. MAXIMUM AMOUNT OF ALLOCATION 13.1 The provisions of this Section 13 shall govern notwithstanding any other provisions of the Plan. 13.2 Except as otherwise provided in Section 13.3, Annual Additions to a Member's Account in respect of any Plan Year may not exceed the limitations set forth in Section 415 of the Code, which are incorporated herein by reference. For this purpose, the term "Annual Additions" shall have the meaning set forth in Section 415(c)(2) of the Code, as modified elsewhere in the Code and Regulations. For purposes of this Section 13.2, a Member's contributions shall be determined without regard to any amounts transferred to the Plan pursuant to Sections 7 and 8. 13.3 In the event that the amounts which would otherwise be allocated to a Member's Account must be reduced by reason of Section 13.2, the amounts shall be allocated at the end of the next succeeding Plan Year first, to the extent permissible under Section 13.2 after taking account of contributions made for such succeeding Plan Year, to the Member's Account, and any unallocated portion of such amount shall be allocated to the Accounts of other Members as the Committee in its sole and uncontrolled discretion, based on nondiscriminatory standards, shall determine. 13.4 The Committee shall, to the extent required by ERISA and in accordance with the Regulations in order to maintain the tax-qualified status of the Plan, apply the limitations contained in this Section 13 (after giving due consideration to the wishes of the Member) by taking into account the benefits payable and the contributions made under any other plans maintained by the Company or any Affiliate which are qualified under Section 401(a) of the Code, and if such other plan is a defined benefit plan, the sum of the defined benefit plan fraction and the defined contribution plan fraction (as described in Section 415(e) of the Code, including paragraph (6) thereof) shall not exceed 1.0. SECTION 14. DESIGNATION OF BENEFICIARIES 14.1 Each Member shall file with the Committee a written designation of one or more persons as the Beneficiary who shall be entitled to receive the amount, if any, payable under the Plan upon his death. A Member may from time to time revoke or change his beneficiary designation without the consent of any prior Beneficiary by filing a new designation with the Committee. Notwithstanding the foregoing, if the Member is married, his spouse must consent, in writing, to such designation or any revocation or change therein (unless the Committee makes a written determination in accordance with the Code and Regulations that no such consent is required). The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Member's death, and in no event shall it be effective as of a date prior to such receipt. 14.2 If no such beneficiary designation is in effect at the time of a Member's death, or if no designated Beneficiary survives the Member, the payment of the amount, if any, payable under the Plan upon his death shall be made to the Member's Surviving Spouse, if any, or if the Member has no Surviving Spouse, then to his children, parents, brothers, and sisters, or other relatives as the Committee shall determine. If the Committee is in doubt as to the right of any person to receive such amount, the Committee may direct the Trustee to retain such amount, without liability for any interest thereon, until the rights thereto are determined, or the Committee may direct the Trustee to pay such amount into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan and the Trust therefor. SECTION 15. LOANS TO MEMBERS 15.1 A Member may borrow from his interest in the Trust Fund once each Plan Year, subject to the following provisions of this Section 15.1 and to such additional standards as the Committee may adopt pursuant thereto, by making prior written application to the Committee on a form provided for that purpose by the Committee. Such application (hereinafter referred to as a "completed application") shall (i) specify the terms pursuant to which the loan is requested to be made, including the requested effective date, which shall be the last day of a month and no less than 15 days following the date the completed application is given to the Committee, (ii) designate the extent, if any, that the loan will be made from fixed income or equity fund, in which the Member has an interest, (iii) authorize the repayment of the loan through payroll deductions, (iv) provide such information and documentation as the Committee shall require, and (v) include a note, duly executed by the Member, granting a security interest in his entire interest in the Trust Fund to secure the loan. 15.2 The Committee shall establish standards in accordance with ERISA and the Code, which shall be uniformly applicable to all Members similarly situated and shall govern the Committee's approval or disapproval of completed applications. The terms for each loan shall be set solely in accordance with such standards. Such standards shall prescribe the annual rate of interest to be charged on each loan to a Member under the Plan, which shall be determined by reference to the prevailing interest rates charged by commercial lenders under similar circumstances. Such standards may also prescribe a maximum percentage of a Member's pay which may be subjected to payroll deductions for loan repayment under varying circumstances, minimum and maximum repayment periods, a maximum and minimum loan amount, and other relevant factors. Each time a Member takes such a loan, he shall not be permitted to take a subsequent loan under the Plan until the first loan has been repaid in full. The maximum amount available for loan under the Plan shall not exceed the lesser of: (a) $50,000, or (b) 50% of the Member's Account as of the Valuation Date immediately following the date on which the Committee receives the completed application. 15.3 The Committee shall, in accordance with its established standards, review and approve or disapprove a completed application as soon as practicable after its receipt thereof, and shall promptly notify the applying Member of such approval or disapproval. Notwithstanding the foregoing, the Committee may defer its review of a completed application, or defer payment of the proceeds of an approved loan, if the proceeds of the loan would otherwise be paid during the period commencing on December 1st and ending on the following January 31st. In addition, in the event the Trustee, in its sole discretion, determines that it is not reasonably and prudently able, in the interests of Members, to liquidate the necessary amount from any of the fixed income or equity funds to comply with all the designations in Members' completed applications in accordance with this Section 15.3, the Trustee shall notify the Committee, and the amount to be paid to each Member whose completed application designated that a loan be made from such fixed income or equity fund shall be reduced in proportion to the ratio which the aggregate amount that the Trustee has advised the Committee may prudently be liquidated bears to the aggregate amount which all such Members designated to be paid from such fixed income or equity fund. 15.4 Subject to Section 15.3, the Committee, upon approval of a completed application, shall cancel all or any part of the Member's interest in the fixed income or equity funds in the aggregate amount, if any, necessary to make payment of the loan from each such Investment Fund to the extent designated in the completed application and shall direct the Trustee to transfer cash to the Member in such aggregate amount from each such Investment Fund. The Committee shall maintain sufficient records regarding such amounts to permit an accurate crediting of repayments of the loan. 15.5 The unpaid balance owed by a Member on a loan under the Plan shall not reduce the amount credited to his or her Account. However, from the time of payment of the proceeds of the loan to the Member such Account shall he deemed invested, to the extent of such unpaid balance, in such loan until the complete repayment thereof or distribution from such Account. 15.6 Each loan to a Member under the Plan shall be repaid in level amounts through regular payroll deductions; provided, however, that a Member shall be permitted to prepay a loan without penalty. Except as otherwise permitted by the Code and the Regulations, each loan shall have a repayment period not to exceed 5 years, unless the loan is used to acquire any dwelling unit which within a reasonable period of time is to be used as the principal residence of the Member. Principal residence status shall be determined by the Committee at the time the loan is made. Repayments of principal and interest on a loan made to a Member under the Plan shall be made to the fixed income or equity fund in the same proportion as that in which each such Investment Fund was liquidated in order to make payment of the loan proceeds to the Member; provided, however, that, if a Member has elected, pursuant to Section 9.2 to have all or any portion of his interest in the fixed income or equity fund transferred to such other Investment Fund, then the aforementioned purchase proportion on repayment shall be adjusted pro rata by the Committee to reflect such transfer. 15.7 Repayment of all loans under the Plan shall be secured by the Member's entire interest in the Trust Fund. If at any time prior to the full repayment of a loan to a Member under the Plan the Member should cease to be a Member by reason of his retirement, death or otherwise, or the Plan should terminate, the unpaid balance owed by the Member on the loan shall be due and payable immediately, and, to the extent not repaid, the amount of the distribution otherwise payable to the Member (or, in the case of his death, to his designated Beneficiary) shall be reduced by the amount owed on the loan at the time of such distribution. Such reduction shall constitute a complete discharge of all liability to the Plan for the loan. SECTION 16. ADMINISTRATION OF THE PLAN 16.1 The Committee shall have authority and responsibility for the administration and interpretation of the Plan, and, for purposes of ERISA, shall be the "administrator" of the Plan and its "named fiduciary" with respect to matters for which it is responsible; provided that the Board of Directors shall have the sole authority to amend, suspend or terminate the Plan, except as otherwise provided in Subsection 16.4(c) hereof. The Committee shall consist of not less than three persons, who need not be directors of Ward, as from time to time appointed by the Board of Directors. Any Committee member may resign and the Board of Directors may remove any Committee member, with or without cause, at any time. To the maximum extent permitted by ERISA, every action and determination of the Committee in accordance with this Section shall be final and binding upon each Member, Beneficiary, other Associate and every other person entitled to or claiming participation in the Plan or benefits from the Plan. No member of the Committee shall be entitled to act on or decide any matter relating solely to himself or to any of his rights or benefits under the Plan. 16.2 The Committee shall appoint the Trustees, and may remove any Trustees in accordance with the Trust Agreement. Upon acceptance of their appointments, the Trustees shall have exclusive authority to manage and control the Trust Fund, subject to the Provisions of the Plan and the Trust Agreement and, for purposes of ERISA, shall be the "named fiduciary" of the Plan with respect to matters for which they are responsible; provided that, as provided in the Trust Agreement, the Trustees may appoint one or more Investment Managers and may delegate authority to the Investment Managers so appointed as provided therein and permitted by ERISA. 16.3 The Committee shall appoint an Administrative Director and may from time to time allocate or delegate to any subcommittee or member of the Committee, the Administrative Director and others, not necessarily Associates, such duties relative to compliance with the reporting and disclosure obligations of ERISA and the administration and interpretation of the Plan as it deems necessary or appropriate including matters involving the exercise of discretion. The Administrative Director may from time to time delegate to others not necessarily Associates, such of his duties as he deems necessary or appropriate. The Committee may remove, with or without cause, at any time the Administrative Director and any person to whom duties are delegated by the Committee or the Administrative Director in accordance with this Section. 16.4 In furtherance of, and not by way of limitation on, the responsibilities and authority conferred on the Committee in Section 16.1 hereof, the Committee shall administer the Plan in accordance with its terms and provisions and shall have the following specific responsibilities and authorities: (a) to construe and interpret the Plan and determine all questions arising in its operation; (b) to develop and from time to time review a policy for funding the Plan which shall be consistent with the objectives of the Plan in accordance with the Regulations and to advise the Trustees of such policy and of any changes therein from time to time; (c) to make such amendments in the Plan and the Trust Agreement as it deems necessary or appropriate in order to enable the Plan to comply with ERISA and any other applicable legal requirements; provided that such amendment would not significantly affect the cost of the Plan; (d) to receive reports from the Trustees and from the Administrative Director on the discharge of their duties and authority with respect to the Plan, including in the case of the Administrative Director the preparation, distribution and maintenance of all documents necessary or appropriate for compliance with the reporting, disclosure and recordkeeping requirements contained in ERISA, as well as such other records or data as may be necessary or appropriate for the proper administration of the plan; (e) to employ such certified public accountants, legal counsel and other persons as may be required by ERISA or as it shall otherwise deem necessary or appropriate in connection with the operation of the Plan; (f) to adopt such rules and procedures as the Committee deems necessary or appropriate in order to fulfill its responsibilities with respect to the Plan; provided that such rules and procedures are uniformly and consistently applied to persons in similar circumstances; (g) to hold regular meetings designed to insure the discharge of its responsibilities hereunder, and to maintain an accurate written record of all such meetings; and (h) to furnish the Board of Directors with reports, including subjects reported upon to it by the Trustees and the Administrative Director. 16.5 Subject to the by-laws of the Company and the resolutions of the Board of Directors, the Committee shall establish its own rules of procedure and the time and place of its meetings. A majority of the members of the Committee shall constitute a quorum for the transaction of business, and the act of a majority of the Committee members at a meeting at which a quorum is present shall be the act of the Committee. Any action which may be taken at a meeting of the Committee may be taken without a meeting if a consent, in writing, setting forth the action so taken, shall be signed by all of the members of the Committee. 16.6 The Company has entered into the Trust Agreement with the Trustees providing for the administration and management of the Trust Fund. All benefits and other amounts payable hereunder shall be paid exclusively from the Trust Fund, and neither the Company, the Committee, any Trustee, the Administrative Director, nor any director, officer, Associate or agent of the Company assumes any responsibility or liability therefor. The Trust Fund may be commingled for investment purposes with like separate trust funds of any other plans and trusts of Ward or any Affiliate which meet the requirements of Sections 401(a) and 501(a) of the Code. Each Member, each Beneficiary or each other person who shall claim the right to any payment under the Plan shall look exclusively to the Trust Fund therefor and shall not have any right or claim therefor against the Company, the Committee, any Trustee, the Administrative Director or any director, officer, Associate or agent of the Company. Except as otherwise required by ERISA, neither the Company, the Committee, the Administrative Director, nor any director, officer, Associate or agent of the Company shall be required to inquire into or be responsible for any act or failure to act of any Trustee or any Member. To the maximum extent permitted by ERISA and applicable state law, each member of the Committee, each Trustee, the Administrative Director and each director and officer of the Company, and each Associate who performs service on behalf of the Plan or the Trust, shall be indemnified and saved harmless by the Company out of its own assets (including the proceeds of any insurance policy the premiums of which are paid by the Company) from and against any and all losses, costs and expenses (including any amounts paid in settlement of a claim with the Committee's approval) to which any of them may be subjected by reason of any act done or omitted to be done in good faith in their official capacities with respect to the Plan or the Trust Agreement, including all expenses reasonably incurred in their defense. 16.7 (a) Any claim for benefits shall be submitted on a prescribed claim form to the claimant's local personnel department. If the claim is wholly or partially denied, written notice of the denial shall be furnished within 90 days after receipt of the claim; provided that, if special circumstances require an extension of time for processing the claim, an additional 90 days from the end of the initial period shall be allowed for processing the claim, in which event the claimant shall be furnished with a written notice of the extension prior to the termination of the initial 90-day period indicating the special circumstances requiring an extension. The written notice denying the claim shall set forth the reasons for the denial, including specific reference to pertinent provisions of the Plan on which the denial is based, a description of any additional information necessary to perfect the claim and information regarding review of the claim and its denial. (b) All disputed claims for benefits shall be submitted within 60 days after receipt by the claimant of the written notice of denial to, and decided within a reasonable period of time by, the Administrative Director or one member of the Committee designated by its Chairman. Written notice of the decision on each such claim shall be furnished to the claimant within 60 days after receipt by the Administrative Director of a request for review, unless special circumstances require an extension of time for processing, in which event an additional 60 days shall be allowed for review and the claimant shall be so notified in writing. If the claim is wholly or partially denied, such written notice shall set forth an explanation of the specific findings and conclusions on which such denial is based. A claimant may review all pertinent documents and may request a review by the Committee of such a decision denying the claim. Such a request shall be made in writing and filed with the Committee within 60 days after delivery to the claimant of written notice of the decision. Such written request for review shall contain all additional information which the claimant wishes the Committee to consider. The Committee may hold a hearing or conduct an independent investigation, and the decision on review shall be made as soon as possible after the Committee's receipt of the request for review, but in no event later than the third regularly scheduled meeting of the Committee after the Committee's receipt of the request for review. Written notice of the decision on review shall be promptly furnished to the claimant and shall include specific reasons for the decision. For all purposes under the Plan, such decision on claims (where no review is requested) and decision on review (where review is requested) shall be final, binding and conclusive on all interested persons as to participation and benefits eligibility, the amount of benefits and as to any other matter of fact or interpretation relating to the Plan. In the case of a Member covered by a collective bargaining agreement, a disputed claim for benefits shall be governed by the grievance and arbitration procedures established under such agreement; provided, however, that, if such agreement permits, the Committee will review such a claim before it is referred to formal grievance procedures. 16.8 Except as otherwise provided in the Plan or the Trust Agreement, all expenses and charges incurred in the administration and operation of the Plan and the Trust Agreement shall be paid out of the Trust Fund. No compensation shall be paid by the Plan to any member of the Committee, any Trustee or the Administrative Director if employed by the Company or any Affiliate, but said persons may be reimbursed for their reasonable expenses incurred in carrying out their duties, responsibilities and authority hereunder, and the compensation, or a properly allocable portion thereof, paid to other Associates who are involved in the administration of the Plan and all other properly allowable expenses shall, to the extent not paid by the Company, be treated as administrative expenses. No bond shall be required of the members of the Committee, the Trustees or the Administrative Director, except as otherwise required by law. 16.9 Any notice, election, application, instruction, designation or other form of communication required to be given or submitted by any Member, other Associate or Beneficiary shall be in such form as is prescribed from time to time by the Committee, sent by first class mail or delivered in person to the Administrative Director of the Plan, Montgomery Ward & Co., Incorporated, Montgomery Ward Plaza, Chicago, Illinois 60671, and shall be deemed to be duly given only upon actual receipt thereof by the Administrative Director. Any notice, statement, report and other communication from the Company, the Committee or the Administrative Director to any Member, other Associate or Beneficiary required or permitted by the Plan shall be deemed to have been duly given when delivered to such person or mailed by first class mail to such person at his address last appearing on the records of the Company. Each person entitled to receive a payment under the Plan shall file in accordance herewith his complete mailing address and each change therein. A check or communication mailed to any person at his address on file with the Administrative Director shall be deemed to have been received by such person for all purposes of the Plan, and neither the Committee, the Administrative Director nor any Associate or agent of the Company shall be obliged to search for or ascertain the location of any such person except as required by ERISA. If the Administrative Director shall be in doubt as to whether payments are being received by the person entitled thereto, it may, by registered mail addressed to such person at his address last known to the Administrative Director, notify such person that all future payments will be withheld until such person submits to the Administrative Director his proper mailing address and such other information as the Administrative Director may reasonably request. 16.10 Each Member shall file with the Committee such pertinent information concerning himself and his Beneficiary, and each Beneficiary shall file with the Committee such information concerning himself, as the Committee or the Administrative Director may specify, and in such manner and form as the Committee or Administrative Director may specify or provide, and no Member or Beneficiary shall have any right or be entitled to any benefits or further benefits under the Plan unless such information is filed by him or on his behalf. 16.11 If the Committee receives notification from the Trustee of any trust fund established by the Company as a part of an employee benefit plan other than the Trust Fund that such Trustees have a claim against the Trust Fund by reason of overpayment or otherwise, then the Committee may, subject to the restrictions provided in Section 19.6, direct the Trustees to withhold further payments under the Plan, pay the amount of such claim to any court of competent jurisdiction or take any other action which the Committee shall deem appropriate. 16.12 The Agent for the service of legal process of the Plan shall be the Secretary of Ward. SECTION 17. TERMINATION OF EMPLOYER PARTICIPATION 17.1 Any Participating Company may terminate its participation in the Plan by giving the Committee prior written notice specifying a termination date which shall be the last day of a month at least 60 days subsequent to the date such notice is received by the Committee. The Committee may terminate any Participating Company's participation in the Plan, as of any termination date specified by the Committee, for the failure of the Participating Company to make proper contributions or to comply with any other provision of the Plan and shall terminate a Participating Company's participation upon complete and final discontinuance of the contributions. In the event of any such termination, the Committee shall promptly notify the IRS and request such determination as counsel to the Plan may recommend and as the Committee may deem desirable. 17.2 Upon termination of the Plan as to any Participating Company, such Participating Company shall not make any further contributions under the Plan and no amount shall thereafter be payable under the Plan to or in respect of any Members then employed by such Participating Company except as provided in this Section 17. To the maximum extent permitted by ERISA, any rights of Members no longer employed by such Participating Company and of former Members and their Beneficiaries and Surviving Spouses under the Plan shall be unaffected by such termination and any transfers, distributions or other dispositions of the assets of the Plan as provided in this Section 17 shall constitute a complete discharge of all liabilities under the Plan with respect to such Participating Company's participation in the Plan and any Member then employed by such Participating Company. Upon receipt by the Committee of IRS approval of such termination, the full current value of such amount shall be paid from the Trust Fund in the manner described in Section 18.4 or transferred to a successor employee benefit plan which is qualified under Section 401(a) of the Code; provided, however, that in the event of any transfer of assets to a successor employee benefit plan the provisions of Section 17.3 will apply. No advances against such payments shall be made prior to such receipt of approval, but after such receipt the Committee, in its sole discretion, may direct the Trustee to make one or more advances in accordance with Section 12.1. All determinations, approvals and notifications referred to above shall be in form and substance and from a source satisfactory to counsel for the Plan. To the maximum extent permitted by ERISA, the termination of the Plan as to any Participating Company shall not in any way affect any other Participating Company's participation in the Plan. 17.3 No transfer of the Plan's assets and liabilities to a successor employee benefit plan (whether by merger or consolidation with such successor plan or otherwise) shall be made unless each Member would, if either the Plan or such successor plan then terminated, receive a benefit immediately after such transfer which (after taking account of any distributions or payments to them as part of the same transaction) is equal to or greater than the benefit he would have been entitled to receive immediately before such transfer if the Plan had then been terminated. The Committee may also request appropriate indemnification from the employer or employers maintaining such successor plan before making such a transfer. SECTION 18. AMENDMENT OR TERMINATION OF THE PLAN AND TRUST 18.1 (a) Subject to the provisions of paragraph (b), the Board of Directors reserves the right at any time to amend, suspend or terminate the Plan, any contributions thereunder, the Trust, in whole or in part and for any or no reason and without the consent of any Participating Company, Member, Beneficiary or Surviving Spouse; except that the Committee may adopt amendments which would not significantly affect the cost of the Plan and which may be necessary or appropriate to qualify or maintain the Plan and the Trust as a plan and trust meeting the requirements of Sections 401(a), 401(k), 401(m) and 501(a) of the Code or any other applicable section of law (including ERISA) and the Regulations issued thereunder. Each Participating Company by its adoption of the Plan shall be deemed to have delegated this authority to the Board of Directors and the Committee. The Plan shall automatically be terminated upon complete and final discontinuance of contributions thereunder. 18.2 Subject to the provisions of Section 18.1, any amendment, modification, suspension or termination of any provisions of the Plan may be made retroactively if necessary or appropriate to qualify or maintain the Plan and Trust as a plan and trust meeting the requirements of Sections 401(a), 401(k), 401(m) and 501(a) of the Code or any other applicable section of law (including ERISA) and the Regulations issued thereunder. 18.3 Notice of any amendment, modification, suspension or termination of the Plan shall be given by the Board of Directors or the Committee, whichever adopts the amendment to the other and to the Trustees and all Participating Companies and, where and to the extent required by law, to Members and other interested parties. 18.4 Upon termination of the Plan, the Company shall not make any further contributions under the Plan and no amount shall thereafter be payable under the Plan in respect of any Member except as provided in this Section 18. To the maximum extent permitted by ERISA transfers, distributions or other dispositions of the assets of the Plan as provided in this Section 18 shall constitute a complete discharge of all liabilities under the Plan. The Committee shall remain in existence and all of the provisions of the Plan which in the opinion of the Committee are necessary for the execution of the Plan and the administration and distribution, transfer or other disposition of the assets of the Plan in accordance with this Section 18.4 shall remain in force. After (i) payment of or provision for all expenses and charges referred to in Sections 10.4 and 10.5 and appropriate adjustment of all Accounts for such expenses and charges in the manner described in Section 10.3, and (ii) adjustment for profits and losses of the Trust to such termination date in the manner described in Section 10.3 the amount in each Account shall be held, administered, and distributed, transferred or otherwise disposed of in accordance with the following provisions of this Section 18.4. Upon receipt by the Committee of IRS approval of such termination, the assets of the Plan shall be applied for the benefit of Members, former Members, Beneficiaries and Surviving Spouses, to the extent of the amounts held under the Plan for their benefit, in such manner as the Committee shall determine. All determinations, approvals and notifications referred to above shall be in form and substance and from a source satisfactory to counsel. 18.5 No transfer of the Plan's assets and liabilities to a successor employee benefit plan (whether by merger or consolidation with such successor plan or otherwise) shall be made unless each Member would, if either the Plan or such successor plan then terminated, receive a benefit immediately after such transfer which (after taking account of any distributions or payments to them as part of the same transaction) is equal to or greater than the benefit he would have been entitled to receive immediately before such transfer if the Plan had then been terminated. The Committee may also request appropriate indemnification from the employer or employers maintaining such successor plan before making such a transfer. 18.6 In no event shall any part of the funds of the Plan (other than such part as is required to pay taxes, if any, and expenses as provided in Section 10.4) be used for or diverted to any purposes other than for the exclusive benefit of Members and their Beneficiaries and Surviving Spouses under the Plan. SECTION 19. GENERAL LIMITATIONS AND PROVISIONS 19.1 Each Member, former Member, Beneficiary and Surviving Spouse shall assume all risk in connection with any decrease in the value of the assets of the Trust and the Members' Accounts or special accounts and neither the Participating Companies nor the Committee shall be liable or responsible therefor. 19.2 The Trust shall be the sole source of benefits under the Plan and, except as otherwise required by ERISA, the Company, the Committee and the Administrative Director assume no liability or responsibility for payment of such benefits, and each Member, Surviving Spouse, Beneficiary or other person who shall claim the right to any payment under the Plan shall be entitled to look only to the Trust for such payment and shall not have any right, claim or demand therefor against the Company, the Committee or the Administrative Director or any member thereof, or any associate or director of the Company. 19.3 Nothing contained in the Plan shall give any associate the right to be retained in the employment of the Company or any of its subsidiaries or affiliated or associated corporations or affect the right of any such employer to dismiss any associate. The adoption and maintenance of the Plan shall not constitute a contract between the Company and any associate or consideration for, or an inducement to or condition of, the employment of any associate. 19.4 Notwithstanding any other provision of this Plan, the payment of benefits to Members and their Beneficiaries, Surviving Spouses and other eligible survivors under the Plan may be paid as a part of and concomitantly with any benefits to which he is entitled under the Retirement Security Plan. 19.5 If the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due him or his estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so elects, be paid to his spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Plan and the Trust therefor. 19.6 Except insofar as may otherwise be required by law or pursuant to the terms of a Qualified Domestic Relations Order, no amount payable at any time under the Plan and the Trust shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind nor in any manner be subject to the debts or liabilities of any person and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, shall be void. If any person shall attempt to, or shall, alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any amount payable under the Plan and Trust, or any part thereof, or if by reason of his bankruptcy or other event happening at any such time such amount would be made subject to his debts or liabilities or would otherwise not be enjoyed by him, then the Committee, if it so elects, may direct that such amount be withheld and that the same or any part thereof be paid or applied to or for the benefit of such person, his spouse, children or other dependents, or any of them, in such manner and proportion as the Committee may deem proper. For purposes of the Plan, a "Qualified Domestic Relations Order" means any judgment, decree or order (including approval of a settlement agreement) which has been determined by the Committee in accordance with procedures established under the Plan, to contribute a qualified domestic relations order within the meaning of Section 414(p)(1) of the Code. 19.7 If the Committee cannot ascertain the whereabouts of any person to whom a payment is due under the Plan, and if, after five years from the date such payment is due, a notice of such payment due is mailed to the last known address of such person, as shown on the records of the Committee or the Company, and within three months after such mailing such person has not made written claim therefor, the Committee, if it so elects, after receiving advice from counsel to the Plan, may direct that such payment and all remaining payments otherwise due to such person be cancelled on the records of the Plan and the amount thereof applied to reduce the contributions of the Company, and upon such cancellation, the Plan and the Trust shall have no further liability therefor except that, in the event such person later notifies the Committee of his whereabouts and requests the payment or payments due to him under the Plan, the amount so applied shall be paid to him as provided in Section 12. 19.8 Any and all rights or benefits accruing to any persons under the Plan shall be subject to the terms of the trust agreement which Ward shall enter into with the Trustees providing for the administration of the Trust Fund. 19.9 Upon such terms and conditions as the Committee may approve, and subject to any required IRS approval, benefits may be provided under the Plan to a Member with respect to any period of his prior employment by any organization, and such benefits may be provided for, in whole or in part, by funds transferred, directly or indirectly (including a rollover from an individual retirement account, or an individual retirement annuity as described in Section 408 of the Code), to the Trust from an employee benefit plan of such organization which qualified under Section 401(a) of the Code. 19.10 Whenever used in the Plan the masculine gender includes the feminine. 19.11 The captions preceding the sections of the Plan have been inserted solely as a matter of convenience and in no way define or limit the scope or intent of any provisions of the Plan. 19.12 The Plan and all rights thereunder shall be governed by and construed in accordance with ERISA and the laws of the State of Illinois. SECTION 20. TOP HEAVY PROVISIONS 20.1 The Plan will be considered a Top Heavy Plan for any Plan Year if it is determined to be a Top Heavy Plan as of the last day of the preceding Plan Year. Notwithstanding any other provisions in the Plan, the provisions of this Section 20 shall apply and supersede all other provisions in the Plan with respect to a Plan Year with respect to which the Plan is determined to be a Top Heavy Plan. 20.2 For purposes of this Section 20 and as otherwise used in this Plan, the following terms shall have the meanings set forth below: (a) "Affiliate" shall mean any entity affiliated with the Company within the meaning of Section 414(b), 414(c), 414(m) or 414(o) of the Code, except that for purposes of applying the provisions hereof with respect to the limitation on contributions, Section 415(h) of the Code shall apply. (b) "Aggregation Group" shall mean the group composed of each qualified retirement plan of the Company or an Affiliate in which a Key Associate is a participant and each other qualified retirement plan of the Company or an Affiliate which enables a plan of the Company or an Affiliate in which a Key Associate is a participant to satisfy Sections 401(a)(4) or 410(b) of the Code. In addition, the Company may choose to treat any other qualified retirement plan as a member of the Aggregation Group if such Aggregation Group will continue to satisfy Sections 401(a)(4) and 410(b) of the Code with such plan being taken into account. (c) "Key Associate" shall mean a "Key Employee" as defined in Section 416(i)(1) and (5) of the Code and Regulations promulgated thereunder. (d) "Top Heavy Plan" shall mean a "Top Heavy Plan" as defined in Section 416(g) of the Code and Regulations promulgated thereunder. 20.3 Subject to Section 20.4, for each Plan Year that the Plan is a Top Heavy Plan, the Company's contribution (including contributions attributable to salary reduction) allocable to the Account of each Member who is in Service at the end of the Plan Year and who is not a Key Associate, shall not be less than the lesser of (a) 3% of such Member's compensation (as described in Section 415 of the Code), or (b) the percentage at which contributions for such Plan Year are made and allocated on behalf of the Key Associate for whom such percentage is the highest. For the purpose of determining the appropriate percentage under clause (b), all defined contribution plans required to be included in an Aggregation Group shall be treated as one plan. Clause (b) shall not be applicable if the Plan is required to be included in an Aggregation Group which enables a defined benefit plan also required to be included in said Aggregation Group to satisfy Sections 401(a)(4) or 410(b) of the Code. 20.4 (a) For each Plan Year that the Plan is a Top Heavy Plan, 1.0 shall be substituted for 1.25 as the multiplicand of the dollar limitation in determining the denominator of the defined benefit plan fraction and of the defined contribution plan fraction for purposes of Section 415(e) of the Code. (b) If, after substituting 90% for 60% wherever the latter appears in Section 416(g) of the Code, the Plan is not determined to be a Top Heavy Plan, the provisions of Subsection (a) hereof shall not be applicable if the minimum contribution by the Company allocable to the Account of any Member who is not a Key Associate as specified in Section 20.3 is determined by substituting "4%" for "3%". 20.5 The Committee shall, to the extent permitted by the Code and in accordance with Regulations, apply the provisions of this Section 20 by taking into account the benefits payable and the contributions made under any other plans maintained by the Company or any of its subsidiaries or affiliated or associated entities which are qualified under Section 401(a) of the Code to prevent inappropriate omissions or duplication of minimum benefits or contributions. EX-10 5 EXHIBIT 10.(xii) April 5, 1994 Joseph Reddington 1223 N. Astor Chicago, Illinois 60610 Dear Joe: This letter will confirm our offer to you to become Chairman and CEO of Signature Group, with overall charge and responsibility for its business and affairs and reporting directly to the Chairman of Montgomery Ward Holding Corp. Your compensation plan will be as follows: 1.) Base salary of $600,000 annually, paid semi-monthly. 2.) Target bonus on the short-term Performance Management Plan will be $250,000 annually. Your objectives and the determination of results will be set by the Board Committee on Senior Executive Compensation as required by the tax and S.E.C. regulations. For 1994, your target of $250,000 is guaranteed. 3.) You will participate in the Long Term Incentive Plan at the 50% of base salary level. You will be included in the 1992-1994 cycle at the full target level of $300,000. Thereafter, you will participate in all sub- sequent cycles, (including 1993-1995 and 1994-1996 which are both in progress) at the full level. 4.) You will participate in all Senior Officer Perquisite Plans, including Special Merchandise Discount, Financial and Tax Planning, Club Membership, Executive Vacation and Medical and Supplemental Life Insurance. Copies of these plans are included. 5.) The Stock Ownership Committee will approve a grant of an option on 200,000 shares of Montgomery Ward Holding Stock at $26.50 per share. This option will have a ten year life and vest 50% on January 31, 1995 and 100% on January 31, 1996. 6.) You will receive a stock option for 100,000 shares at $16.50 per share. This option will have a ten year life and vest as follows: 50,000 Shares July 1, 1994 50,000 Shares July 1, 1995 Joseph Reddington April 5, 1994 Page 2 If you voluntarily leave Montgomery Ward prior to July 1, 1995, you will forfeit these options and sell back any that are exercised at that time at the $16.50 purchase price. However, if you are terminated by Montgomery Ward for any reason other than "Cause" all of the options in this section will immediately vest. NOTE: The options in points 5 and 6 are held in accordance with the Terms and Conditions of the Stockholders Agreement unless specifically modified. These options are subject to approval of the Board of Directors as part of the Senior Officer Compensation Plan. A copy of the Prospectus is included. 7.) Your base salary and the most recent short term bonus awards will be guaranteed and paid through December 31, 1997 should your employment be terminated by Montgomery Ward for any reason other than "Cause" as defined in the Associate Handbook (attached) as a Class "A" violation. During the term of this Agreement, the Company will give you an 18 month notice of its wish not to continue your services. After the initial period (through December 31, 1997), you will revert to the normal Senior Officer Severance Plan then in effect. 8.) If you terminate your employment prior to December 31, 1997 due to a change in your position, duties or reporting or other responsibilities which is inconsistent with the position, duties and responsibilities initially assigned to you or in the event of a "Change in Control" (as defined below), you will be entitled to your base salary and bonuses through December 31, 1997 as if you had continued to be employed through that date plus prorata shares of the awards you would have been entitled to under the Long Term Incentive Plan based on your employment through your actual date of termination. A "Change in Control" shall me "Event" has occurred under the Stockholders Agreement or the Signature Group ceases to be a subsidiary of Montgomery Ward Holding Corp. For purposes of this section, a public offering of Montgomery Ward Holding Stock or of Signature Group that does not change your position, duties or reporting, or other responsibilities will not constitute an "Event." Joseph Reddington April 5, 1994 Page 3 All of the points in this offer are conditioned upon final approval of the Montgomery Ward Holding Board of Directors, to be received no later than April 30, 1994. If you are in agreement with this offer, please sign a copy and return it to me. Sincerely, Robert A. Kasenter Attachments /s/Joseph Reddington Joseph Reddington 4-12-94 Date cc: Bernie Brennan EX-11 6 EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS 52-WEEK PERIOD ENDED DECEMBER 31, 1994 Class A Class B Earnings available for Common Shareholders $57,446,133 $57,524,082 Weighted average of shares outstanding: Shares outstanding 19,481,364 25,000,000 Shares issued upon assumed exercise of stock options 5,434,576 - Shares assumed to be repurchased under Treasury Stock method (at fair market value of $26.50) (3,508,561) - Total number of options considered as common stock equivalents 1,926,015 - Total weighted average number of shares 21,407,379 25,000,000 Earnings per share $2.68 $2.30 EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS 52-WEEK PERIOD ENDED JANUARY 1, 1994 Class A Class B Earnings available for Common Shareholders $49,982,912 $51,059,110 Weighted average of shares outstanding: Shares outstanding 20,148,623 25,000,000 Shares issued upon assumed exercise of stock options 4,066,804 - Shares assumed to be repurchased under Treasury Stock method (at fair market value of $22.50) (2,410,224) - Total number of options considered as common stock equivalents 1,656,580 - Total weighted average number of shares 21,805,203 25,000,000 Earnings per share $2.29 $2.04 EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS 53-WEEK PERIOD ENDED JANUARY 2, 1993 Class A Class B Earnings available for Common Shareholders $25,526,342 $26,294,923 Weighted average of shares outstanding: Shares outstanding 20,892,268 25,000,000 Shares issued upon assumed exercise of stock options 3,240,240 - Shares assumed to be repurchased under Treasury Stock method (at fair market value of $18.75) (1,594,969) - Total number of options considered as common stock equivalents 1,645,271 - Total weighted average number of shares 22,537,539 25,000,000 Earnings per share $1.13 $1.05 EX-23 7 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included (or incorporated by reference) in this Form 10-K, into the Company's previously filed Registration Statements on Form S-8 (File No. 33-41161). Arthur Andersen LLP Chicago, Illinois March 30, 1995 EX-24 8 EXHIBIT 24 MONTGOMERY WARD HOLDING CORP. POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors and/or officers of Montgomery Ward Holding Corp., a Delaware corporation, hereby constitutes and appoints SPENCER H. HEINE, EDWIN G. POHLMANN, JOHN L. WORKMAN and PHILIP D. DELK, his or her true and lawful attorneys-in-fact and agents to execute in his or her name and capacity the 1994 annual report on Form 10-K of this Corporation and any amendments to such annual report, with all exhibits thereto, and any and all documents in connection therewith pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, each of them with full power to act without the others; AND FURTHER, that each of the undersigned directors and/or officers of the Corporation hereby grants to said attorneys-in-fact and agents and each of them, full power and authority to do and perform any and all acts and things essential and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person in connection with the proper exercise of the powers granted hereunder. IN WITNESS WHEREOF, the undersigned as directors and/or officers of said Montgomery Ward Holding Corp. or as individuals, have hereunto set their hands and seals as of this 23rd day of March, 1995. NAME AND TITLE /s/ Bernard F. Brennan Bernard F. Brennan, Director, Chairman and Chief Executive Officer NAME AND TITLE /s/ Richard Bergel Richard Bergel, Director and Vice Chairman NAME AND TITLE /s/ Bernard W. Andrews Bernard W. Andrews, Director and President NAME AND TITLE /s/ Spencer H. Heine Spencer H. Heine, Director and Executive Vice President NAME AND TITLE /s/ G. Joseph Reddington G. Joseph Reddington, Director NAME AND TITLE /s/ Myron Lieberman Myron Lieberman, Director NAME AND TITLE /s/ Silas S. Cathcart Silas S. Cathcart, Director NAME AND TITLE /s/ David D. Ekedahl David D. Ekedahl, Director NAME AND TITLE /s/Denis J. Nayden Denis J. Nayden, Director NAME AND TITLE /s/James A. Parke James A. Parke, Director EX-27 9
5 1,000,000 12-MOS DEC-31-1994 DEC-31-1994 33 317 118 0 1625 0 1990 591 4540 0 0 0 75 0 687 4540 6573 7038 5089 5191 1610 0 58 179 62 117 0 0 0 117 2.68 2.68