-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WVqvUe6zrksmT/6eYN6gUQdcWVzGGCZeik+7O8c4x7wcgLlUlaj566zciIv5yFNK zEwgo+6KEZyepq6IKLTmrg== 0000836974-96-000008.txt : 19960401 0000836974-96-000008.hdr.sgml : 19960401 ACCESSION NUMBER: 0000836974-96-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MONTGOMERY WARD HOLDING CORP CENTRAL INDEX KEY: 0000836974 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-DEPARTMENT STORES [5311] IRS NUMBER: 363571585 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17540 FILM NUMBER: 96541473 BUSINESS ADDRESS: STREET 1: ONE MONTGOMERY WARD PLZ CITY: CHICAGO STATE: IL ZIP: 60671 BUSINESS PHONE: 3124672000 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 30, 1995 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 20, 1996, there were 18,748,897 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 31, 1996. - ------------------------------------------------------------------- PART I Item 1. Business. General Montgomery Ward Holding Corp., a Delaware corporation (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 30, 1995, Montgomery Ward and its 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 10 liquidation centers which sell overstock merchandise, 24 distribution facilities and 117 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). The Signature Group 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, Playtex and Bugle Boy. Montgomery Ward's specialty concepts combine a focus on specific customer needs, dominant merchandise assortments, exclusive values, updated presentation and aggressive marketing strategies. The specialty categories within Montgomery Ward are the following: Product Category Specialty Concept Appliances and Electronics Electric Ave. and Electric Ave. & 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 Ave. 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 Ave. has a significant national brand name assortment, including Sony, General Electric, Whirlpool, Maytag, Apple, Bose, R.C.A., Magnavox, Toshiba, Amana and J.V.C. To complement its national brands, Montgomery Ward's exclusive proprietary brand offering in appliances features the Admiral name under a trademark licensing agreement. Home Ideas offers a full complement of home furnishings with broad selections emphasizing name brands in furniture and small ticket lines for the bath, bedroom and kitchen. 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 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), and it recently added Stearns & Foster. The success of the Home Ideas and Rooms & More specialty concepts has resulted in Montgomery Ward being one of the three largest furniture retailers in the United States. Auto Express focuses on the sale and installation of tires, batteries, brakes and shocks. Montgomery Ward is one of the leading retailers of branded tires, including Goodyear, Firestone, Michelin, Bridgestone and B.F. Goodrich. Other major brands include Exide, Monroe and NAPA. 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. Item 1. Business. (continued) Merchandising (continued) The Apparel Store and Kids Store offer branded, value oriented merchandise in women's, men's, children's and intimate apparel as well as footwear and accessories. The apparel brand and price point offering is targeted at the large middle market between department stores and discounters. Each category 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, Playtex, Bugle Boy, Bestform, Converse, Gloria Vanderbilt, Hanes and Botany. In addition, the Company has developed licensed and proprietary brands for certain product categories, such as Ship 'N Shore and Connie Selleca in women's apparel and BIKE in activewear. Gold 'N Gems is a complete jewelry specialty concept offering all major merchandise categories: diamonds, gemstones, gold and watches. Gold 'N Gems emphasizes a broad selection at exceptional values through a wide range of price points that spans across first time buyers to shoppers desiring higher priced merchandise. Montgomery Ward has become one of the largest fine jewelry retailers in the country, and its major vendor relationships enable it to offer highly featured products at outstanding prices. 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 11 Electric Ave. & More stores. Full line Montgomery Ward stores average approximately 75,000 square feet of selling space. Montgomery Ward's retail business is seasonal, with over 30% of the 1995 sales 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 technical teams to ensure quality control of Montgomery Ward's merchandise. Item 1. Business. (continued) The Company considers logistics to be important to its operations and has continually invested in this area. The distribution facilities opened in Phoenix, Tampa, Baltimore and southern California in 1991 through 1994 added approximately 1.7 million square feet of space and incorporate distribution management systems which are 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 the Company's business and strengthened its dominance as a major retailer of home oriented products. 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. Since 1985, Montgomery Ward has invested almost $1.4 billion in capital expenditures to upgrade existing stores and add new stores. In 1995, Montgomery Ward opened 5 new Electric Ave. & More stores and relocated 3 full line stores and has opened 72 new stores (including 4 Lechmere stores) in the last 5 years. The ongoing store opening program has resulted in new stores representing a significant portion, approximately 30%, of the Company's total stores in major markets. The Electric Ave. & More retail concept combines Montgomery Ward's most successful strategies, Electric Ave., Rooms & More and Gold 'N Gems, with Lechmere's strong offering in entertainment and housewares to create a dominant home- oriented product offering. Electric Ave. & More is designed for mid-size markets with populations of 200,000 to 250,000 and for a superstore format of approximately 45,000 of selling square feet. Montgomery Ward has substantial buying and operating leverage compared to the more limited competition in these markets. In addition to the opening of additional Electric Ave. & More stores, the Company is planning to continue opening full line Montgomery Ward stores in regional shopping centers and Lechmere stores in the northeast United States. Item 1. Business. (continued) Corporate Expansion (continued) On August 8, 1995, Montgomery Ward purchased a 4.4% equity interest in ValueVision International, Inc. (ValueVison), through an agreement allowing Montgomery Ward to acquire up to 49% ownership 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. ValueVision is now the third largest home shopping enterprise in the United States and has experienced over 50% sales growth since 1994. See Note 19 to the Consolidated Financial Statements for discussion of ValueVision as a related party. In July, 1994, Montgomery Ward became a limited partner in Merchant Partners, Limited Partnership (Merchant Partners). 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 capital contributions of $4 million to Merchant Partners, Limited Partnership in 1995 and $1 million in 1994. Additional funding may be required within limitations set forth in the limited partnership agreement. The cumulative maximum capital contribution is $40 million. See Note 19 to the Consolidated Financial Statements regarding a year-end distribution by the partnership. Montgomery Ward regularly reviews opportunities for acquisitions and joint ventures and regards such transactions as a possible source for future growth. Performance Initiatives In mid-1995, a merchandising strategy offering branded, highly featured product at extraordinary prices and value was reintroduced as "Exclusive Values". The significant sales volume generated by Exclusive Values provides incremental economies of scale with aggressive pricing that differentiates Montgomery Ward from competition and yields attractive margin rates. Based on positive fourth quarter results in home oriented categories, Exclusive Values are expected to achieve significant performance results in 1996. By allowing for a more focused merchandise and marketing strategy, Exclusive Values should more effectively concentrate Montgomery Ward's advertising and in-store marketing thrust into compelling messages. Further, Exclusive Values are being used to redeploy inventory investment from less productive merchandise to core, high velocity items. Item 1. Business. (continued) Performance Initiatives (continued) Actions have been initiated to reduce inventories in response to slow industry-wide sales and identify opportunities to enhance inventory turnover and earnings' productivity. Aggressive inventory receipt management has been undertaken using new reporting systems. The use of foreign sourcing is being decreased to shorten commitments and increase response to volatile sales trends. The focus on Exclusive Values and narrower assortments should improve inventory management by facilitating in-stock position and higher turnover. Merchandising enhancements originally introduced in Electric Ave. & More were integrated in 164 of the Electric Ave. formats in Montgomery Ward's full line stores and contributed to favorable electronics sales in fourth quarter 1995. These enhancements provide more dominant aisle exposure for Exclusive Values and higher margin product. They also present certain merchandise in a self-service, take-with format which adds shopper convenience and prompts impulse purchases. Two major brand additions in Fall 1995 should also benefit 1996 performance. Auto Express introduced the Goodyear brand in third quarter 1995. Goodyear sales are growing to represent a significant portion of the Company's tire volume, and the brand is drawing new customers and generating added service opportunities. In addition, Whirlpool appliances were introduced in fourth quarter 1995 and have significant market share potential in that one out of every four major appliance purchases by consumers is the Whirlpool brand. Management believes the Goodyear and Whirlpool additions give Montgomery Ward's automotive and home oriented specialty concepts the strongest brand offering among major competition. 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 1995, Signature made more than 400 million direct mail solicitations and 60 million telemarketing presentations from its 18 telemarketing centers equipped with the latest technology, including proprietary software. At year-end 1995, Signature had 11.4 million policyholders and club memberships, a 10% increase over year-end 1994. 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, Item 1. Business. (continued) Direct Marketing (continued) it operates one of the largest national auto clubs 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 7,600 towing companies with a fleet of over 30,000 tow trucks. Its legal plan network includes 2,600 attorneys with an average of thirteen years experience and the dental plan includes 7,500 dentists with an average of sixteen years experience. Signature has marketing rights to the 8.3 million promotable accounts in the Montgomery Ward credit card file, and the 1.8 million average new accounts added annually. Signature has over 29 years of experience marketing to Montgomery Ward credit accounts and has considerable expertise in maximizing its response rates. Montgomery Ward credit cardholders comprise the majority of Signature's customers, and 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 42.9 million promotable accounts, including some of the nation's largest financial institutions, oil companies and retailers. Signature's major clients include Citibank, Chemical, Chase Manhattan, First National Bank of Chicago, National Westminster, NorWest, First Fidelity, Wachovia, Mobil, Texaco, Unocal, G.E. Consumer Financial Services, Federated Allied Credit Services, Limited Retail Divisions, Brylane Catalog Divisions, Best Buy, Hudson's Bay, Associates, USAA and Credit Union National Association, and revenues from these clients have grown to 36% of its revenues. Subsequent to year end, Signature acquired the Amoco Motor Club, which provides year-round, 24-hour emergency road and towing services to more than two million club members. Combining the Amoco Motor Club with Signature's auto club will create the largest national auto club in the United States. As discussed in Note 13 to the Consolidated Financial Statements, Montgomery Ward financed this acquisition through the use of the majority of the proceeds generated from the issuance of $175 million of a new series of Senior Preferred Stock. 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) 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 the marketing effort by unaffiliated dentists and lawyers. Insurance companies operate pursuant to specific state statutes 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 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-ended revolving credit plan. Montgomery Ward's private label credit card sales were 54.2% and 55.9% of total sales for 1995 and 1994, respectively. Bankcard sales were an additional 16.4% and 14.9% of total sales for 1995 and 1994, respectively. Item 1. Business. (continued) Account Purchase Agreement (continued) Montgomery Ward and Montgomery Ward Credit Corporation (Montgomery Ward Credit), a wholly-owned subsidiary of General Electric Capital Corporation (GE Capital), operate under 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 Montgomery Ward's 50% owned specialty catalog partnership, Montgomery Ward Direct L.P. (MW Direct), up to $6 billion outstanding at any time. 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 30, 1995, there were $5.3 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 1995 was $5.1 billion. Pursuant to the Account Purchase Agreement, Montgomery Ward Credit bears certain credit promotion expenses, while Montgomery 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. As of December 30, 1995, 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. In 1992, the parties agreed that 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 Item 1. Business. (continued) Account Purchase Agreement (continued) losses, less the deferred amount of finance charges, which the parties agreed effective January 1, 1994 was payable to Montgomery Ward, (other than incremental finance charges and late fees described below) exceed $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. In 1995, Montgomery Ward entered into an agreement with Montgomery Ward Credit to increase late fee assessments and implement previously agreed upon finance charge increases in various states, as allowed by statute. Montgomery Ward's share of these incremental finance charges and late fees is calculated in the same manner as the prior 1992 agreement. These incremental finance charges and late fees 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 and late fees, 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, and late fees, beginning in 1995, until such time as Montgomery Ward or Montgomery Ward 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. Item 1. Business. (continued) Account Purchase Agreement (continued) Notwithstanding 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 Montgomery 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 Credit 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 $224 million with respect to credit losses from 1991 through 1995. The incremental finance charge amount owed by Montgomery Ward Credit to Montgomery Ward as of the end of 1995 was $44 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, 2006 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, 2006. GE Capital has guaranteed Montgomery Ward Credit's obligations under the Account Purchase Agreement. Montgomery Ward Credit purchases the customer accounts receivable of Signature on terms similar to those contained in the Account Purchase Agreement, except for certain fees. In 1995, Signature paid approximately $6 million to Montgomery Ward Credit for administrative services provided by Montgomery Ward Credit in connection with Signature products. Item 1. Business. (continued) Associates At December 30, 1995, Montgomery Ward and its subsidiaries employed the equivalent of 55,000 full-time associates. During certain seasons, temporary associates are added and peak employment is approximately 71,000 associates during the Christmas season. Approximately 2,400 Montgomery Ward and Lechmere associates are covered by various collective bargaining agreements. The majority of the agreements expire in 1997. Montgomery Ward has experienced no major labor-related interruption or curtailment of operations during the last 15 years. The Company considers its labor relations to be good. Item 2. Properties. At December 30, 1995, the Company owned or leased 518 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 44,060,000 Limited Line. . . . . . . 34 2,051,000 Lechmere Retail Stores. . . . . . . . . . 28 2,468,000 Corporate Office Complex . . . . . . . . . . 1 2,975,000 Miscellaneous Operating Locations . . . . . . . . .115 8,573,000 Total Locations. . . . .518 60,127,000 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 30, 1995 is indicated in the following table: State Total Alabama 3 Arizona 11 Arkansas 5 California 57 Colorado 13 Connecticut 4 Florida 23 Georgia 3 Idaho 1 Illinois 32 Indiana 9 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 4 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), which ceased operations in 1994 and is currently an inactive entity, 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 signed a consent decree, whereby it was obligated to provide a financial assurance up to $3 million for remediation of the site. The Company currently anticipates that its obligation will not exceed that amount. 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 Standard T, among others, generated wastes that were disposed of by a prior owner of 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. site. 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 matter has been settled with a nominal civil penalty and the Company agreeing to remove certain CFC- containing chillers from certain stores in the Kansas City area. 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. None. EXECUTIVE OFFICERS OF THE REGISTRANT Listed below are the names and ages of the executive officers of the Company as of March 20, 1996, and the positions each has held during the past five years: Bernard F. Brennan, 57, 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. Executive Officers of the Registrant (continued) Spencer H. Heine, 53, 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 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, 49, 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, 48, 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. 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, 44, has been Executive Vice President, Chief Financial Officer and Assistant Secretary of the Company since January 28, 1994 and a director since May 12, 1995. 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 Executive Officers of the Registrant (continued) 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. Mr. Workman has been a director of ValueVison International, Inc. since August 8, 1995. 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. Mr. Rusthoven is also on a leave of absence from Montgomery Ward. Carol J. Harms, 42, has been 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. G. Joseph Reddington, 54, 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. Robert J. Stevenish, 52, has been Executive Vice President, Operations of Montgomery Ward since November 1, 1995. Prior thereto, he was with Hills Department Stores, Inc. from October, 1992 where his most recent position was Senior Executive Vice President and Chief Operating Officer. Prior to joining Hills Department Stores, Mr. Stevenish worked for J.C. Penney Company for 25 years in positions of increasing responsibility. Frederick E. Meiser, 52, has been Chairman and Chief Executive Officer of Lechmere since November 30, 1995. Prior to joining Lechmere, Mr. Meiser was Executive Vice President, Merchandising and Marketing of Builders Square. Prior thereto, he was Vice President Marketing and Importing for SPS Industries. Alan E. DiGangi, 49, has been Executive Vice President, Electric Ave., Rooms & More/Soft Home of Montgomery Ward since January 5, 1996. Prior thereto, he was Executive Vice President, Electric Ave. & More from April, 1995 to January, 1996. Mr. DiGangi joined Montgomery Ward in April, 1970 and has held various positions within Store Management, Field Operations, Marketing and Sales Promotion. 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 preferred stock dividends of $4 million to the Company in 1995, which declared and paid preferred stock dividends of $4 million in 1995. 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 20, 1996, 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 20, 1996, there were 109 holders of record of Voting Trust Certificates representing beneficial ownership in shares of Class A Common Stock, Series 1, of which 711,774 shares are pledged as collateral for notes issued to effect the repurchase of shares. See Note 14 to the Consolidated Financial Statements. There were 248 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 30, 1995 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 29. As of and for the 52-Week 53-Week 52-Week Period Ended Period Ended Period Ended Dec. 28, Jan. 2, Jan. 1, Dec. 31, Dec. 30, 1991 1993 1994 1994 1995 (Dollars in millions, except per share amounts) Total Revenues $5,673 $5,803 $6,023 $7,029 $7,085 Net Income (a) 135 100 101 117 11 Net Income Applicable to Common Share- holders(a) 122 92 101 115 7 Net Income per Class A Common Share (a) 2.40 2.01 2.29 2.68 .16 Total Assets 3,948 3,485 3,835 4,537 4,884 Long-Term Debt 521 125 213 228 423 Obligations Under Capital Leases 104 95 89 81 66 Total Share- holders' Equity 520 553 607 687 700 Redeemable Preferred Stock 90 - - 75 175 Cash Divi- dends per Common Share - .25 .50 .50 - (a) 1992 amounts are presented before cumulative effect of changes in accounting principles of $40 as a result of adoption of Financial Accounting Standards Board Statements No. 106, "Employees Accounting for Postretirement Benefits Other Than Pensions" and No. 109 "Accounting for Income Taxes". 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 1995 to 1994, as well as 1994 to 1993. Montgomery Ward is on a 52- or 53- week fiscal year basis. As a result, 1995, 1994 and 1993 are 52-week years. 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 more than 30% of the 1995 sales occurring in the fourth quarter. Results of Operations: 1995 Compared with 1994 Increasingly difficult industry conditions further challenged retailers' ability to provide profitable, value-driven products, appropriate assortment and maintain disciplined inventories. The Company's performance reflected this with consolidated net income decreasing $106, or 90%, from the prior year. Consolidated net income applicable to common shareholders for 1995 was $7, which was 94% less than the prior year. Net income for 1995 includes the first quarter loss from operations of Lechmere. Lechmere was acquired on March 30, 1994, therefore, 1994 results exclude Lechmere's first quarter 1994 results. Given the seasonality of Lechmere's business, it has historically experienced losses in the first quarter of the year. Consolidated total revenues (net sales and direct response marketing revenues, including insurance) were $7,085 compared with $7,029 in 1994, increasing by $56 million or 1%. The $56 million total revenue increase consisted of a $33 million decrease in net sales and an $89 million increase in direct marketing revenues. The change in total net sales represented a 1% decline, however, excluding Lechmere's first quarter 1995 impact of $192, as described above, net sales decreased $225, or 3%. Apparel and domestics sales declined 6% and included the negative impact of exiting the sale of paint and paint supplies. Hardlines sales decreased by 2%. Sales on a comparable store basis, which reflect only the stores in operation for both 1995 and 1994, decreased 5%. Montgomery Ward did experience favorable results in fourth quarter 1995 in the performance of "Exclusive Values" which leverage the Company's alliances with large vendors to offer branded, highly featured product that produces extraordinary sales volume at attractive margin rates. The increase in direct response marketing revenues was primarily due to increased clubs' membership and insurance policyholder levels. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Results of Operations: 1995 Compared with 1994 (continued) Gross margin (net sales less cost of goods sold) dollars, including Lechmere, were $1,353, a decrease of $118, or 8%, from 1994. This decrease was due to the gross margin impact of the decreased sales of $10, a decrease in the margin rate on sales of $99, and increased occupancy costs of $29 related to increased depreciation on capital investments in new and existing stores, partially offset by decreased buying and other expenses of $20. The 1995 gross margin rate reflects the gross margin results for Lechmere for twelve months while the 1994 rate reflects Lechmere's results for only nine months. While Lechmere added to gross margin dollars, its emphasis in appliances and electronics, which tend to have lower gross margin rates, contributed to the decrease in the 1995 gross margin rate. Continued competitive pressures also had an impact on margin rates, and Montgomery Ward's margin trends are consistent with overall industry results. Operating, selling, general and administrative expenses increased $107, or 6%, from the prior year. Excluding Lechmere's 1995 first quarter impact, operating, selling, general and administrative expenses increased by $73, or 4%. The increase includes the impact of new store openings of $39, a provision for severance costs and relocation of certain administrative functions of both Montgomery Ward and Lechmere of $25 (See Note 16 to the Consolidated Financial Statements), increased provision for bad debt expense under the Account Purchase Agreement of $21, increased advertising and other promotional costs of $17 and increased operating and administrative expenses of $8, partially offset by increased income generated from the sale of product service contracts of $37 (See Note 9 to the Consolidated Financial Statements). Net interest expense increased $33, or 57%, from the prior year. The increase is due to increased borrowings resulting from a combination of costs associated with the acquisition of, and added investment in, Lechmere, higher average working capital levels from slower than anticipated sales and capital expenditures for new and existing stores, as well as increased interest rates in 1995. Income tax benefit was $1 for 1995 as compared to income tax expense of $62 for 1994. See Note 8 to the Consolidated Financial Statements. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) 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 $7,029 compared with $6,023 in 1993. Net sales increased $941, 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 Ave. & More" stores opened during 1994. This new specialty power format combines the appliances/electronics (Electric Ave.), furniture (Rooms & More) and fine jewelry (Gold 'N Gems) specialty formats. The stores have a broad assortment of home oriented merchandise and 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 $1,471, an increase of $106, or 8%, from 1993. This increase was due to the gross margin impact of the increased sales of $272, partially offset by the decrease in the margin rate on sales of $107, increased occupancy costs of $45 related to new store openings and increased buying and other expenses of $14. 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. Operating, selling, general and administrative expenses increased $137 or 9%, from the prior year. Excluding Lechmere's expenses, operating, selling, general and administrative expenses increased by $35. 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 $4. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Results of Operations: 1994 Compared with 1993 (continued) 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. 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. 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 was extended during 1995 and currently expires September 6, 2000, provides for a revolving facility in the principal amount of $603. As of December 30, 1995, 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 was extended during 1995 and currently expires September 6, 1996, provides for a revolving facility in the principal amount of $297. As of December 30, 1995, $160 was outstanding under the Short Term Agreement. Under the Long Term Agreement and the Short Term Agreement (collectively, 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, and under certain circumstances, an additional fee may be payable to lenders not participating in a negotiated rate loan. 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 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 $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 7.4% 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 principal amount. The average aggregate notional principal amounts under the various cap agreements are $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 5.5% 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. On July 11, 1995, Montgomery Ward entered into a Note Purchase Agreement (1995 Note Purchase Agreement) with various lenders involving the private placement of $180 of Senior Notes which have maturities of from five to ten years at fixed interest rates varying from 6.52% to 6.98%. Proceeds from the debt issue were used to repay short-term borrowings incurred to fund the Company's acquisition of Lechmere. See Note 11 to the Consolidated Financial Statements. On September 29, 1995, Montgomery Ward borrowed $25 under a Term Loan Agreement (Term Loan Agreement) with a bank. The borrowings mature on September 30, 1999. Under the Term Loan Agreement, Montgomery Ward may select several interest rate options which are based on market rates. See Note 11 to the Consolidated Financial Statements. The Agreements, the Term Loan Agreement, the 1993 Note Purchase Agreements, and the 1995 Note Purchase Agreement 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 and the Term Loan Agreement, 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 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Discussion of Financial Condition (continued) 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 30, 1995, Montgomery Ward could pay dividends and make other distributions to the Company of $108 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. On December 29, 1995, Montgomery Ward redeemed the Montgomery Ward Preferred held by the Company for $75. The Company used the proceeds to redeem the Senior Preferred Stock held by GE Capital for $75. The source of funds for these transactions was borrowings under the Agreements. See Note 13 to the Consolidated Financial Statements. On December 29, 1995, Montgomery Ward issued 1,750 shares of a new series of senior preferred stock (MW Senior Preferred Stock), to GE Capital in exchange for $175 in cash. Subsequent to year end, Montgomery Ward used a portion of the proceeds to finance the purchase of the Amoco Motor Club by its wholly-owned subsidiary, Signature. The MW Senior Preferred Stock constitutes Debt-Like Preferred Stock under the Agreements and the Term Loan Agreement. The subscription agreement for the 1995 Senior Preferred Stock contains an exchange option which gives GE Capital the option to exchange the MW Senior Preferred Stock for senior preferred stock of the Company with identical terms. On January 31, 1996, GE Capital exercised the exchange option. See Note 13 to the Consolidated Financial Statements. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Discussion of Financial Condition (continued) The Company has repurchased 5,632,147 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 $47. As of December 30, 1995, the outstanding balance of these notes was $14. 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 1996. Currently available external sources of funds include $900 in multi-year revolving loan commitments under the Agreements which were obtained in September 1994 of which $297 will expire on September 6, 1996 and $603 will expire on September 6, 2000. During 1995, the average daily balance of borrowings under these commitments was $623. 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 to Montgomery Ward aggregating $22. Signature did not pay dividends to Montgomery Ward in 1995. 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. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. (continued) Discussion of Financial Condition (continued) Montgomery Ward and Lechmere's capital expenditures of $122 for 1995 were primarily related to opening 5 new Electric Ave. & More stores and relocating 3 full line stores and implementing conversion strategies in conventional retail stores and various merchandise fixture and presentation programs. Montgomery Ward regularly reviews opportunities for acquisitions and joint ventures and regards such transactions as a possible source for future growth. 1995 1994 1993 Total Capital Expenditures . . .$ 122 $ 184 $ 142 Capital appropriations authorized during the year . .$ 152 $ 247 $ 149 Cancellations of prior year's appropriations. . . . .$(75) $(25) $(23) Unexpended capital appropriations at year-end . .$ 136 $ 181 $ 143 Montgomery Ward and Lechmere are not contractually committed to spend all of the capital appropriations unexpended at December 30, 1995, but generally expect to do so. Item 8. Financial Statements. Page Report of Independent Public Accountants . . . . . . . . . . . . . . . 29 Consolidated Balance Sheet at December 30, 1995 and December 31, 1994 . . . . . . . . . . . . 31 For the 52-Week Periods Ended December 30, 1995, December 31, 1994 and January 1, 1994 Consolidated Statement of Income. . . . . . . . . . . . . . . . . 30 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 sheets of MONTGOMERY WARD HOLDING CORP. (a Delaware Corporation) AND SUBSIDIARY as of December 30, 1995 and December 31, 1994, and the related consolidated statements of income, shareholders' equity and cash flows for the fiscal years ended December 30, 1995, December 31, 1994 and January 1, 1994. 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 30, 1995 and December 31, 1994 and the results of their operations and their cash flows for the fiscal years ended December 30, 1995, December 31, 1994 and January 1, 1994, in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois, February 13, 1996 MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF INCOME (Millions of dollars) 52-Week Period Ended Dec. 30, Dec. 31, Jan. 1, 1995 1994 1994 Revenues Net sales, including leased and licensed department sales. . . . $6,531 $6,564 $5,623 Direct response marketing revenues, including insurance . . 554 465 400 Total Revenues . . . . 7,085 7,029 6,023 Costs and Expenses Cost of goods sold, including net occupancy and buying expense. . . . . 5,178 5,093 4,258 Operating, selling, general and adminis- trative expenses, including benefits and losses of direct response operations (Note 16) . . . . . . . 1,806 1,699 1,562 Interest expense (Note 17) . . . . . . . 91 58 43 Total Costs and Expenses. . . . . . . 7,075 6,850 5,863 Income Before Income Taxes . . . . . . 10 179 160 Income Tax (Benefit) Expense (Note 8) . . . . (1) 62 59 Net Income . . . . . . . . 11 117 101 Preferred Stock Dividend Requirements (Note 13). . . . . . . . 4 2 - Net Income Applicable to Common Shareholders. . . $ 7 $ 115 $ 101 Net Income per Class A Common Share (Note 14) . . . . . . . . $ .16 $ 2.68 $ 2.29 Net Income per Class B Common Share (Note 14) . . . . . . . $ .14 $ 2.30 $ 2.04 Cash Dividends declared per Common Share Class A . . . . . . . . $ - $ .50 $ .50 Class B . . . . . . . . $ - $ .50 $ .50 See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. CONSOLIDATED BALANCE SHEET (Millions of dollars) ASSETS December 30, December 31, 1995 1994 Cash and cash equivalents. . . . . . . . .$ 37 $ 33 Short-term investments . . . . . . . . . . 1 3 Investments of insurance operations (Note 3) . . . . . . . . . . . . . . . . 345 314 Total Cash and Investments . . . . . . 383 350 Trade and other accounts receivable. . . . 166 112 Accounts and notes receivable from affiliates (Note 4). . . . . . . . . . . 22 6 Total Receivables. . . . . . . . . . . 188 118 Merchandise inventories (Note 5) . . . . . 1,770 1,625 Prepaid pension cost (Note 6). . . . . . . 335 324 Properties, plants and equipment, net of accumulated depreciation and amortization (Note 7). . . . . . . . 1,366 1,396 Direct response and insurance acquisition costs. . . . . . . . . . . . 395 322 Other assets . . . . . . . . . . . . . . . 447 402 Total Assets . . . . . . . . . . . . . . . $4,884 $4,537 LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt (Note 11). . . . . . . . . $ 160 $ 144 Trade accounts payable . . . . . . . . . . 1,804 1,719 Federal income taxes payable (Note 8) . . 6 14 Accrued liabilities and other obligations (Notes 2, 4, 6, 9 and 14). . . . . . . . . . . . . . . . . 1,195 1,231 Insurance policy claim reserves (Note 10). . . . . . . . . . . . . . . . 236 236 Long-term debt (Note 11) . . . . . . . . . 423 228 Obligations under capital leases (Note 12). . . . . . . . . . . . . . . . 66 81 Deferred income taxes (Note 8) . . . . . . 119 122 Total Liabilities. . . . . . . . . . . 4,009 3,775 Commitments and Contingent Liabilities (Notes 11 and 18) Redeemable Preferred Stock (Note 13) . . . 175 75 Shareholders' Equity Common stock (Note 14) . . . . . . . . . 1 - Capital in excess of par value . . . . . 45 23 Retained earnings. . . . . . . . . . . . 758 751 Unrealized gain on marketable equity securities . . . . . . . . . . . 10 2 Less: Treasury stock, at cost . . . . . (114) (89) Total Shareholders' Equity . . . . . . 700 687 Total Liabilities and Shareholders' Equity . . . . . . . . . . $4,884 $4,537 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, January 2, 1993, as restated 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 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 Common Par Retained alized at holders' Value Value Stock Value Earnings Gains Cost Equity (Number of shares in thousands) Balance, January 1, 1995 19,280 25,000 $ - $23 $751 $ 2 $(89) $687 Net income - - - - 11 - - 11 Cash dividends paid - - - - (4) - - (4) Compensation expense on stock option grants/repur- chases - - - 5 - - - 5 Change in unrealized gain on marketable securities - - - - - 8 - 8 Shares repur- chased as Treasury stock (1,052) - - - - - (25) (25) Shares issued upon exer- cise of options 980 - 1 17 - - - 18 Shares issued upon exer- cise of conversion rights 2 - - - - - - - Balance, December 30,1995 19,210 25,000 $ 1 $45 $758 $10 $(114) $700 See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (Millions of dollars) 52-Week Period Ended Dec. 30, Dec. 31, Jan. 1, 1995 1994 1994 Cash flows from operating activities: Net income. . . . . . . . $ 11 $ 117 $ 101 Adjustments to reconcile net income to net cash provided by (used in) operations: Depreciation and amortization. . . . . . 119 109 98 Deferred income taxes . . (7) 29 25 Gain on sale of assets. . (11) (1) - Gain on stock distribution. . . . . (16) - - Compensation expense on stock option grants/ repurchases . . . . . . 4 1 - Changes in operating assets and liabilities, net of businesses acquired: (Increase) decrease in: Trade and other accounts receivable (54) (38) (9) Accounts and notes receivable from affiliates (16) (2) 14 Merchandise inventories. . . . . . (145) (243) (204) Prepaid pension cost . . (11) (15) (19) Other assets. . . . . . (77) (50) (50) Increase (decrease) in: Trade accounts payable. . 85 291 148 Federal income taxes payable, net . . . . . . (9) 5 (1) Accrued liabilities and other obligations. . . . . . .(55) (41) 33 Insurance policy claim reserves . . . . . - (1) (4) Deferred income taxes - (8) - Net cash (used in) provided by operations . . . . . (182) 153 132 Cash flows from investing activities: Investment in ValueVision . (8) - - Investment in Merchant Partners . . . . . . . . (4) (1) - Acquisition of Lechmere, net of cash acquired . . - (109) - Acquisition of Smilesaver, net of cash acquired . . - (11) - Purchase of short-term investments. . . . . . . . (60) (231) (248) Purchase of investments of insurance operations . . . . . . . (791) (691) (688) Sale of short-term investments. . . . . . . 62 247 240 Sale of investments of insurance operations . . . . . . . 775 671 669 Disposition of properties, plants and equipment, net . . . 39 8 3 Capital expenditures. . . (122) (184) (142) Net cash used in investing activities . . . . . .$ (109) $(301) $(166) See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (Continued) (Millions of dollars) 52-Week Period Ended Dec. 30, Dec. 31, Jan. 1, 1995 1994 1994 Cash flows from financing activities: Proceeds from issuance of short-term debt, net . . . . . . . . $ 16 $144 $ - Proceeds from issuance of long-term debt . . . . . . . . . . . 205 168 100 Payments of Montgomery Ward long-term debt . . . . . . . . . . . (10) (179) (12) Payments of Lechmere long-term debt . . . . . - (88) - Payments of obligations under capital leases . . (7) (8) (6) Proceeds from issuance of common stock. . . . . 18 3 1 Proceeds from issuance of preferred stock . . . 175 75 - Payments to redeem preferred stock. . . . . (75) - - Cash dividends paid . . . . (4) (24) (23) Purchase of treasury stock, at cost . . . . . (23) (9) (11) Tax benefit of stock options exercised and other share exchanges. . . . . . . . . - 1 2 Net cash provided by financing activities. . . . . . . 295 83 51 Increase (Decrease) in cash and cash equivalents . . . 4 (65) 17 Cash and cash equivalents at beginning of period . . 33 98 81 Cash and cash equivalents at end of period . . . . . . $ 37 $ 33 $ 98 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 wholly owned subsidiary, Montgomery Ward & Co., Incorporated (Montgomery Ward), 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, 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. Investments in 20 percent to 50 percent owned affiliates where significant influence exists are accounted for on the equity method. All significant intercompany accounts and transactions are eliminated in consolidation. 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. Fiscal Year The Company operates on a 52- or 53- week fiscal year basis. The Company's fiscal year ends on the Saturday closest to December 31. The fiscal years ended December 30, 1995, December 31, 1994 and January 1, 1994 included 52 weeks. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 1. Major Accounting Policies (continued) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, time deposits and highly liquid debt instruments with an original 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. Following is a summary of cash payments for interest and income taxes and non-cash financing and investing activities: 52-Week Period Ended Dec. 30, Dec. 31, Jan. 1, 1995 1994 1994 Cash paid for: Income taxes . . . . . . $ 24 $ 33 $ 46 Interest . . . . . . . . $ 82 $ 56 $ 55 Non-cash financing activities: Notes issued for purchase of Treasury stock. . . . $ 2 $ 7 $ 16 Non-cash investing activities: Change in unrealized gain on marketable securities. . . . . . $ 8 $(14) $ - Like-kind exchange of assets. . . . . . . . $ - $ 5 $ 6 Gain on Stock distribution. . . . . $ 16 $ - $ - The net cumulative effect of changes in accounting principles of $13 in 1994 has no cash impact. Investments of Insurance Operations The Company accounts for investments under Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments In Debt and Equity Securities". Under SFAS No. 115, all debt and equity 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. 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. Properties, plants and equipment 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. In March, 1995, the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The Company will implement SFAS No. 121 during fiscal year 1996. The provisions require a review of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an impairment loss has occurred based on expected undiscounted future cash flow, the loss will be recognized in the income statement and certain disclosures will be made regarding the impairment. The impact of the adoption of this statement is not reasonably estimatable at this time. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 1. Major Accounting Policies (continued) 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 $61 and $63 at December 30, 1995 and December 31, 1994, respectively, are included in Accrued liabilities and other obligations. 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. The time period over which deferred policy and membership acquisition costs are being amortized and the recoverability of such costs could differ from estimates due to changing market conditions. Amortization of deferred policy and membership acquisition costs is continually reviewed, and, as adjustments become necessary, they are reflected in current operations. Amortization charged to income was $151, $124 and $111 for 1995, 1994 and 1993, 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. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 1. Major Accounting Policies (continued) 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. Federal Income Tax The Company and its subsidiaries file a consolidated Federal income tax return. Beginning in 1994, insurance subsidiaries which had previously filed separate Federal income tax returns are included in the consolidated return. The Company determines its income tax expense and related deferred federal income taxes in accordance with SFAS No. 109. 2. Acquisition of Lechmere, Inc. Montgomery Ward acquired in a merger transaction all the stock of LMR Acquisition Corporation, which owned 100% of the stock of Lechmere, on March 30, 1994. The aggregate purchase price was $113. 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 balance is $3 at December 31, 1995 and is included in Accrued liabilities and other obligations. The balance is payable three years after the date of the Note. The Note is secured by a standby letter of credit. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 2. Acquisition of Lechmere, Inc. (continued) 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. The acquisition was accounted for as a purchase. The purchase price has been allocated to Lechmere's net assets based upon results of asset valuations and liability and contingency assessments. The allocation is summarized as follows: Inventory . . . . . . . . . . . . . . . . . . . . $140 Properties, Plants & Equipment. . . . . . . . . . 54 Goodwill . . . . . . . . . . . . . . . . . . . . 124 Other Assets. . . . . . . . . . . . . . . . . . . 50 Due to Montgomery Ward. . . . . . . . . . . . . . (88) Accounts Payable and Other Liabilities. . . . . .(167) $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 30, 1995 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. . . . . $ 54 $ 1 $ - $ 55 Public utilities. . . . 70 8 - 78 All other corporate bonds. . . . . . 19 2 - 21 Mortgage-backed securities. . . 133 3 (1) 135 Total fixed maturi- ties. . 276 14 (1) 289 Equity securities: Common stock. . . . . 13 4 - 17 Total equity securi- ties. . 13 4 - 17 Policy loans. . . . . . 7 - - 7 Short-term investments. . . 32 - - 32 Total Invest- ments . $328 $18 $(1) $345 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 3. Investments of Insurance Operations 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) $314 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 3. Investments of Insurance Operations (continued) The amounts of fixed maturities as of December 30, 1995 are as follows: Amortized Market Cost Value Due in 1995. . . . . . . . . . . . . . . . .$ 21 $ 21 Due in 1996 through 2000 . . . . . . . . . . 103 113 Due in 2001 through 2005 . . . . . . . . . . 17 18 Due in 2006 and beyond . . . . . . . . . . . 2 2 Mortgage-backed securities . . . . . . . . . 133 135 $276 $289 Realized capital gains before income tax and changes in unrealized gains (losses) after income tax on fixed maturities, mortgage loans and equity securities are as follows: Fixed Maturities and Mortgage Equity Loans Securities 52-Week Period Ended December 30, 1995 Realized. . . . . . . . . . . . . . . . . .$ 1 $ 5 Unrealized. . . . . . . . . . . . . . . . .$ 8 $ 3 52-Week Period Ended December 31, 1994 Realized. . . . . . . . . . . . . . . . . .$ - $ - Unrealized. . . . . . . . . . . . . . . . $(2) $ 4 52-Week Period Ended January 1, 1994 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 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 4. Accounts and Notes Receivable from Affiliates (continued) 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 $6,000 outstanding at any time. Montgomery Ward accounts for the transfer as a sale of the applicable receivables. Sales of receivables to Montgomery Ward Credit were $3,938, $4,092 and $3,991 for 1995, 1994 and 1993, respectively. At December 30, 1995 and December 31, 1994, there were $5,348 and $5,221, respectively, of Montgomery Ward credit card receivables owned by Montgomery Ward Credit. 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 and late fees (as described below), net of applicable reserves carried by Montgomery Ward Credit. Montgomery Ward estimates that any accounting loss would be immaterial at December 30, 1995. 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. 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 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 4. Accounts and Notes Receivable from Affiliates (continued) resulting from such increases which is available for offset against the credit losses, and earns interest at the same rate as amounts owned by Montgomery Ward to Montgomery Ward Credit. In 1995, Montgomery Ward entered into an agreement with Montgomery Ward Credit to increase late fee assessments and implement previously agreed upon finance charge increases in various states, as allowed by statute. Montgomery Ward's share of these incremental finance charges and late fees is calculated in the same manner as the prior 1992 agreement. 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 and late fees, 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 and late fees, 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 and late fee assessments 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 $224 with respect to credit losses through 1995. The incremental finance charges and late fee assessments due to Montgomery Ward at the end of 1995 were $44. All amounts are included in Accrued liabilities and Other obligations at December 30, 1995. 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. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 4. Accounts and Notes Receivable from Affiliates (continued) The Account Purchase Agreement will be in effect until December 31, 2006, and thereafter from year to year unless either party gives ten years prior notice of its election to terminate. 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 $124, $133 and $117 higher than those reported as of December 30, 1995, December 31, 1994 and January 1, 1994, respectively. 6. Retirement Plans Retirement plans of a contributory nature cover a majority of full-time associates of Montgomery Ward and its subsidiaries. Retirement benefits are provided by a defined benefit pension plan as well as by a savings and profit sharing plan. Montgomery Ward and its subsidiaries contribute to the defined benefit pension plan to cover any excess of defined minimum benefits over the benefits available. The components of the net pension credit were as follows: 52-Week Period Ended Dec. 30, Dec. 31, Jan. 1, 1995 1994 1994 Service cost-benefits earned during the period. . . . . . . . . .$(10) $(13) $(11) Interest cost on projected benefit obligation. . . . . . . (51) (46) (45) Actual return on assets . . . . . . . . . 185 4 101 Deferral of unantici- pated investment performance . . . . . . (110) 72 (26) Amortization of unrecognized net loss. . . . . . . . . (3) (2) - Net pension credit . . . .$ 11 $ 15 $ 19 Assumptions: Discount rate . . . . . 8.5% 7.5% 8.5% Increase in future compensation . . . . . . 6.0% 6.0% 6.0% Rate of return on plan assets . . . . . 9.5% 9.5% 9.5% 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 30, December 31, 1995 1994 Actuarial present value of accumulated benefit obligation: Vested . . . . . . . . . . . . . . . $(660) $(576) Nonvested. . . . . . . . . . . . . . (3) (4) Accumulated benefit obligation . . . . .(663) (580) Additional amounts related to projected increases in compensation levels . . . . . . . . . (16) (23) Projected benefit obligation . . . . . .(679) (603) Plan assets at fair value, primarily in equity and fixed income securities . . . . . . 898 789 Plan assets in excess of projected benefit obligation. . . . . . . . . . .$ 219 $ 186 Unrecognized net loss since initial application of FAS 87. . . . . . . . .$ 118 $ 140 Unrecognized prior service cost since initial application of FAS 87. . . . . . . . . . . . . . $ (2) $ (2) Prepaid pension cost . . . . . . . . $ 335 $ 324 The projected benefit obligation was determined using an assumed discount rate of 7.5% at December 30, 1995 and 8.5% at December 31, 1994 and an assumed rate of increase in future compensation levels of 6% for 1995 and 1994. Excess 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 $6 for each of 1995, 1994 and 1993. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 6. Retirement Plans (continued) Substantially all associates who retire after participattion in the retirement plan for ten years and who were members of the health care plan for the year prior to retirement are eligible for certain post-retirement health care and life insurance benefits, the cost of which is shared with the retirees. Associates who retire as of January 1, 1996 are no longer eligible for post- retirement life insurance benefits. In 1992, the Company established a limit on its future annual contributions on behalf of retirees at a maximum of 125% of the projected 1992 company contributions. The Company accounts for postretirement benefits under the provisions of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions". The components of the net periodic postretirement benefit cost were as follows: 52-Week Period Ending 1995 1994 1993 Service Cost. . . . . . . . . . . . .$ 2 $ 2 $ 2 Interest cost on accumulated postretirement benefit obligation . . . . . . . . . . . . . 10 11 12 Curtailment gain on life insurance benefit termination. . . . . . . . (3) - - Net periodic postretirement benefit cost . . . . . . . . . . . .$ 9 $13 $14 The status of the Company's liability for postretirement benefits at December 30, 1995 and December 31, 1994, which are included in Accrued liabilities and other obligations is as follows: 1995 1994 Accumulated postretirement benefit obligation: Retirees. . . . . . . . . . . . . . . . . .$ 90 $104 Fully eligible active associates. . . . . . 17 18 Other active associates . . . . . . . . . . 22 26 Total accumulated postretirement benefit obligation. . . . . . . . . . . . . . . . 129 148 Unrecognized prior service cost. . . . . . . 15 - Net gain (loss). . . . . . . . . . . . . . . (4) (4) Accumulated postretirement benefit obligation. . . . . . . . . . . . .$140 $144 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 6. Retirement Plans (continued) The weighted average discount rate used in measuring the accumulated postretirement benefit obligation was 7.5% at December 30, 1995 and 8.5% at December 31, 1994. The assumed health care cost trend rate and the impact of a 1% increase in the medical trend rate on the accumulated postretirement benefit obligation, service cost and interest cost are not applicable due to caps established on current cost levels. The Company continues to evaluate ways in which it can better manage retiree benefits and control costs. Any changes in the plan or revisions to assumptions that affect the amount of expected future benefits may have a significant effect on the amount of the reported obligation and annual expense. 7. Properties, Plants and Equipment The details of the properties, plants and equipment accounts are shown below at cost: December 30, December 31, 1995 1994 Land . . . . . . . . . . . . . .$ 201 $ 197 Buildings. . . . . . . . . . . . . . . 867 860 Leasehold improvements . . . . . . . . 534 319 Fixtures and equipment . . . . . . . . 355 503 Assets under capital leases. . . . . . 101 111 Less accumulated depreciation and amortization. . . . . . (692) (591) Properties, Plants, and Equipment, net. . . . . . . $1,366 $1,399 Gains or (losses) on the sale of properties were $11, $1 and $0 for 1995, 1994 and 1993, respectively. Accumulated amortization on capital lease assets was $50 and $49 for 1995 and 1994, respectively. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 8. Income Taxes The Company has alternative minimum tax (AMT) credits of $26, $24 and $31 as of December 30, 1995, December 31, 1994 and January 1, 1994, respectively, available to offset future Federal income tax liabilities. The Company has targeted jobs tax credit carryforwards of $16 and net operating loss (NOL) carryforwards of $68 available as of December 30, 1995, 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 30, December 31, 1995 1994 Accrued liabilities. . . . . . . . . $(130) $(169) Postretirement benefits. . . . . . . (56) (56) Insurance reserves . . . . . . . . . . (65) (61) Other deferred tax assets. . . . . . . (29) (23) Total deferred tax assets . . . . . .(280) (309) Prepaid pension contribution . . . . . 132 128 Direct response and insurance acquisition costs . . . . . . . . . 150 127 Property, plants and equipment . . . 145 133 Other deferred tax liabilities . . . . 50 47 Total deferred tax liabilities. . . 477 435 AMT and other credit carryforwards . . . . . . . . . . . .(110) (36) Valuation allowance. . . . . . . . . . 32 32 Net deferred tax liability. . . . . $ 119 $ 122 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 Period Ended Dec. 30, Dec. 31, Jan. 1, 1995 1994 1994 Federal Currently payable . . . $ 7 $25 $28 Deferred (benefit) payable. . . . . . . . .(7) 29 25 State, local and foreign (benefit) payable. . . . . . . . (1) 8 6 Total income tax (benefit) expense . . . . . . . . $(1) $62 $59 A reconciliation of the statutory to effective federal income tax rate is as follows: 52-Week Period Ended Dec. 30, Dec. 31, Jan. 1, 1995 1994 1994 Federal income tax rate. . . . . . . . 35% 35% 35% State taxes, net of reduction of Federal tax and NOL benefit . . . . . . (16) 3 2 Targeted Jobs Tax Credit. . . . . . . (60) (3) (1) Impact of increase in statutory rate . . . - - 1 Deferred rate differential, net of adjustments. . . . . .(5) (3) - Permanent differences. . 34 2 - Effective income tax rate. . . . . . . .(12)% 34% 37% 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 $169 and $231 at December 30, 1995 and December 31, 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 the time of sale. VSC insured contracts comprised 70% and 17% of sales of service contracts to Montgomery Ward customers in 1995 and 1994, respectively. Montgomery Ward has contracted with VSC to provide repair services to VSC. 10. Reinsurance 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. Reinsurance (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 30, 1995: Life insurance in force . . $5,886 $(84) $ - $5,802 0.0 % Premiums Life insurance . $ 53 $ (1) $ 2 $ 54 3.7% Accident and health insurance . . 91 (5) 15 101 14.9% Property and liability insurance . 73 (12) - 61 0.0% Total. . . $ 217 $(18) $17 $ 216 7.9% 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% 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 30, December 31, 1995 1994 Montgomery Ward Note Purchase Agreements; Senior Notes Series A to Series J due in 1998 to 2005 at 6.52% to 8.18% interest rates. . . . . . . . . . . . . . . . . . $280 $100 Bank Term Loan, due in 1999 at 6.07% interest rate. . . . . . . . . . . . 25 - Commercial Development Revenue Bonds, due in 2013 at 4.5% 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 11 1/2% Secured Note, due serially to September 1, 2001 . . . . . . . . . . . 14 15 7 1/2% Secured Note, due serially to November 30, 2002 . . . . . . . . . . . 6 6 9.45% Secured Notes, due serially to November 30, 2003 . . . . . . . . . . . 16 18 7 3/4% Secured Notes, due serially to August 31, 2004 . . . . . . . . . . . . 19 20 7 7/8% Secured Notes, due serially to December 15, 2005 . . . . . . . . . . 8 9 9% Secured Notes, due serially to January 1, 2006. . . . . . . . . . . . . . 12 13 Other . . . . . . . . . . . . . . . . . . . 8 10 Lechmere 9.65% Secured Mortgage Notes, due October 31, 1996 . . . . . . . . . . . . . 24 24 Other . . . . . . . . . . . . . . . . . . . 4 5 Total long-term debt. . . . . . . . . .$423 $228 The amounts of long-term debt that become due during the fiscal years 1996 through 1999 are as follows: 1996--$34, 1997--$9, 1998--$19, 1999--$10, and 2000--$91. 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 was extended during 1995 and currently expires September 6, 2000, provides for a revolving facility in the principal amount of $603. As of December 30, 1995, 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 was extended during 1995 and currently expires September 6, 1996, provides for a revolving facility in the principal amount of $297. As of December 30, 1995, $160 was outstanding under the Short Term Agreement. 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 6.25% for 1995. 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 $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 7.4% 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 $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 5.5% 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 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 11. Short-Term and Long-Term Debt (continued) one-month daily average LIBO rate exceeds the cap strike rate. The exchange and cap agreements resulted in interest expense of $3 and increased the effective interest rate under the Agreements by .48% in 1995. 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 was $(9) and $0, respectively, at December 30, 1995. 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. On July 11, 1995, Montgomery Ward entered into a Note Purchase Agreement (1995 Note Purchase Agreement) with various lenders involving the private placement of $180 of Senior Notes which have maturities of from five to ten years at fixed interest rates varying from 6.52% to 6.98%. Proceeds from the debt issue were used to repay short-term borrowings incurred to fund the Company's acquisition of Lechmere. On September 29, 1995, Montgomery Ward borrowed $25 under a Term Loan Agreement (Term Loan Agreement) with a bank. The borrowings mature on September 30, 1999. Under the Term Loan Agreement, Montgomery Ward may select several interest rate options which are based on market rates. The Agreements, the Term Loan Agreement, the 1993 Note Purchase Agreements and the 1995 Note Purchase Agreement 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 and the Term Loan Agreement, 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 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 11. Short-Term and Long-Term Debt (continued) than Debt-Like Preferred Stock of Montgomery Ward or the Company, after January 1, 1994, plus (6) an adjustment of $45 for 1995 through 1996, $30 in 1997 and $15 in 1998. The MW Senior Preferred Stock discussed in Note 13 constitutes Debt-Like Preferred Stock for purposes of the dividend restrictions under the Agreements. At December 30, 1995, Montgomery Ward could pay dividends and make other distributions to the Company of $108 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 4.5% in 1995. 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 30, 1995, assets with a net book value of approximately $188 represented collateral for certain of these secured notes. The market value of the Company's long-term debt of $417 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. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 12. Leases At December 30, 1995, the minimum lease payments under all noncancelable operating leases with an initial term of more than one year, not including $37 of future sublease rentals, and under capital leases are as follows: Capital Operating Leases Leases 1996 . . . . . . . . . . . . . . . . . . . . $13 $ 119 1997 . . . . . . . . . . . . . . . . . . . . 12 110 1998 . . . . . . . . . . . . . . . . . . . . 11 99 1999 . . . . . . . . . . . . . . . . . . . . 11 90 2000 . . . . . . . . . . . . . . . . . . . . 11 84 Later Years. . . . . . . . . . . . . . . . . 40 799 Total Minimum Lease Payments. . . . . . . . $98 $1,301 Less Executory Costs, principally real estate taxes to be paid by the lessor . . . (4) Less Imputed Interest. . . . . . . . . . . . (28) Present Value of Net Minimum Capital Lease Payments Including Portion due within one year of $7 . . . . . . . . . . . $66 Net rent expense charged to earnings was $140 for 1995, $130 for 1994 and $104 for 1993 after deducting rentals from subleases of $9 in 1995, 1994 and 1993. Rent expense includes contingent lease rentals for capital and operating leases of $12 for 1995, $13 for 1994 and $11 for 1993. 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. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 13. Redeemable Preferred Stock 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. On December 29, 1995, Montgomery Ward redeemed the Montgomery Ward Preferred held by the Company for $75. The Company used the proceeds to redeem the Senior Preferred Stock held by GE Capital for $75. The source of the funds for these transactions was borrowing under the Agreements. Dividends on the Senior Preferred Stock and Montgomery Ward Preferred had been paid quarterly at an annual rate of $4,850 per share. On December 29, 1995, Montgomery Ward issued 1,750 shares of a new series of senior preferred stock (MW Senior Preferred Stock), par value of $1.00 per share, to GE Capital in exchange for $175 in cash. Subsequent to year end, Montgomery Ward used a portion of the proceeds to finance the purchase of the Amoco Motor Club by its wholly-owned subsidiary, Signature. The subscription agreement for the MW Senior Preferred Stock contains an exchange option which gives GE Capital the option to exchange the MW Senior Preferred Stock for senior preferred stock of the Company with identical terms. On January 31, 1996, GE Capital exercised the exchange option. Dividends on the MW Senior Preferred Stock are payable quarterly at an annual rate of $7,010 per share. Montgomery Ward is required to redeem the MW Senior Preferred on June 30, 2002, with the option of redeeming all or any portion prior to June 30, 2002. 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; 19,018,394 shares issued and outstanding, net of 5,996,819 shares held in treasury. Class A Common Stock, Series 2; $.01 par value; 5,412,000 shares authorized; 191,399 shares issued and outstanding, net of 1,674,319 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 5,632,147 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 $47. As of December 30, 1995, the outstanding balance of these notes was $14. 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 1996. 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 30, 1995 Class A Class B Earnings available for Common Share- holders. . . . . . . . . . . . . . . $ 3 $ 4 Weighted average number of common and common equivalent shares (stock options) outstanding. . . . . 20,824,514 25,000,000 Earnings per share . . . . . . . . . . $.16 $.14 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 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 2,792,088 and 2,926,286 of Class A Common Stock, Series 2 and Series 3 shares were exercisable at December 30, 1995 and December 31, 1994, respectively. Following is a summary of activity under the plan. Option Price Options Range 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 Granted, 1995 . . . . . . . . . . . . . 613,145 $24.50-$26.50 Exercised, 1995 . . . . . . . . . . . (980,373) $ .20-$24.50 Cancellations, 1995 . . . . . . . . . (571,231) $ .20-$26.50 Outstanding December 30, 1995 . . . . 4,747,143 $ .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 1995, 1994 and 1993, 2,476, 2,489 and 3,466 Series 1 shares were issued from treasury as payment for directors fees, respectively. In October, 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation". This standard is effective for fiscal years beginning after December 15, MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 15. Stock Ownership Plan (continued) 1995 and therefore will be adopted by Montgomery Ward in 1996. Montgomery Ward's Stock Option Plan is covered by this statement. Under SFAS No. 123, entities may adopt the fair value based method for stock-based compensation plans, or continue to use the accounting method prescribed by APB Option No. 25, "Accounting for Stock Issued to Employees" and provide pro-forma disclosures in the footnotes to the financial statements of net income and earnings per share as if the fair value based method defined in SFAS No. 123 had been applied. Montgomery Ward intends to adopt the disclosure method of this statement. 16. Operating, Selling, General and Administrative Expenses Operating, selling, general and administrative expenses include benefits and losses related to direct response marketing operations of $100, $102 and $93 for the periods ended December 30, 1995, December 31, 1994 and January 1, 1994, respectively. A provision for severance costs and relocation of certain administrative functions of both Montgomery Ward and Lechmere of $25 is included in Operating, selling, general and administrative expenses at December 30, 1995. 17. Interest Expense, Net of Investment Income Net interest expense is as follows: 52-Week Period Ended Dec. 30, Dec. 31, Jan. 1, 1995 1994 1994 Interest on short-term borrowings. . . . . . . . $ 47 $19 $ 12 Interest on long-term debt and obligations under capital leases. . . 32 30 24 Miscellaneous interest, net . . . . . . . . . . . 15 11 8 Investment income. . . . . (3) (2) (1) Total interest expense, net of investment income. . . . . . . . . . .$91 $58 $43 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions, except per share amounts) 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. 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. On August 8, 1995, Montgomery Ward purchased 1,280,000 unregistered shares of common stock of ValueVision at $6.25 per share, which represents approximately 4.4% of the issued and outstanding shares of common stock of ValueVision International, Inc. (Value Vision). Montgomery Ward accounts for the investment using the cost method. Montgomery Ward also received 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 were valued at $18 at the time of grant and are included in Other assets at December 30, 1995. The corresponding deferred revenue of $18 was recognized as a liability and included in Accrued liabilities and other obligations. At December 30, 1995, the balance of the deferred revenue is $17. The deferred revenue will be recognized by Montgomery Ward as services are provided by MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 19. Related Party Transactions (continued) ValueVision in the future. These services are for expenses incurred for advertising by ValueVision, purchasing cable TV time for Montgomery Ward goods and services, use of the Montgomery Ward service mark and use of Montgomery Ward Credit. The warrants vest over time, subject to the vesting termination and acceleration provisions in the agreement. In July, 1994, Montgomery Ward became a limited partner in Merchant Partners, Limited Partnership (Merchant Partners). 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 capital contributions of $4 and $1 in 1995 and 1994, respectively, and accounts for the investment using the equity method. 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 December, 1995, Merchant Partners made a partnership distribution of $22 to Montgomery Ward. The distribution consisted of $8 of common stock and $14 of warrants of a publicly traded company. After recognition of the portion of the distribution that was recorded as a return of capital of $5 and the partnership's net loss allocation as of December 30, 1995 of $1, a gain of $16 was recognized in the Consolidated Statement of Income. 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 for services rendered in connection with the aforementioned matters. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 19. Related Party Transactions (continued) The Company offers 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. 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 30, 1995, the borrowings outstanding under the Line of Credit Program were $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 Period Ended Dec. 30, Dec. 31, Jan. 1, 1995 1994 1994 Total Revenues Retail Merchandising. . $6,531 $6,564 $5,623 Direct Response Marketing. . . . . . . 554 465 400 Total . . . . . . . . 7,085 $7,029 $6,023 Operating Earnings (Losses) Retail Merchandising. . $ 64 $ 208 $ 171 Direct Response Marketing. . . . . . . 70 60 54 Corporate and Other (a). . . . . . . (124) (89) (65) Total . . . . . . . . $ 10 $ 179 $ 160 Identifiable Assets Retail Merchandising. . $3,504 $3,314 $2,627 Direct Response Marketing. . . . . . . 920 789 753 Corporate and Other. . 460 434 455 Total . . . . . . . . $4,884 $4,537 $3,835 Depreciation and Amortization Retail Merchandising. . $ 118 $ 105 $ 95 Direct Response Marketing. . . . . . . 1 4 3 Total . . . . . . . . $ 119 $ 109 $ 98 Capital Expenditures Retail Merchandising. . $ 109 $ 180 $ 139 Direct Response Marketing. . . . . . . 13 4 3 Total . . . . . . . . $ 122 $ 184 $ 142 (a) Includes $25 of severance and relocation costs. See Note 16 to the Consolidated Financial Statements. 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 $165, and aggregate total shareholders equity of $224, can pay dividends of $50 during 1996 as determined on a statutory basis, subject to the ability of certain subsidiaries to generate earned surplus. Dividends received by Signature from insurance subsidiaries were $40, $42 and $35 for 1995, 1994 and 1993. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 21. Parent Company Financial Information Following is the MW Holding balance sheet as of December 30, 1995 and December 31, 1994 and the statements of income and cash flows for the 52-week periods ended December 30, 1995, December 31, 1994 and January 1, 1994. MONTGOMERY WARD HOLDING CORP. BALANCE SHEET ASSETS December 30, December 31, 1995 1994 Federal Income Taxes Receivable . . . . . .$ 4 $ 4 Investment in Montgomery Ward . . . . . . . 782 766 Redeemable Preferred Stock of Montgomery Ward. . . . . . . . . . . . . . - 75 Other assets. . . . . . . . . . . . . . . . 1 - Total Assets . . . . . . . . . . . . . . .$787 $845 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts Payable to Montgomery Ward . . . .$ 73 $ 57 Accrued Liabilities . . . . . . . . . . . . 14 26 Total Liabilities. . . . . . . . . . . . . 87 83 Redeemable Preferred Stock. . . . . . . . . - 75 Common Stock. . . . . . . . . . . . . . . . 1 - Capital in excess of par value. . . . . . . 45 23 Retained Earnings . . . . . . . . . . . . . 758 751 Unrealized gain on marketable equity securities . . . . . . . . . . . . . . . . 10 2 Less: Treasury stock, at cost. . . . . . (114) (89) Total Shareholders' Equity . . . . . . . 700 687 Total Liabilities and Shareholders' Equity . . . . . . . . . . .$787 $845 STATEMENT OF INCOME 52-Week Period Ended Dec. 30, Dec. 31, Jan. 1, 1995 1994 1994 Miscellaneous Costs . . . .$(1) $(2) $(1) Total Costs and Expenses. . . . . . . . . (1) (2) (1) Tax Benefits. . . . . . . . - - - Net Loss Before Earnings of Montgomery Ward. . . . . . (1) (2) (1) Equity in Net Income of Montgomery Ward . . . . 12 119 102 Net Income. . . . . . . . . 11 117 101 Preferred Stock Dividend Requirements . . . . . . . 4 2 - Net Income Available for Common Shareholders . . . . . . .$ 7 $115 $101 MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) (Dollar amounts in millions) 21. Parent Company Financial Information (continued) STATEMENT OF CASH FLOWS December 30, December 31, January 1, 1995 1994 1994 Net Income. . . . . . . . . .$ 11 $117 $101 Adjustments to reconcile net income to net cash provided: Change in undis- tributed earnings of subsidiary . . . . . (8) (96) (79) Compensation expense on stock option grants/ repurchases . . . . . . . 4 1 - Decrease (increase) in: Other assets. . . . . . . (1) - 1 Increase (decrease) in: Accounts payable to Montgomery Ward. . . . 16 22 12 Accrued liabilities . . .(13) (15) (4) Net cash provided before financing activities . . . . . . . . . 9 29 31 Cash flows from financing activities: Proceeds from issuance of common stock . . . . 18 3 1 Proceeds from redemption of Montgomery Ward preferred stock . . . . . 75 - - Proceeds from issuance of preferred stock. . . . - 75 - Purchase of Montgomery Ward preferred stock. . . . . . . . . . . - (75) - Cash dividends paid . . . (4) (24) (23) Payments to redeem preferred stock . . . . .(75) - - Purchase of treasury stock, at cost. . . . . .(23) (9) (11) Tax benefit of stock options exercised and other stock exchanges . . . . . . . . - 1 2 Net cash used for financing activities . . . . (9) (29) (31) Cash at end of period . . . .$ - $ - $ - Non-cash investing activities: Change in unrealized gain on investments . . . $ 8 $ (1) $ - Non-cash financing activities: Notes issued for purchase of treasury stock. . . . . . .$ 2 $ 7 $ 16 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 30, 1995 Net sales. . . . . . .$1,357 $1,521 $1,561 $2,092 $6,531 Cost of goods sold . . 1,075 1,211 1,240 1,652 5,178 Net (Loss) Income. . . (4) 11 3 1 11 Net (Loss) Income per Class A Common Share. . . . . (.12) .25 .05 - .16 Net (Loss) Income per Class B Common Share. . . . . (.10) .20 .04 - .14 52-Week Period Ended December 31, 1994 Net sales. . . . . . .$1,215 $1,519 $1,571 $2,259 $6,564 Cost of goods sold . . 931 1,184 1,235 1,743 5,093 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 23. Subsequent Event Subsequent to year end, Signature acquired all of the outstanding capital stock of Amoco Enterprises, Inc., operator of the Amoco Motor Club and a wholly-owned subsidiary of Amoco Oil Holding Company. See Note 13 to the Consolidated Financial Statements concerning financing of the acquisition. 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 16. 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 31, 1996, 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 31, 1996, 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 31, 1996, 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 31, 1996, 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's. (a) 1. Financial Statements. Page Report of Independent Public Accountants. . . . . . . . .29 Consolidated Balance Sheet at December 30, 1995 and December 31, 1994 . . . . . . . . . . . . . . . . .31 For the 52-Week Periods Ended December 30, 1995, December 31, 1994 and January 1, 1994 Consolidated Statement of Income. . . . . . . . . . . .30 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 December 29, 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 December 29, 1994, incorporated by reference to Exhibit 4.(e) to the Company's Registration Statement on Form S-8 (Registration No. 33-57075). 10.(i)(A)(3) Montgomery Ward & Co., Incorporated Stock Ownership Plan Terms and Conditions, as amended and restated, as of December 29, 1994, incorporated by reference to Exhibit 4.(f) of the Company's Registration Statement on Form S-1 (Registration No. 33-57075). 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)(C) Subscription Agreement dated as of December 29, 1995 between General Electric Capital Corporation, Montgomery Ward & Co., Montgomery Ward Holding Corp., and Bernard F. Brennan. 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)(F)(1) Amendment dated June 30, 1995 to Note Purchase Agreements dated March 1, 1993 between Montgomery Ward & Co., Incorporated and various lenders, incorporated by reference to Exhibit 10.(i)(F)(1) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended July 1, 1995. 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)(H)(1) Amended Schedule 1 to the 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)(H)(1) of the Company's Quarterly Report on Form 10-Q, for the fiscal quarterly period ended September 30, 1995. 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. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued) 3. Exhibits (continued) 10.(i)(I)(1) Amended Schedule 1 to the 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)(I)(1) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended September 30, 1995. 10.(i)(J) Note Purchase Agreement dated July 11, 1995 between Montgomery Ward & Co., Incorporated and various lenders, incorporated by reference to Exhibit 10.(i)(J) on the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended July 1, 1995. 10.(i)(K) Term Loan Agreement dated as of September 29, 1995 between Montgomery Ward & Co., Incorporated and The Industrial Bank of Japan, Limited, Chicago Branch, Incorporated by reference to Exhibit 10.(i)(K) of the Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended September 30, 1995. 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). Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued) 3. Exhibits (continued) 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). 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. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued) 3. Exhibits (continued) 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. 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, incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 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. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued) 3. Exhibits (continued) 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). 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), incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 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), incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 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. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued) 3. Exhibits (continued) 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. 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.(ix) 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, incorporated by reference to Exhibit 10.(xii) of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994. 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. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (Continued) 3. Exhibits (continued) (b) Reports on Form 8-K. On September 13, 1995, the Registrant filed a Form 8-K to communicate its intention to acquire Levitz Furniture Incorporated. The press release issued jointly by Montgomery Ward & Co., Incorporated and Levitz Furniture Incorporated on September 5, 1995 was included as an exhibit thereto. On October 18, 1995, the Registrant filed a Form 8-K to communicate the termination of discussions regarding its proposed purchase of Levitz Furniture Incorporated. The press release issued jointly by Montgomery Ward & Co., Incorporated and Levitz Furniture Incorporated on October 16, 1995 was included as an exhibit thereto. On November 13, 1995, the Registrant filed a Form 8-K to communicate the intent of Signature Financial/Marketing, Inc., a wholly-owned subsidiary of Montgomery Ward & Co., Incorporated, which is, in turn, a wholly-owned subsidiary of Montgomery Ward Holding Corp., to acquire Amoco Enterprises, Inc., operator of the Amoco Motor Club. Amoco Enterprises, Inc. is a wholly-owned subsidiary of Amoco Oil Holding Company. 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 29, 1996 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 29, 1996 BY SPENCER H. HEINE NAME AND TITLE Spencer H. Heine, Executive Vice President, Secretary, General Counsel and Director DATE March 29, 1996 BY SPENCER H. HEINE NAME AND TITLE G. Joseph Reddington*, Director DATE March 29, 1996 BY JOHN L. WORKMAN NAME AND TITLE John L. Workman, Executive Vice President, Chief Financial Officer and Assistant Secretary DATE March 29, 1996 BY SPENCER H. HEINE NAME AND TITLE Myron Lieberman*, Director DATE March 29, 1996 SIGNATURES BY SPENCER H. HEINE NAME AND TITLE Silas S. Cathcart*, Director DATE March 29, 1996 BY SPENCER H. HEINE NAME AND TITLE Denis J. Nayden*, Director DATE March 29, 1996 BY SPENCER H. HEINE NAME AND TITLE James A. Parke*, Director DATE March 29, 1996 BY SPENCER H. HEINE NAME AND TITLE Daniel W. Porter*, Director DATE March 29, 1996 * 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 By-laws of Registrant, dated as of December 29, 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 Exhibit as amended and 4.(e) to the Company's restated as of Registration December 29, 1994. Statement on Form S-8 (Registration No. 33-57075). 10.(i)(A)(3) Montgomery Ward Incorporated by & Co., Incorporated reference to Exhibit Stock Ownership 4.(f) of the Company's Plan Terms and Registration Conditions, as Statement on Form S-8 amended and (Registration No. restated, as of 33-57075). December 29, 1994. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA - ------------- ---------------------- 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)(C) Subscription Agreement dated as of December 29, 1995 between General Electric Capital Corporation, Montgomery Ward & Co., Incorporated, Montgomery Ward Holding Corp., and Bernard F. Brennan. 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. 10.(i)(F)(1) Amendment dated Incorporated by June 30, 1995 to reference to Exhibit Note Purchase 10.(i)(F)(1) of the Agreements dated Company's Quarterly March 1, 1993 Report on Form 10-Q between Montgomery for the fiscal quar- Ward & Co., Incor- terly period ended porated and various July 1, 1995. lenders. 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)(H)(1) Amended Schedule 1 to Incorporated by the Long Term Credit reference to Exhibit Agreement dated as of 10.(i)(H)(1) of the September 15, 1994 Company's Quarterly among Montgomery Ward Report on Form 10-Q, & Co., Incorporated, for the fiscal quar- various banks, The terly period ended First National Bank September 30, 1995. of Chicago, as Docu 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. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA - ------------- ---------------------- 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.(i)(I)(1) Amended Schedule 1 to Incorporated by the Short Term Credit reference to Exhibit Agreement dated as of 10.(i)(I)(1) of the September 15, 1994 Company's Quarterly among Montgomery Ward Report on Form 10-Q & Co., Incorporated, for the fiscal various banks, The quarterly period First National Bank ended September 30, of Chicago, as Docu- 1995. 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)(J) Note Purchase Agree- Incorporated by ment dated July 11, reference to Exhibit 1995 between Montgomery 10.(i)(J) on the Ward & Co., Incorporated Company's Quarterly and various lenders. Report on Form 10-Q for the fiscal quarterly period ended July 1, 1995. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA - ------------- ---------------------- 10.(i)(K) Term Loan Agreement Incorporated by dated as of September reference to Exhibit 29, 1995 between 10.(i)(K) of the Montgomery Ward & Co., Company's Quarterly Incorporated and The Report on Form 10-Q Industrial Bank of for the fiscal quar- Japan, Limited, terly period ended Chicago Branch. September 30, 1995. 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. 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). EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA - ------------- ---------------------- 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). 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. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA - ------------- ---------------------- 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. 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. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA - ------------ ---------------------- 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. 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 Incorporated by the Account Purchase reference to Agreement dated the Company's January 1, 1994, by Annual Report on and between Montgomery Form 10-K for the Ward Credit Corporation fiscal year ended and Montgomery Ward & December 31, 1994. 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). EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA - ------------- ---------------------- 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). 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). EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA - ------------- ---------------------- 10.(iv)(D) Montgomery Ward Incorporated by & Co., Incorporated reference to the Retirement Security Company's Annual Report Plan (as amended on Form 10-K for the and restated fiscal year ended effective as of December 31, 1994. 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). 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 by Incorporated Savings reference to the and Profit Sharing Company's Annual Report Plan (as amended and on Form 10-K for the restated as of January fiscal year ended 1, 1994). December 31, 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). EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA - ------------- ---------------------- 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. 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 Incororated by effective April 12, 1994 reference to the Company's between Montgomery Ward Annual Report on Form 10-K & Co., Incorporated, and for the fiscal year ended G. Joseph Reddington. December 31, 1994. EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA - ------------- ---------------------- 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 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-3 2 BY-LAWS OF MONTGOMERY WARD HOLDING CORP. (formerly BFB ACQUISITION CORP.) (as amended and restated as of December 29, 1994) TABLE OF CONTENTS Page ARTICLE I Offices . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1. Registered Office. . . . . . . . . . . . . . . . . . 1 Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . 1 ARTICLE II Meetings of Stockholders . . . . . . . . . . . . . . 1 Section 1. Place of Meetings. . . . . . . . . . . . . . . . . . 1 Section 2. Annual Meeting . . . . . . . . . . . . . . . . . . . 1 Section 3. Notice of Annual Meeting . . . . . . . . . . . . . . 1 Section 4. List of Stockholders . . . . . . . . . . . . . . . . 1 Section 5. Special Meetings of Stockholders . . . . . . . . . . 2 Section 6. Procedure at Stockholders' Meetings. . . . . . . . . 2 Section 7. Quorum . . . . . . . . . . . . . . . . . . . . . . . 2 Section 8. Majority Vote. . . . . . . . . . . . . . . . . . . . 2 Section 9. Proxies and Voting of Shares . . . . . . . . . . . . 2 Section 10. Consents to Corporate Action . . . . . . . . . . . . 3 ARTICLE III Directors. . . . . . . . . . . . . . . . . . . . . . 3 Section 1. Number, Tenure, Qualifications and Vacancies . . . . 3 Section 2. Resignations . . . . . . . . . . . . . . . . . . . . 5 Section 3. Removal of Directors . . . . . . . . . . . . . . . . 5 Section 4. General Powers . . . . . . . . . . . . . . . . . . . 5 Section 5. Place of Meetings. . . . . . . . . . . . . . . . . . 5 Section 6. First Meeting of New Board . . . . . . . . . . . . . 5 Section 7. Regular Meetings . . . . . . . . . . . . . . . . . . 5 Section 8. Special Meetings . . . . . . . . . . . . . . . . . . 5 Section 9. Quorum . . . . . . . . . . . . . . . . . . . . . . . 5 Section 10. Certain Supermajority Requirements . . . . . . . . . 6 Section 11. Informal Action by Directors . . . . . . . . . . . . 9 Section 12. Telephone Meetings . . . . . . . . . . . . . . . . . 9 Section 13. Designation of Committees of Directors . . . . . . . 10 Section 14. Absence of a Committee Member. . . . . . . . . . . . 10 Section 15. Powers of Committees . . . . . . . . . . . . . . . . 10 Section 16. Record of Proceedings. . . . . . . . . . . . . . . . 10 Section 17. In General . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE IV Notices to Stockholders and Directors. . . . . . . . 10 Section 1. Notice . . . . . . . . . . . . . . . . . . . . . . . 10 Section 2. Waiver of Notice . . . . . . . . . . . . . . . . . . 11 ARTICLE V Officers. . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 1. Number and Title . . . . . . . . . . . . . . . . . . 11 Section 2. Election and Qualification . . . . . . . . . . . . . 11 Section 3. Appointment of Additional Officers . . . . . . . . . 11 Section 4. Compensation . . . . . . . . . . . . . . . . . . . . 11 Section 5. Term of Office, Removal and Vacancies. . . . . . . . 11 Section 6. Resignations . . . . . . . . . . . . . . . . . . . . 11 Section 7. The Chairman of the Board. . . . . . . . . . . . . . 12 Section 8. The Vice Chairman of the Board . . . . . . . . . . . 12 Section 9. President. . . . . . . . . . . . . . . . . . . . . . 12 Section 10. The Vice Presidents. . . . . . . . . . . . . . . . . 12 Section 11. The Secretary. . . . . . . . . . . . . . . . . . . . 12 Section 12. Assistant Secretaries. . . . . . . . . . . . . . . . 13 Section 13. The Treasurer. . . . . . . . . . . . . . . . . . . . 13 Section 14. Bond . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 15. Assistant Treasurers . . . . . . . . . . . . . . . . 13 ARTICLE VI Stock and Stockholders . . . . . . . . . . . . . . . 13 Section 1. Certificate of Stock . . . . . . . . . . . . . . . . 13 Section 2. Classes and Series . . . . . . . . . . . . . . . . . 13 Section 3. Signatures . . . . . . . . . . . . . . . . . . . . . 14 Section 4. Lost Certificates. . . . . . . . . . . . . . . . . . 14 Section 5. Transfers of Stock . . . . . . . . . . . . . . . . . 14 Section 6. Fixing Record Date . . . . . . . . . . . . . . . . . 14 Section 7. Registered Stockholders. . . . . . . . . . . . . . . 15 ARTICLE VII Indemnification . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE VIII General Provisions. . . . . . . . . . . . . . . . . . . . 15 Section 1. Dividends. . . . . . . . . . . . . . . . . . . . . . 15 Section 2. Checks . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3. Fiscal Year. . . . . . . . . . . . . . . . . . . . . 15 Section 4. Seal . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 5. Certain Definitions. . . . . . . . . . . . . . . . . 15 ARTICLE IX Amendments . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE I Offices Section 1. Registered Office. The registered office shall be in the City of Dover, County of Kent, State of Delaware. Section 2. Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II Meetings of Stockholders Section 1. Place of Meetings. All meetings of the stockholders for the election of directors shall be held at such place as may be fixed from time to time by the board of directors; at least ten (10) days' notice shall be given to the stockholders of the place so fixed or, in the event of the failure of the board of directors to fix such place, at the principal executive office of the corporation. Meetings of stockholders for any purpose may be held at such time and place, within or without the State of Delaware, as may be fixed from time to time by the board of directors or as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meeting. The annual meeting of stockholders shall be held on the third Thursday in May if not a legal holiday, and if a legal holiday, then on the next secular day following, at 2:00 P.M., or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof, at which the stockholders shall elect by a plurality vote, subject to the provisions of Section 1 of Article III, persons to the board of directors, and transact such other business as may properly be brought before the meeting. The meeting may be adjourned from time to time and place to place until its business is completed. If the election of directors shall not be held on the day designated herein for any annual meeting, or at any adjournment thereof, the board of directors shall cause the election to be held at a special meeting of the stockholders as soon thereafter as may be convenient. Section 3. Notice of Annual Meeting. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of meeting. Section 4. List of Stockholders. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the Chicago metropolitan area, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special Meetings of Stockholders. Except as otherwise provided in the certificate of incorporation with respect to holders of Preferred Stock (as defined in Article VIII) and except as otherwise provided in Section 1 of Article III of these by-laws, special meetings of stockholders of the corporation for any purpose or purposes, may be called only by the chairman of the board, the vice chairman of the board, the president, the board of directors pursuant to a resolution approved by a majority of the board of directors, or at the written request of the holders of not less than a majority of the stock entitled to vote thereat. Section 6. Procedure at Stockholders' Meetings. The order of business and all other matters of procedure at every meeting of the stockholders may be determined by the presiding officer. The board of directors may appoint two or more inspectors of election to serve at every meeting of the stockholders at which directors are to be elected. In the absence of such appointment by the board of directors, the presiding officer may appoint one or more inspectors of election to serve at any such meeting. Section 7. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by these by-laws,by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At any meeting held for the purpose of electing directors at which the holders of a class of stock shall have the right, voting as a class, to elect one or more directors, the presence, in person or by proxy, of the holders of a majority of such class of stock then outstanding shall be required to constitute a quorum of such stock for such election. At any such meeting or adjournment thereof, the absence of the quorum of such class of stock shall not prevent the election of directors other than the director or directors which the holders of such stock are entitled to elect,and the absence of a quorum for the election of such other directors shall not prevent the election of the directors which the holders of such class of stock are entitled to elect, and in the absence of either or both such quorums, a majority of the holders present in person or by proxy of the stock which lacks a quorum shall have the power to adjourn the meeting for the election of directors which they are entitled to elect from time to time without notice other than announcement to the meeting until a quorum shall be present. At any adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 8. Majority Vote. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute, these by-laws or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 9. Proxies and Voting of Shares. At any meeting of the stockholders every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three (3) years prior to said meeting, unless said instrument provides for a longer period. Unless a date shall have been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted on at any election for directors which shall have been transferred on the books of the corporation within twenty (20) days next preceding such election of directors. Section 10. Consents to Corporate Action. Any action which is required to be or may be taken at any annual or special meeting of stockholders of the corporation may be taken without a meeting, without prior notice and without a vote, if consents in writing, setting forth the action so taken, shall have been signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all shares entitled to vote thereon were present and voted; provided, however, that prompt notice of the taking of the corporate action without a meeting and by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III Directors Section 1. Number, Tenure, Qualifications and Vacancies. Subject to the provisions of the certificate of incorporation, the number of directors which shall constitute the total number of directors shall be as specified in this Section 1 and shall change in accordance with the procedures specified in this Section 1. Whenever in these by-laws the vote, consent or waiver of two- thirds (2/3) of the members of the board of directors is required, the number of directors required shall be determined without regard to any vacancies on the board of directors. (a) Number of Directors. Except as otherwise provided in the other paragraphs of this Section 1, the total number of directors which shall be elected by the stockholders shall be eleven (11), of which six (6) shall be designated by the Designator (as defined in Article VIII) and five (5) shall be designated by GE Capital (as defined in Article VIII). (b) Change in Control Upon 50% GE Capital Common Stock Ownership Change. At such time, if any, as GE Capital and GE Capital Affiliates (as defined in Article VIII) shall cease to own, in the aggregate, more than fifty percent (50%) of the Shares (as defined in Article VIII) which GE Capital and GE Capital Affiliates have purchased on or about the date as of which the Stockholders' Agreement (as defined in Article VIII) was executed and delivered, the number of directors which the Designator shall have the right to designate shall be increased by one (1) and the number of directors which GE Capital shall have the right to designate shall be reduced by one (1). The Designator shall designate the director to be elected, and GE shall designate the director to be removed and shall effect such removal. (c) Election of Directors After Substantial Reduction of GE Capital Class B Common Stock Ownership. Upon the happening of the events provided for in Section B.2(b) of ARTICLE FOURTH of the certificate of incorporation, the total number of directors shall be automatically changed to nine (9) (not including the Preferred Stock Director (as defined in paragraph (e) of this Section 1), if any, referred to in paragraph (e) of this Section 1) and the holders of the Class A Common Stock (as defined in Article VIII) then outstanding, voting as a class, shall be entitled to elect seven (7) of such directors, and the holders of the Class B Common Stock (as defined in Article VIII) then outstanding, voting as a class, shall be entitled to elect two (2) of such directors; provided, however, that so long as the conditions specified in such Section B.2(b) with respect to the Account Purchase Agreement (as defined in Section 10(t) of Article III) and the ownership of Class B Common Stock by GE Capital or any GE Capital Affiliate remain in effect, GE Capital shall have the right to elect one (1) of the two (2) directors which the holders of the Class B Common Stock shall be entitled to elect and all holders of Class B Common Stock then outstanding in the aggregate shall be entitled to elect the other one (1) of the two (2) directors which the holders of Class B Common Stock shall be entitled to elect. (d) Meetings of Stockholders. Upon the happening of any of the events described in paragraphs (b) or (c) of this Section 1, in the event the board of directors shall fail to fill any vacancies resulting from the application of said paragraphs, or in the event a party shall fail to remove a director who that party was obligated to remove under the provisions of the applicable paragraph, the corporation shall call a special meeting of the stockholders at the expense of the corporation, for the propose of electing a new slate of directors, in accordance with the appropriate designations and class voting rights, as the case may be, and the term of office of the existing directors shall terminate upon the election of their successors. If the corporation fails to so call such a special meeting, any party who is then entitled to designate directors shall have the right to call such a meeting at the expense of the corporation. (e) Preferred Stock Director. Anything elsewhere in these by-laws to the contrary notwithstanding, upon the happening, and during the continuation of the events described in Section A.6(b) of Article FOURTH of the certificate of incorporation, the holders of the Senior Preferred Stock (as defined in Article VIII), voting as a class, shall have the right to elect one (1) director (the "Preferred Stock Director") whereupon the total number of directors shall be automatically increased in order to provide one (1) vacancy to be filled by electing the Preferred Stock Director at a special meeting of stockholders called for that purpose. Upon the happening of the events described in such Section A.6(b) which cause the termination of the term of office of any then Preferred Stock Director, as provided in such Section A.6(b), the total number of directors shall be automatically decreased by one (1) so as to eliminate the vacancy created by the termination of the term of the Preferred Stock Director, whereupon the total number of directors shall be and remain as provided by the other provisions of this Section 1 without regard to this paragraph (e), subject to the revesting of voting rights in the shares of Senior Preferred Stock in the event of the recurrence of the events described in such Section A.6(b). (f) Designation of Replacements. At any time in which a party has the right to designate a director pursuant to this Article III, if a director who has been so designated shall cease to serve as such (other than by reason of his removal as provided in this Article III), the party who designated that director shall have the right to designate his replacement. At any time in which no party has the right to designate directors pursuant to this Article III, vacancies shall be filled in the manner provided in the Delaware GCL (as defined in Article VIII). Section 2. Resignations. Any director may resign at any time by giving written notice to the board of directors, the chairman of the board, the vice chairman of the board, the president or the secretary of the corporation. Such resignation shall take effect at the time specified therein; and, unless tendered to take effect upon acceptance thereof, the acceptance of such resignation shall not be necessary to make it effective. Section 3. Removal of Directors. At all times when any party or the holders of any class of stock have the right to designate any director(s) or to elect, as a class,any director(s), only such party or class, as the case may be, who had the right to designate director(s) or to elect director(s) shall have the right to remove such director(s), which removals may be effected with or without cause at any special or annual meeting of stockholders or by written consent in lieu of a meeting. At all other times, the right of the stockholders to remove any director shall be as provided in the applicable provisions of the Delaware GCL. Section 4. General Powers. The business and affairs of the corporation shall be managed by or under the direction of the board of directors which may exercise all such powers of the corporation and do all such lawful acts as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. Meetings of the Board of Directors Section 5. Place of Meetings. The board of directors of the corporation may hold meetings, both regular and special, either within or with- out the State to Delaware. Section 6. First Meeting of New Board. The first meeting of the board of directors after each election of new directors thereto shall be held at such time and place as shall be specified in a notice given as provided in these by-laws for special meetings of the board of directors, or as shall be specified in a written waiver of notice signed by all of the directors. Section 7. Regular Meetings. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. Section 8. Special Meetings. Special meetings of the board of directors may be called by the president. Upon the request in writing of two (2) or more directors, the president or any other officer of the corporation shall call a special meeting of the board of directors, notice of which shall be given to each director at his usual place of business, or at such other address as shall have been furnished by him for such purpose. Such notice shall be given at least forty-eight (48) hours before the meeting by telephone or by being personally delivered, mailed or telegraphed, provided, that, if mailed, notice shall be deemed effective upon receipt. Such notice need not include a statement of the business to be transacted at, or the purpose of, any such meeting. Section 9. Quorum. At all meetings of the board of directors, a majority of the board of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 10. Certain Supermajority Requirements. The affirmative vote of not less than two-thirds (2/3) of the members of the board of directors of the corporation (but, in the case of paragraph (t) of this Section 10, instead of the aforesaid two-thirds (2/3) requirement, the affirmative vote of a majority of the directors designated by the Designator or, at any time in which class voting is in effect as provided in the certificate of incorporation, by a majority of the directors elected by the holders of Shares of Class A Common Stock) shall be required in order for the corporation to take, or permit any member of the Ward Group (as defined in Article VIII) to take, any of the following actions: (a) a merger, consolidation or other business combination (other than among members of the Ward Group and other than as part of an acquisition of assets permitted pursuant to paragraph (m) of this Section (10)); (b) any of the following sales (other than intercompany sales within the Ward Group, sales solely of inventory in the ordinary course of business, and sale and leaseback transactions in the ordinary course of business or, to the extent out of the ordinary course of business,consistent with the past practices of the Ward Group): (i) any sale of assets of the Ward Group (including assets consisting of shares of stock of a subsidiary of the corporation) where the gross proceeds of sale (exclusive of assumption of liabilities) are in an amount equal to the greater of (A) fifty million dollars ($50,000,000) or (B) twenty percent (20%) of the consolidated common stockholders' equity of the corporation as of the time of the sale; or (ii) any sale of assets of the Ward Group (including assets consisting of shares of stock of a subsidiary of the corporation) to the extent the gross proceeds of sale (exclusive of assumption of liabilities), when added to the gross proceeds of all other sales of assets of the Ward Group (exclusive of assumption of liabilities) occurring during that fiscal year, exceed an amount equal to the greater of (A) one hundred million dollars ($100,000,000) or (B) thirty percent (30%) of the consolidated common stockholders' equity of the corporation as of the time of the sale; provided, however, that notwithstanding the foregoing limitation, any single sale of assets for gross proceeds not exceeding one million dollars ($1,000,000) (exclusive of assumption of liabilities) shall be excluded from the foregoing computation; (c) amendments to the certificate of incorporation or by-laws of the corporation (other than amendments to the by-laws permitted pursuant to Section 8.2 of the Stockholders' Agreement); (d) payment of dividends on Shares (other than intercompany dividends among members of the Ward Group); (e) redemptions of Shares, other than pursuant to the provisions of the Stockholders' Agreement or the Employee Stock Option Plan (as defined in Article VIII); (f) public or private offerings of debt or equity securities of any member of the Ward Group, other than (i) to other members of the Ward Group,(ii) pursuant to the Employee Stock Option Plan, or (iii) pursuant to Section 3.14 of the Stockholders' Agreement, Section 6.1 of the Stockholders' Agreement with respect to the offering of Shares in Demand Registrations (as defined in the Stockholders' Agreement) on behalf of those Persons (as defined in Article VIII) exercising their demand registration rights thereunder or Section 6.2 of the Stockholders' Agreement with respect to the offering of Shares in Piggyback Registrations (as defined in the Stockholders' Agreement) on behalf of those Persons exercising their piggyback registration rights thereunder; (g) guarantees of any indebtedness in excess of five million dollars ($5,000,000) for borrowed money of any Person other than a member of the Ward Group; (h) setting of annual financial goals and targets; (i) the making of, or the entry into a binding commitment to make, any capital expenditures which would cause the amount expended (or committed to be expended) by the Ward Group for capital expenditures during a fiscal year to exceed the capital expenditure budget to be contained in the annual financial goals and targets of the Ward Group for such year by more than ten percent (10%) of the budgeted amount; (j) borrowings by any member of the Ward Group which would cause the aggregate consolidated indebtedness of the corporation for money borrowed to exceed an amount equal to twenty-five million dollars ($25,000,000), plus five percent (5%) of the amount of the consolidated common stockholders' equity of the corporation measured at the time of such borrowings, but in determining both the amount of such borrowings and the necessity for approval of two-thirds (2/3) of the members of the board of directors, the following borrowings shall be excluded: (i) borrowings made in connection with the acquisition, pursuant to the Purchase Agreement (as defined in Article VIII) of Ward, and under the term loan, revolving credit, tax standby letter of credit, "Tax Loan" and commercial letter of credit facilities established in connection with such acquisition, borrowings pursuant to the Subordinated Loan Agreement dated June 23, 1988, between Ward and GE Capital, borrowings of any member of the Ward Group existing at the time of such acquisition, and borrowings made under any whole or partial refunding or replacement thereof without increasing the principal amount thereof, other than increases for closing costs (including, without limitation, prepayment penalties) incurred in connection with such refunding or replacement; (ii) purchase money financing incurred in accordance with the annual financial goals and targets of the Ward Group, and purchase money financing in connection with the issuance of notes pursuant to Sections 3.8 and 3.9 of the Stockholders' Agreement or Sections 3.6 and 3.7 of the Terms and Conditions (as defined in Article VIII); it being understood that purchase money financing shall include financing, refinancing or funding of the acquisition price of real property (or any interest therein) or other fixed assets acquired hereafter by a member of the Ward Group, regardless of whether said financing, refinancing or funding is done at the time of, or subsequent to, the acquisition of any such real property (or interest therein) or other fixed assets; (iii) intentionally omitted; (iv) borrowings made for the purpose of redeeming any of the Preferred Stock; or (v) borrowings made pursuant to Section 4.4 of the Stockholders' Agreement; (k) increases in compensation and/or fringe, welfare or pension benefits for any member of the executive committee of the Ward Group, other than in accordance with the practices and guidelines of the Ward Group in effect from time to time (it being understood that any material change from the current practices and guidelines shall require the affirmative vote of two-thirds (2/3) of the members of the board of directors), but in no event beyond the increases being given for comparable executives in comparable retail businesses,determined from published survey data and guidelines; (l) adoption of a plan of liquidation of the corporation; (m) acquisition of assets (other than purchases of inventory and capital expenditures) which would cause the amount expended (or committed to be ex- pended) by the Ward Group for the acquisition of such assets during a fiscal year to exceed the budget for acquisitions of such assets to be contained in the annual financial goals and targets of the Ward Group for such year by more than ten percent (10%) of the budgeted amount; (n) entry into any transaction (exclusive of compensation and fringe, welfare and pension benefit arrangements with affiliates who are officers, directors or employees of the Ward Group for services rendered by them to the Ward Group) with an affiliate, as that term is defined in the Securities Act of 1933, as amended from time to time, other than affiliates constituting members of the Ward Group; (o) seeking of a consent or waiver from a lender to a member of the Ward Group whose loan to the member of the Ward Group has a then outstanding princi- pal balance in excess of thirty million dollars ($30,000,000), in any case in which consent or waiver is required for the entry into a transaction by the Ward Group and which, in the absence of such consent or waiver, would constitute a default or an event of default under the documents evidencing or pertaining to the loan made by the lender, other than any consent or waiver required in connection with: (i) the making of any borrowing permitted pursuant to paragraph (j)(ii), (iii), (iv) or (v); (ii) any mandatory prepayment obligation arising from the sale or financing of any real property (or interests therein) or other fixed assets; (iii) any prepayment occurring by reason of a Change of Control (as defined in one or more of the loan documents evidencing the loans referred to in paragraph (j)(i) made in connection with the acquisition of Ward by the corporation); or (iv) the incurring of any liens (other than for money borrowed); provided, however, that approval of two-thirds (2/3) of the members of the board of directors for the seeking of such consent or waiver shall not be required if the transaction for which such consent or waiver is being sought (x) is specifically permitted pursuant to any of the other paragraphs of this Section 10 without the approval of two-thirds (2/3) of the members of the board of directors, or (y) has been authorized by two-thirds (2/3) of the members of the board of directors pursuant to any of said other paragraphs; (p) authorizing a Transfer (as defined in Article VIII) of Shares pursuant to Section 2.2(a) of the Stockholders' Agreement in a case where the transferee is not a Management Shareholder (as defined in Article VIII), a Permitted Transferee (as defined in Article VIII), or a present or prospective employee of the Ward Group; (q) a waiver of the prohibitions on Transfers of Shares contained in Sections 2.3(a) and (c) of the Stockholders' Agreement, as applied to Brennan (as defined in Article VIII); provided, however, that by action of a simple majority of the members of the board of directors, the references in those para- graphs of the third anniversary may be amended to constitute references to the second anniversary; (r) a waiver of the prohibitions on Transfers of Shares contained in Section 2.3(e) of the Stockholders' Agreement; (s) any determination, pursuant to Section 4.3 of the Stockholders' Agreement, of a Cash Payments Limitation (as therein defined) other than that expressly set forth in that section; (t) without limiting the generality of any other provision of this Section 10, any of the following actions with respect to that certain Account Purchase Agreement (the "Account Purchase Agreement") referred to in the Stockholders' Agreement: (i) termination thereof by agreement of the parties thereto; (ii) the exercise of a unilateral right of termination and the exercise of all other rights, options and elections granted thereunder to Ward; (iii) the giving of waivers and consents with respect thereto; and/or (iv) any amendment thereto; or (u) the termination for Cause (as defined in the Stockholders' Agreement) of Brennan's employment with any member of the Ward Group. Section 11. Informal Action by Directors. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 12. Telephone Meetings. Unless otherwise restricted by the certificate of incorporation or these by-laws,members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Committees of Directors Section 13. Designation of Committees of Directors. The board of directors may, by resolution passed by a majority of the board of directors, designate one or more committees,each committee to consist of two or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Section 14. Absence of a Committee Member. In the absence or disqualification of any member of a committee or committees or in the event that any such member is unable or refuses to act, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such member. Section 15. Powers of Committees. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the manage- ment of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, that no such committee shall (i) take any of the actions specified in Section 10 of this Article III which require the affirmative vote of not less than two-thirds (2/3) of the total number of directors of the board of directors of the corporation, or (ii) take any action or do anything in the exercise of any power or authority in excess of that permitted to be taken by a committee of directors under any applicable provisions of the Delaware GCL. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Section 16. Record of Proceedings. Each committee shall keep regular minutes of its proceedings and report the same to the board of directors when required. Compensation of Directors Section 17. In General. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. ARTICLE IV Notices to Stockholders and Directors Section 1. Notice. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, telegraph or confirmed facsimile, addressed to such director or stockholder, at such address as appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail, telegraphed or received through a telecopy or telex machine, as the case may be. Notice to directors may also be given as provided in Section 8 of Article III. Section 2. Waiver of Notice. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorpora- tion or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V Officers Section 1. Number and Title. The officers of the corporation shall be chosen by the board of directors and shall be a chairman of the board, a vice chairman of the board, a president, a vice president, a secretary and a treasurer. The board of directors may also choose additional vice presidents and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, except that where the offices of president and secretary are held by the same person, such person shall not hold any other office. Section 2. Election and Qualification. The board of directors at its first meeting after each annual meeting of stockholders shall choose a chairman of the board, a president, one or more vice presidents, a secretary and a treasurer. No officer need be a member of the board of directors. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as may be convenient. Vacancies may be filled or new offices created and filled at any meeting of the board of directors. Section 3. Appointment of Additional Officers. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board of directors. Section 4. Compensation. The salaries and other compensation of all officers and agents of the corporation shall be fixed by the board of directors. Section 5. Term of Office, Removal and Vacancies. The officers of the corporation shall hold office until their successors are chosen and qualify or until their deaths, resignations or removal. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the members of the board of directors. Any vacancy occurring in any office of the corporation may be filled by the board of directors. Section 6. Resignations. Any officer may resign at any time by giving written notice to the board of directors, the chairman of the board, the vice chairman of the board, the president, or the secretary of the corporation. Such resignation shall take effect at the time specified in the written notice; and, unless the resignation is tendered only to take effect upon acceptance thereof, the acceptance of such resignation shall not be necessary to make the resignation effective. Section 7. The Chairman of the Board. The chairman of the board shall be the chief executive officer of the corporation and shall have the general direction of the affairs of the corporation, except as otherwise prescribed by the board of directors; shall preside at all meetings of the shareholders, of the board of directors and of the executive committee, if any, and shall designate the acting secretary for such meetings to take the minutes thereof for delivery to the secretary; may sign, with the secretary, assistant secretary, treasurer or assistant treasurer, certificates for shares of the corporation; may execute contracts in the name of the corporation; appoint and discharge agents and employees of the corporation, and shall be ex-officio a member of all committees. Section 8. The Vice Chairman of the Board. The vice chairman of the board shall assume such duties as the board of directors or the chairman of the board may assign from time to time. The vice chairman of the board shall report to the chairman of the board. In the event that the chairman of the board is one of the following: absent or has allowed the office of chairman to be vacated, or is unable or refuses to act, the vice chairman of the board shall perform all duties and functions of the chairman of the board. He may sign, with the secretary or any other proper officer thereunto duly authorized, certificates for shares of the corporation; may execute contracts in the name of the corpora- tion; appoint and discharge agents and employees of the corporation; and shall be ex-officio a member of all committees. Section 9. President. The president shall be the chief operating officer of the corporation, and as such shall direct the operations of the corporation, subject to the control and direction of the board of directors and the chairman of the board. The president shall assume such other duties as the chairman of the board, the vice chairman of the board or the board of directors may assign from time to time. The president shall report to the chairman of the board or the vice chairman of the board. In the event that each of the chairman of the board and the vice chairman of the board is one of the following: absent or has allowed his office to be vacated, or is unable or refuses to act, the president shall perform all duties and functions of the chairman of the board and the vice chairman of the board. He may sign, with the secretary or any other proper officer thereunto duly authorized, certificates for shares of the corporation; may execute contracts in the name of the corporation; appoint and discharge agents and employees of the corporation; and in general shall perform all duties incident to the office of president. Section 10. The Vice Presidents. The vice presidents in the order of their seniority, unless otherwise determined by the board of directors, shall in the event that the president is absent,or has allowed the office of president to be vacated, or is unable or refuses to act, perform the duties of the president. The vice presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. Section 11. The Secretary. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required; shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors; shall perform such other duties as may be prescribed by the board of directors, the chairman of the board or the president,under whose supervision the secretary shall be; and shall keep in safe custody the corporate seal of the corporation and when authorized by the board of directors, shall affix the same to any instrument requiring it and when so affixed, it shall be attested by the signature of the secretary or by the signature of any assistant secretary. Section 12. Assistant Secretaries. The assistant secretaries in the order of their seniority shall,in the event that the secretary is absent, or has allowed the office of secretary to be vacated, or is unable or unwilling to act, perform the duties and exercise the powers of the secretary. They shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. Section 13. The Treasurer. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. The treasurer shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements. Section 14. Bond. If required by the board of directors, the treasurer shall give the corporation a bond (which shall be renewed as required from time to time) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the office and for the restoration to the corporation, in case of the death, resignation, retirement or removal from office of the treasurer, of all books, papers, vouchers, money and other property of whatever kind in the possession or under the control of the treasurer belonging to the corporation. Section 15. Assistant Treasurers. The assistant treasurers, in the order of their seniority, unless otherwise determined by the board of directors shall in the event the treasurer is absent, or has allowed the office of treasurer to be vacated, or is unable or refuses to act, perform the duties and exercise the powers of the treasurer. They shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. ARTICLE VI Stock and Stockholders Section 1. Certificate of Stock. Every record holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of, the corporation by the chairman of the board, or the vice chairman of the board,or the president or a vice president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, and registered in such stockholder's name, certifying the number of shares owned by such holder in the corporation. Section 2. Classes and Series. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, assignations, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corpora- tion will furnish, without charge to each stockholder who so requests, the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 3. Signatures. Where a certificate is countersigned (i) by a transfer agent other than the corporation or its employee, or (ii) by a registrar other than the corporation or its employee, any of or all the signatures on the certificate of the officers of the corporation may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be an officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Section 4. Lost Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of the fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or such owner's legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity (or otherwise require the indemnification) against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 5. Transfers of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto,cancel the old certificate and record the transaction upon its books. Section 6. Fixing Record Date. Except as otherwise provided in the Delaware GCL or the certificate of incorporation, the board of directors may fix in advance a date, not exceeding sixty (60) days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or other distribution or the date for the allotment of rights,or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining the consent of stockholders for any purpose, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof,or entitled to receive payment of any such dividend, or other distribution or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stock- holders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or other distribution, or to receive such allotment of rights or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. Section 7. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments, a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII Indemnification The directors, officers, employees and agents of the corporation and certain of their respective heirs, successors and personal representatives shall be indemnified as provided in the certificate of incorporation. ARTICLE VIII General Provisions Section 1. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation and to Section 10 of Article III, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. Section 3. Fiscal Year. The fiscal year of the corporation shall end on the Saturday closest to December 31st in each year. Section 4. Seal. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 5. Certain Definitions. As used in these by-laws, the following terms shall have the following meanings: (a) "Brennan" means Bernard F. Brennan. (b) "Common Stock," "Class A Common Stock," and "Class B Common Stock" shall all have the meanings specified in the certificate of incorporation. (c) "Delaware GCL" means the General Corporation Law of the State of Delaware, as the same shall be amended and in effect from time to time. (d) "Designated Management Optionees" means those Management Shareholders, or any member or members of their respective Families (as herein defined), who are designated in writing by the Designator (as herein defined), with concurrent notice to the corporation, as having the right to exercise a specifically designated option to purchase a specifically designated number of Shares pursuant to Article II or III of the Stockholders' Agreement. The options so designated may not, in the aggregate, exceed the number of Shares which, at the time of the designation, are subject to purchase pursuant to Article II or Article III of the Stockholders' Agreement, but in making such designation, the Designator may designate alternate Designated Management Optionees who shall have options to purchase Shares if the Persons designated as primary Designated Management Optionees do not exercise the designated options. The Designator may designate a member of the Committee (as herein defined), or a member of the Family of a member of the Committee, as a Designated Management Optionee only as provided elsewhere in the Stockholders' Agreement. Each designation of a Designated Management Optionee shall be made in writing and delivered by the Designator to the Designated Management Optionee and the corporation. By written notice delivered to a Designated Management Optionee, with concurrent notice to the Company, the Designator may change or revoke the designation of any Management Shareholder (or member of his Family, as the case may be) as a Designated Management Optionee and/or the designation of the number of Shares to be purchased, at any time prior to exercise of the designated option for any reason or for no reason. In the event one or more Designated Management Optionees are granted an option to purchase Shares pursuant to Article III of the Stockholders' Agreement, and the Shares as to which such option is exercisable are not Vested Shares (as defined in the Stockholders' Agreement) in the hands of the Management Shareholder (or his Permitted Transferees) whose Shares are subject to purchase or sale under Article III of the Stockholders' Agreement, the Designator may, as part of the designation of the identity of the Designated Management Optionee(s), designate that all or any portion of such Shares shall be Vested Shares in the hands of the Designated Management Optionee(s) (e) "Designator" means the person or the committee of three Management Shareholders, as set forth below and as the case may be, which has, among other powers, the power to designate the Designated Management Optionees. Prior to the occurrence of an Event (as defined below) for all purposes other than designating (and in connection with the designation of) Designated Management Optionees, the Designator shall be Brennan. At all times for purposes of designating (and in connection with the designation of) Designated Management Optionees, and from and after the occurrence of an Event for all purposes (including, without limitation, designating (and in connection with the designation of) Designated Management Optionees), the Designator shall be such committee of three Management Shareholders (the "Committee"). The Committee shall, except as provided below, be comprised of Brennan, Edwin G. Pohlmann ("Pohlmann") and Myron Lieberman ("Lieberman"). Prior to the occurrence of an Event, if any member of the Committee shall resign from the Committee or cease to be a Qualified Management Shareholder (as defined below), then such person shall cease to be a member of the Committee and the remaining members of the Committee shall as soon as practicable appoint a Qualified Management Shareholder as a member of the Committee and thereby fill the vacancy on the Committee so created. From and after the occurrence of an Event, the Committee shall be comprised of Pohlmann, Spencer H. Heine ("Heine") and Lieberman (each of Pohlmann, Heine and Lieberman being a "Continuing Member" and collectively being the "Continuing Members") so long as each is a Qualified Management Shareholder; provided, however, that at any time from and after the occurrence of an Event (i) if one, but only one, Continuing Member has resigned from the Committee or ceased to be a Qualified Management Shareholder, then the Committee shall be comprised of the two remaining Continuing Members who have not resigned from the Committee and are Qualified Management Shareholders and the Largest Management Shareholder (as defined below) (but the Second Largest Management Shareholder (as defined below) if the Largest Management Shareholder is one of such remaining Continuing Members, but the Third Largest Management Shareholder (as defined below) if both the Largest Management Shareholder and the Second Largest Management Shareholder are such remaining Continuing Members), (ii) if each of two, but only two, of the Continuing Members has either resigned from the Committee or ceased to be a Qualified Management Shareholder, then the Committee shall be comprised of the remaining Continuing Member who has not resigned from the Committee and is a Qualified Management Shareholder, the Largest Management Shareholder and the Second Largest Management Shareholder (but the Second Largest Management Shareholder and the Third Largest Management Shareholder if the Largest Management Shareholder is such Continuing Member, but the Largest Management Shareholder and the Third Largest Management Shareholder if the Second Largest Management Shareholder is such Continuing Member), and (iii) if each of the Continuing Members has either resigned from the Committee or ceased to be a Qualified Management Shareholder, then the Committee shall be comprised of the Largest Management Shareholder, the Second Largest Management Shareholder and the Third Largest Management Shareholder. In all cases, the Committee shall act by the vote of a majority of its members; provided, however, that neither a member of the Committee nor a member of his Family may be designated as a Designated Management Optionee except upon the affirmative vote of all other members of the Committee. A "Qualified Management Shareholder" is each of Brennan and Lieberman and any other person who is a Management Shareholder and employed by a member of the Ward Group. A person (including each of Brennan and Lieberman) shall cease to be a Qualified Management Shareholder if (i) he ceases to be a Management Shareholder, (ii) he dies, (iii) he is adjudicated incompetent, (iv) in the case of Lieberman, he ceases to be a director of the corporation or (v) in the case of any Management Shareholder other than Brennan and Lieberman, no member of the Ward Group employs such Management Shareholder. An "Event" means that Brennan has resigned from the Committee or ceased to be a Qualified Management Shareholder. The "Largest Management Shareholder" shall be the Management Shareholder (other than Brennan and any Management Shareholder who is not willing or able to serve on the Committee) who, from time to time, is employed by a member of the Ward Group and is the owner of the largest number of Shares (including Plan Shares (as herein defined) subject to the Terms and Conditions (as herein defined)) as compared to each other Management Shareholder (other than Brennan and any Management Shareholder who is not willing or able to serve on the Committee) and who is willing and able to serve as a member of the Committee. The "Second Largest Management Shareholder" shall be the Management Shareholder (other than Brennan, the Largest Management Shareholder and any Management Shareholder who is not willing or able to serve on the Committee) who, from time to time, is employed by a member of the Ward Group and is the owner of the largest number of Shares (including Plan Shares subject to the Terms and Conditions) as compared to each other Management Shareholder (other than Brennan, the Largest Management Shareholder and any Management Shareholder who is not willing or able to serve on the Committee) and who is willing and able to serve on the Committee. The "Third Largest Management Shareholder" shall be the Management Shareholder (other than Brennan, the Largest Management Shareholder, the Second Largest Management Shareholder and any Management Shareholder who is not willing or able to serve on the Committee) who, from time to time, is employed by a member of the Ward Group and is the owner of the largest number of Shares (including Plan Shares subject to the Terms and Conditions) as compared to each other Management Shareholder (other than Brennan, the Largest Management Shareholder, the Second Largest Management Shareholder and any Management Shareholder who is not willing or able to serve on the Committee) and who is willing and able to serve on the Committee. For the purposes of the foregoing provisions of this paragraph (e), a Management Shareholder shall be deemed to own all Shares (including Plan Shares subject to the Terms and Conditions) owned by his Permitted Transferees. In the event that two or more persons own the same number of Shares so that each, in the absence of the other (or others, as the case may be) would be the Largest Management Shareholder, the Second Largest Management Shareholder or the Third Largest Management Shareholder (as the case may be), then the remaining member (or members, as the case may be) of the Committee from time to time shall determine which of such person or persons shall be deemed to be the Largest Management Shareholder, the Second Largest Management Shareholder or the Third Largest Management Shareholder, as the case may be, and, in the event that there are no members of the Committee remaining to make such determination or the remaining members of the Committee are unable to make such determination in accordance with the Committee's majority voting requirements as set forth above, then such determination shall be made on the basis of seniority of service with the Ward Group. (f) "Employee Stock Option Plan" means a stock option plan for the benefit of the employees, advisors and consultants of the Ward Group and directors of the corporation adopted by the board of directors of the corporation pursuant to which such employees, advisors, consultants and directors may be granted options to purchase Shares of Class A Common Stock. (g) "Family" means a spouse or descendent or ancestor of a Management Shareholder, or a spouse of a descendent or ancestor of a Management Shareholder, or a trustee of a trust or a custodian of a custodianship primarily for the benefit of one or more of the foregoing and/or a Management Shareholder. (h) "GE Capital" means General Electric Capital Corporation, a New York Corporation. (i) "GE Capital Affiliate" means any entity which, at the time of the applicable determination, GE Capital controls, which controls GE Capital, or which is under common control with GE Capital, but does not include the Ward Group or any member thereof. For the purposes of the preceding sentence, "control" means the power, direct or indirect, to direct or cause the direction of the management and policies of a Person through voting securities, contract or otherwise. Without limiting the generality of the foregoing, as of the date on which the Stockholders' Agreement was executed and delivered, Kidder, Peabody Group, Inc. was a GE Capital Affiliate. (j) "Management Shareholders" or "Management Shareholder" means a Type 1 Management Shareholder (as herein defined) or a Type 2 Management Shareholder (as herein defined), without distinction. (k) "Permitted Transferee" shall mean: (i) a Person, other than a Management Shareholder, to whom Shares are Transferred pursuant to and in compliance with the provisions of Section 2.2(b) of the Stockholders' Agreement; and (ii) a member of the Family of a Management Shareholder who has either (x) acquired Shares by virtue of having been designated a Designated Management Optionee by the Designator or (y) acquired Shares on or about the date of the Stockholders' Agreement and joined in the Stockholders' Agreement as a Permitted Transferee of said Management Shareholder. Each reference herein to a Permitted Transferee of a particular Management Shareholder shall mean (x) a Permitted Transferee owning Shares which that Management Shareholder was the last Management Shareholder to own, and (y) a member of the Family of that Management Shareholder who has acquired Shares in a manner set forth in (ii) above; (l) "Person" means any individual, sole proprietorship, partnership, joint venture, unincorporated organization, association, corporation, trust, institution, public benefit corporation, entity or government. (m) "Plan Shares" means (i) Shares received by the holder thereof pursuant to the Employee Stock Option Plan; and (ii) Shares held by a Permitted Transferee of a Management Shareholder, if such Shares would be Plan Shares pursuant to clause (i) above if held by such Management Shareholder; (n) "Preferred Stock" and "Senior Preferred Stock" shall have the meanings specified in the certificate of incorporation. (o) "Purchase Agreement" means that certain Stock Purchase Agreement dated as of March 6, 1988, as amended, among the corporation, Mobil Corporation and Marcor Inc. (p) "Shares," except as otherwise specifically provided herein, means the shares of Common Stock of the corporation without distinction as to class or series, and shall include certificates of beneficial interest issued by the Voting Trustee (as herein defined), pursuant to a Voting Trust Agreement (as herein defined); provided, however, that (and without implication that a contrary result was intended, but by way of clarification): (i) for the purpose of determining the number of Shares eligible to vote or receive distributions, there shall be no duplication as between Shares held by the Voting Trustee, on the one hand, and certificates of beneficial interest issued by the Voting Trustee, on the other hand; and (ii) where the right to vote Shares or execute consents is granted or required pursuant to the provisions of the Stockholders' Agreement, except as expressly provided in Section 8.17 of the Stockholders' Agreement, the term "Shares" shall not include certificates of beneficial interest issued by the Voting Trustee under a Voting Trust Agreement; and these by-laws shall be interpreted in accordance with the foregoing proviso to the extent the context so requires. (q) "Stockholders' Agreement" means that certain Stockholders' Agreement dated as of June 17, 1988 among the corporation, Brennan, GE Capital and the other Persons who are parties thereto, as amended and restated from time to time. (r) "Terms and Conditions" mean those certain Montgomery Ward & Co., Incorporated Stock Ownership Plan Terms and Conditions agreed to by and between the corporation and participants in the Employee Stock Option Plan, as amended and restated from time to time. (s) "Transfer" means any transfer, sale, assignment, pledge, encumbrance or other disposition of Shares, or, in the case of the corporation, any issuance or sale of Shares, irrespective of whether any of the foregoing are effected voluntarily or involuntarily, by operation of law or otherwise, or whether inter vivos or upon death. (t) "Type 1 Management Shareholder" means Brennan, Silas S. Cathcart ("Cathcart"), Lieberman and any other Person who is designated by the Designator as a Type 1 Management Shareholder and who concurrently with the execution and delivery of the Stockholders' Agreement or at any time thereafter, in contemplation of that Person's acquisition of Shares, executes a counterpart of or joins in and agrees to be bound by, the Stockholders' Agreement as a Type 1 Management Shareholder. Other than Brennan, Cathcart and Lieberman, as long as GE Capital and GE Capital Affiliates own, in the aggregate, at least twenty percent (20%) of the Shares which they acquired in June, 1988, no Person shall be designated as a Type 1 Management Shareholder without the prior consent of GE Capital, which consent shall not unreasonably be withheld. (u) "Type 2 Management Shareholder" means any person who concurrently with the execution and delivery of the Stockholders' Agreement or at any time thereafter, in contemplation of that Person's acquisition of Shares, executes a counterpart of, or joins in and agrees to be bound by, the Stockholders' Agreement as a Type 2 Management Shareholder. Unless that Person has been designated by the Designator as, or is already, a Type 1 Management Shareholder, Type 2 Management Shareholders shall include all Persons who acquire Options (as defined in the Stockholders' Agreement) or Purchase Rights (as defined in the Stockholders' Agreement) or Shares of Class A Common Stock pursuant to Awards (as defined in the Stockholders' Agreement) or the exercise of Options or Purchase Rights and who join in the Stockholders' Agreement or are required to hold such Shares of Class A Common Stock subject to the terms of the Stockholders' Agreement. (v) "Voting Trust Agreement" means each of that certain Voting Trust Agreement, dated as of June 21, 1988, among Brennan and the other individuals who are parties thereto (the "1988 Voting Trust Agreement"), that certain Voting Trust Agreement, dated as of October 21, 1994, among Brennan, the corporation and the individuals who are parties thereto (the "1994 Voting Trust Agreement") as well as all agreements adopted hereafter which have substantially similar provisions (without giving effect to time periods) as the 1988 Voting Trust Agreement and as the 1994 Voting Trust Agreement and to which any shares of common stock of the corporation are subject. (w) "Voting Trustee" means the Person serving as voting trustee under the applicable Voting Trust Agreement. (x) "Ward" means Montgomery Ward & Co., Incorporated, an Illinois corporation. (y) "Ward Group" means the corporation and its direct and indirect subsidiaries. ARTICLE IX Amendments The board of directors may, by vote of not less than two-thirds (2/3) of the members of the board of directors of the corporation, alter, amend or repeal these by-laws, or enact such other by-laws as in their judgment may be advisable for the regulation of the conduct of the affairs of the corporation; provided, however, that from and after the date on which the number of members of the board of directors which GE Capital has the right to designate pursuant to Section 1 of Article III of these by-laws has been reduced pursuant to the terms and conditions of said Section 1 of Article III, then Section 10 of Article III of these by-laws may be amended or terminated in whole or in part from time to time upon the affirmative vote or consent of both (x) a majority of the members of the board of directors, and (y) the holders of a majority of the then outstanding shares of Class A Common Stock. WET04074.DOC EX-10 3 SUBSCRIPTION AGREEMENT THIS SUBSCRIPTION AGREEMENT ("Agreement") is made as of the 29th day of December, 1995, by and between GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("Investor"), MONTGOMERY WARD & CO., INCORPORATED, an Illinois corporation (the "Company"), MONTGOMERY WARD HOLDING CORP., a Delaware corporation ("Holdings"), and BERNARD F. BRENNAN ("Brennan"). NOW, THEREFORE, in consideration of the mutual promises set forth in this Agreement, the parties agree as follows: 1. Subscription for Shares. The Company agrees to sell to Investor, and Investor agrees to purchase from the Company, one-thousand seven hundred and fifty (1,750) shares of Series B Senior Preferred Stock of the Company (the "Shares"), issued pursuant to an Article of Amendment to the Articles of Incorporation (the "Articles of Amendment") of the Company as set forth in Exhibit A, (i) one-thousand (1,000) shares of Series B Senior preferred Stock of the Company for an aggregate purchase price of $98,250,000 and (ii) seven hundred and fifty (750) shares of Series B Senior Preferred Stock of the Company for an aggregate purchase price of $75,000,000. 2. Delivery and Payment. Delivery of and payment for the Shares (the "Closing") shall occur simultaneously with the execution and delivery hereof. At the Closing: (a) the Company shall execute and deliver to Investor a certificate evidencing the Shares registered in the name of Investor; and (b) Investor shall pay to the Company, by wire transfer to an account designated by the Company, an amount equal to $173,250,000 for the Shares; and (c) the Company shall deliver to Investor the opinion of its counsel in the form of Exhibit B hereto. 3. Representations and Warranties of Investor. Investor represents and warrants to the Company (which representations and warranties shall survive the purchase and sale of the Shares) that: (a) Investor is a corporation duly organized, validly existing and in good standing under the laws of the State of New York and has all requisite corporate power and authority to enter into and perform this Agreement and to acquire the Shares. (b) The execution, delivery and performance of this Agreement and the consummation of the transactions provided for herein have been duly authorized by all necessary corporate action on the part of Investor. This Agreement has been duly and validly executed and delivered by Investor and constitutes the legal, valid and binding obligation of Investor, enforceable against Investor in accordance with its terms. (c) This execution, delivery and compliance with and performance of the terms and provisions of this Agreement will not conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default (or an event which, with notice,, lapse of time, or both, would constitute a default) under, or result in any violation of, (i) the certificate of incorporation or by-laws of Investor, (ii) any provision of any contract, agreement, indenture, note, bond, loan agreement, instrument, lien, conditional sales contract, mortgage, license, franchise, insurance policy, commitment or other binding understanding or arrangement ("Contract") to which Investor is a party or by which it is bound, or (iii) any order, judgment, decree, license, permit, statute, law, rule or regulation of any governmental body to which Investor is subject. (d) Investor is acquiring the Shares solely for investment for its own account and not for the benefit or account of any other person or entity and not with a view to the distribution of the Shares. (e) Investor has had an opportunity to ask questions and receive answers from the Company and its representatives concerning the terms and conditions of this Agreement and to obtain any additional information which Investor has requested in order to adequately evaluate the merits and risks of its investment therein. (f) Investor understands that the Shares have not been registered under the Securities Act of 1933 (the "Act") or the securities laws of any other jurisdiction, and that Investor must bear the economic risk of its investment therein for an indefinite period of time because the Shares cannot be offered for sale or sold without compliance with the provisions of the Act and applicable state blue sky or securities laws. (g) Investor agrees that it will not sell, assign, transfer or otherwise dispose of all or any part of the Shares without complying with the provisions of the Act and all applicable state blue sky or securities laws, or any exemptions therefrom. (h) Investor understands that no federal or state agency has recommended or endorsed the purchase of the Shares or made any determination or finding as to the fairness of the provisions of this Agreement. (i) Investor acknowledges that neither the Company nor any person acting on its behalf has offered to sell the Shares to it by means of any form of general advertising. (j) Investor is an "Accredited Investor, " as that term is defined in Regulation D under the Act. 4. Representations and Warranties of the Company and Holdings. The Company and Holdings represent and warrant to Investor (which representations and warranties shall survive the purchase and sale of the Shares) that: (a) The Company and Holdings are corporations duly organized, validly existing and in good standing under the laws of the States of Illinois and Delaware, respectively, and have all requisite corporate power and authority (i) to carry on their respective businesses as now being conducted, (ii) to own or lease all of the properties owned or leased by them and (iii) to enter into and perform this Agreement. (b) The execution, delivery and performance of this Agreement and the consummation of the transactions provided for herein, including the authorization of the Articles of Amendment, have been duly authorized by all necessary corporate action on the part of the Company and Holdings, including the consent of the Company's stockholder. This Agreement has been duly and validly executed and delivered by the Company and Holdings and constitutes the legal, valid and binding obligation of the Company and Holdings, enforceable against the company and Holdings in accordance with its terms. The Articles of Amendment has been duly filed with the Secretary of State of the State of Illinois. (c) Upon the issuance of the Shares to Investor in accordance with the terms hereof, Investor will acquire good and marketable title to the Shares, free and clear of any lien, claim or encumbrance, and the Shares will be validly issued, fully paid and non-assessable. (d) The execution, delivery and compliance with and performance of the terms and provisions of this Agreement will not conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default (or an event which, with notice, lapse of time, or both, would constitute a default) under, or result in any violation of (i) the articles of incorporation of the Company or the certificate of incorporation of Holdings or the by-laws of either the Company or Holdings, (ii) any provision of any Contract to which the Company or Holdings is a party or is bound or (iii) any order, judgment, decree, license, permit, statute, law, rule or regulation of any governmental body (including applicable federal and state securities laws) to which the Company or Holdings is subject. (e) Except as set forth on Schedule 1 hereto, neither the Company nor any of its subsidiaries is a party to any agreement or note relating to indebtedness for money borrowed which specifically prohibits or limits Distributions (as defined in Section 5 of the terms of the Shares) on the Shares or which prohibits or limits dividends or other distributions with respect to its capital stock by an subsidiary of the Company to the Company or to such subsidiary's parent company (collectively, "Restricted Payments"). 5. Covenants of Company (a) The Company agrees that so long as the Shares are outstanding, without the prior written consent of Investor, it shall not, nor shall it permit any of its subsidiaries to, amend, incur assume or enter into any agreement or note relating to indebtedness for money borrowed which would specifically prohibit or limit Distributions on the Shares or Restricted Payments in a manner more restrictive than the most restrictive provision (other than a change of the date from which consolidated net income is calculated and the related "FAS 106 Adjustment Factor" or "FAS 106 Restricted Payment Factor" set forth in the Restricted Payments provisions of the agreements listed in Schedule 1) contained in the agreements listed on Schedule 1 hereto. With respect to any subsidiary of the Company, a prohibition on Restricted payments by such subsidiary that does not include the $50,000,000 "basket" contained in the Restricted Payments provisions of the agreements listed in Schedule 1 hereto shall not be deemed to violate the covenant contained in this Section 5(a). The provisions of this Section 5(a) shall not apply to any limitation on Restricted Payments by a subsidiary that is not a U.S. subsidiary or a subsidiary whose principal business is dealing with, or the operation of, real estate. (b) Financial and Business Information (i) Quarterly Information. The Company agrees that so long as the Shares are outstanding, it will deliver to Investor, as soon as practicable after the end of each of the first three quarters of each fiscal year of the Company and of Holdings, and in any event within 60 days thereafter, one copy of an unaudited consolidated balance sheet of the Company as at the close of such quarter, and the related unaudited consolidated statements of income of the Company and of Holdings for such quarter and, in the case of the second and third quarters, for the portion of the fiscal year ending with such quarter and the related unaudited consolidated statements of cash flows of the Company and of Holdings for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year. Such financial statements shall be prepared by the Company and Holdings in accordance with GAAP (subject to normal year-end adjustments) and accompanied by the certification of the Company's and Holdings' chief executive officer, or chief financial officer or treasurer, that such financial statements present fairly in all material respects the consolidated financial position, results of operations and cash flows of the Company and Holdings as at the end of such quarter and for such year-to-date period, as the case may be. (ii) Annual Information. The Company agrees that so long as the Shares are outstanding, it will delivery to Investor as soon as practicable after the end of each fiscal year of the Company and Holdings, and in any event within 105 days thereafter, one copy of: 1. an audited consolidated balance sheet of the Company and of Holdings as at the end of such year; and 2. audited consolidated statements of income, shareholders' equity and cash flows of the Company and of Holdings for such year; setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all prepared in accordance with GAAP, and which audited financial statements shall be accompanied by an opinion thereon of the independent certified public accountants regularly retained by the Company and Holdings, or of any other firm of independent certified public accountants of recognized national standing selected by the Company. 6. Covenants of Investor, Holdings and Brennan relating to Board Representation. Investor, Holdings and Brennan agree to use their best efforts to take such action as is necessary to provide that, if Investor has the right, pursuant to Section 6(b) of the terms of the Shares, to elect a director to the Board of Directors of the Company, Investor shall also have the right to elect, in accordance with the terms of such Section 6(b), one additional member to the board of directors of Holdings and the number of directors constituting the board of directors of Holdings shall be increased in order to provide one vacancy for such additional member, including, without limitation, amendments to that certain Stockholders Agreement dated as of June 17, 1988 among Holdings and certain of its stockholders, as amended and restated to date, and the by-laws of Holdings, to permit the foregoing. 7. Status of Dividends and Tax Indemnity (a) Reporting. The parties hereto intend that (i) the dividends paid for deemed paid (including any indemnification payments hereunder that may be so treated) with respect to the Shares ("Dividends") shall be treated as dividends for federal income tax purposes and (ii) Investor shall be entitled to the dividends received deduction under Section 243 (a) (1) of the Code and any dividends received deduction provided under any state or local income tax law in effect as of December 1, 1995 (the "Dividends Received Deduction") with respect to the Dividends. In accordance with such intent, Holdings and the Company agree that neither they nor any affiliate, directly or indirectly, will take any action or file any returns or other documents inconsistent with such intent and that they and each affiliate will file such returns, take such action, and execute such documents consistent with such intention as in Investor's view may be reasonable and necessary to facilitate the accomplishment of the parties' expressed intentions. (b) Indemnification. if at any time, for any reason or under any circumstances (including a change in law or the absence of sufficient "earning and profits") other than an act or failure to act of Investor, Investor loses the right to claim, does not claim (as the result of a good faith and reasonable determination based upon a written opinion of Investor's tax counsel, a copy of which shall be delivered to Holdings and the Company, that such claim is not properly allowable) or there shall be disallowed, all or any portion of the Dividends Received Deduction with respect to the Dividends (such events collectively referred to hereafter as a "Disallowance"), then Holdings and the Company jointly and severally agree to pay to Investor, (i) within 30 days following the Notice Date (as defined below), an amount which will on an After-Tax Basis (as defined below), taking into account any penalties, interest or additions to tax payable by virtue of the Disallowance, preserve (but not do more than preserve) the Net After-Tax Return (as defined below) with respect to the Dividends to which the Disallowance applies, and (ii) on each Dividend payment date (if any) following the Notice Date, an amount which will on an After-Tax Basis, taking into account any penalties, interest or additions to tax payable by virtue of the Disallowance, preserve (but not do more than preserve) the Net After-Tax Return with respect to the Dividends payable on such Dividend payment dates. Nothing herein shall be construed to provide indemnity for taxes (including penalties, interest or additions to tax) to the extent such taxes (including penalties, interest or additions to tax) do not result from the Disallowance. Holdings and the Company further jointly and severally agree to reimburse Investor for all of its reasonable attorneys fees incurred in enforcing its rights to indemnification hereunder. (c) Cooperation and Examination. Holdings and the Company will cooperate with and support Investor, as Investor shall reasonably request, in any audit or other proceedings challenging or contesting Investor's entitlement to the Dividends Received Deduction with respect to the Dividends. In the event that Investor is notified formally of any audit, examination or proceeding by any taxing authority with respect to the availability of the Dividends Received Deduction with respect to the Dividends (the "Dividend Issue"), Investor will promptly notify Holdings and the Company of such audit, examination or proceeding. Subject to the requirement that Investor shall proceed reasonably and in good faith and keep Holdings and the Company informed on matters relating to the Dividend Issue, Investor shall have exclusive control and responsibility to conduct any audit, examination, proceeding or litigation with respect to the Dividend Issue. Investor shall diligently pursue the Dividend Issue; provided, however, that Investor shall have sole discretion to compromise, settle or resolve the Dividend Issue. (d) Additional Definitions. For purposes of this Section 7: (i) "Code" shall mean the Internal Revenue Code of 1986, as amended as of December 1, 1995. (ii) Amounts paid on an "After-Tax Basis" shall mean amounts which, when reduced by the increase (but only by the increase) in federal, state and local income taxes payable by the recipient with respect thereto, shall equal the amount in respect of which such amount is paid. (iii) The "Net After-Tax Return" (A) shall be determined both with respect to the Dividends and the proceeds from any disposition of the Shares ("Disposition"), including any sale, redemption or exchange of the Shares and any distribution that is deemed to be a sale or exchange under Section 301(c)(3) of the Code, (B) with respect to Dividends, shall be computed as if such Dividends were subject to federal, state and local income taxes at the highest marginal rates to which the recipient would be subject, such Dividends were treated as dividends within the meaning of Section 316(a) of the Code, and the Dividends Received Deduction was available with respect to such Dividends and (C) with respect to proceeds from any Disposition, shall be computed as if such proceeds were subject to federal, state and local income tax at the highest marginal rate applicable to such Disposition by the recipient. For this purpose, the highest marginal rates shall be determined without regard to the tax rate or tax benefit make-up or phase-out provisions of applicable law, such as the last two sentences of Section 11(b) of the Code. (iv) The "Notice Date" shall mean the date (or dates) on which Investor gives notice to Holdings and the Company of a Disallowance, which notice shall state the nature of the Disallowance and the claim for indemnity and shall provide a computation of the indemnity payable to Investor, but in no event more than 30 days prior to the earlier of (A) the payment of any additional federal, state or local income taxes (including any interest, penalties or additions to tax) as a result of such Disallowance, (B) the filing of a return or the acceptance of an audit report, closing agreement or other settlement or determination in which such Disallowance is reflected or (C) in the case that a Disallowance results from the fact that all or any portion of the Dividends constituted a distribution under Section 301(c)(2) of the Code, a sale or redemption of all or part of the Shares the basis of which was reduced as a result of the Disallowance. (e) Transferees. The rights of any indemnity provided in this Section 7 shall inure to the benefit of any transferee of all or a portion of the Shares that is a corporation entitled to claim the Dividends Received Deduction with respect to the Dividends, and shall be applied by substituting the name of such transferee in lieu of "Investor" wherever it appears in this Section. Section 8. Exchange Option (a) For a period of 180 days after the date hereof, Investor shall have the option, upon written notice to Holdings and the Company, to cause Holdings to issue to Investor, preferred stock of Holdings with terms substantially identical to the Shares in the same stated amount of the Shares and with a maturity of six years and six months from the date of this Agreement (the "Exchange Preferred"), in exchange for the Shares. (b) If the proposed legislation to reduce the dividends received deduction referred to in President Clinton's Seven-Year Balanced Budget Proposal released December 7, 1995 or any similar legislation (the "Clinton Bill") is enacted into law by December 31, 1996, Holdings shall have the option for a period of 60 days after the date the Clinton Bill is so enacted, upon written notice to Investor, to issue to Investor the Exchange Preferred in exchange for the Shares. (c) If either Investor or Holdings elects to exercise their respective options referred to in Sections 8(a) or (b) above, Investor, Holdings, the Company and Brennan agree to use their best efforts to effect such exchange as soon as possible after the date of exercise. The provisions of this Section 8 shall apply to Investor and its successor and assigns. For purposes of Sections 5 and 7 of this Agreement, all references to "Shares" shall mean the shares of Series B Senior Preferred Stock of the Company, or, if the exchange referred to in this Section 8 occurs, the Exchange Preferred, and references therein to the Company shall also be deemed to refer to Holdings. 9. Amoco. If for any reason the acquisition by the Company or a subsidiary thereof of the stock of Amoco Enterprises, Inc. has not been consummated by the opening of business on January 2, 1996, the Company shall, on January 2, 1996, redeem the 1000 Shares purchased by Investor pursuant to subsection (i) of Section 1 of this Agreement for a purchase price equal to $98,250,000 plus accrued dividends thereon. 10. Miscellaneous. (a) Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Agreement shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, or by telecopy and confirmed by telecopy answerback, addressed as follows: (i) If to the Company, Holdings or Brennan, at: 1 Montgomery Ward Plaza Chicago, Illinois 60671-0042 Attention: Spencer H. Heine Telecopy Number: (312) 467-3064 (ii) If to Investor, at: 105 West Madison Street Suite 1600 Chicago, Illinois 60602 Attention: Account Manager, Montgomery Ward Telecopy Number: (312) 419-5992 or at such other address as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, telecopied and confirmed by telecopy answerback, or three (3) Business Days after the same shall have been deposited in the United States mail. (b) The Company shall reimburse Investor for all of its out-of-pocket expenses (including reasonable attorneys' fees) incurred by it in connection with this Agreement and the transactions contemplated hereby. (c) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York, without regard to the principles thereto relating to conflict of laws. (d) The rights and obligations of the Company, Holdings and Brennan under this agreement may not be assigned without the written consent of Investor. The rights and obligations of Investor hereunder may not be assigned without the consent of the Company, except as provided in Section 7(e), and except that there shall be no restriction on Investor's right to sell, assign or otherwise transfer the Shares, subject to compliance with Section 3(g) hereof. (e) This Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors and permitted assigns. (f) This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which shall constitute a single instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. GENERAL ELECTRIC CAPITAL CORPORATION By: Name: William Brasser Title: Duly Authorized Signatory MONTGOMERY WARD & CO., INCORPORATED By: Name: John Workman Title: Executive Vice President and Chief Financial Officer MONTGOMERY WARD HOLDING CORP. By: Name: John Workman Title: Executive Vice President and Chief Financial Officer Bernard F. Brennan, solely as to Sections 6 and 8 of this Agreement and only for so long as he shall be an "Affiliate" (as defined under the Act) of the Company and Holdings, provided that he shall be deemed an Affiliate as long as he is a director, and, in all events, he agrees to vote all voting shares that he is entitled to vote to effectuate such sections. SCHEDULE 1 1. Long Term Credit Agreement dated as of September 15, 1994 among the Company, 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. 2. Short Term Credit Agreement dated as of September 15, 1994 among the Company, 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. 3. Term Loan Agreement dated as of September 29, 1995 between the Company and The Industrial Bank of Japan, Limited, Chicago Branch. 4. Note Purchase Agreement dated as of July 11, 1995 between the Company and various institutional investors. 5. Note Purchase Agreement dated as of March 1, 1993 between the Company and various institutional investors. 6. Purchase and Master Lease Agreement, dated as of March 15, 1995, among Lessors referred to therein, the Company, Lechmere, Inc., and Sumitomo Bank Leasing and Finance, Inc., as agent for Lessors; 7. Purchase and Master Lease Agreement, dated as of January 13, 1995, among the Lessors referred to therein, the Company, Lechmere, Inc., and Credit Lyonnais, Chicago Branch, as agent for the Lessors. EX-11 4 EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS 52-WEEK PERIOD ENDED DECEMBER 30, 1995 Class A Class B Earnings available for Common Shareholders $3,341,271 $3,486,747 Weighted average of shares outstanding: Shares outstanding 19,209,793 25,000,000 Shares issued upon assumed exercise of stock options 5,164,699 - Shares assumed to be repurchased under Treasury Stock method (at fair market value of $24.50) (3,851,423) - Total number of options considered as common stock equivalents 1,614,721 - Total weighted average number of shares 20,824,514 25,000,000 Earnings per share $.16 $.14 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 EX-23 5 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement on Form S-8 (File No. 33-57075). Arthur Andersen LLP Chicago, Illinois March 24, 1996 EX-24 6 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 1995 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 29th day of March, 1996. NAME AND TITLE /s/ Bernard F. Brennan Bernard F. Brennan, Director, Chairman and Chief Executive Officer 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/ Denis J. Nayden Denis J. Nayden, Director NAME AND TITLE /s/ James A. Parke James A. Parke, Director NAME AND TITLE /s/ Daniel W. Porter Daniel W. Porter, Director EX-27 7
5 1,000,000 12-MOS DEC-30-1995 DEC-30-1995 37 346 188 0 1770 0 2058 692 4884 0 0 175 0 1 699 4884 6531 7085 5178 5178 1806 0 91 10 (1) 11 0 0 0 11 .16 .16
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