-----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, DP1yAEzAD68lbfw/t6CAmfbiZByQFrC7vf6dUpFtrAOEKxmVUWDtue+2l5N8tLC+ 4ZvP1DkPesUvU7C87IR39A== 0000836974-96-000013.txt : 19960515 0000836974-96-000013.hdr.sgml : 19960515 ACCESSION NUMBER: 0000836974-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960330 FILED AS OF DATE: 19960514 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17540 FILM NUMBER: 96563832 BUSINESS ADDRESS: STREET 1: ONE MONTGOMERY WARD PLZ CITY: CHICAGO STATE: IL ZIP: 60671 BUSINESS PHONE: 3124672000 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549-1004 ____________ FORM 10-Q (MARK ONE) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 30, 1996 OR __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-17540 MONTGOMERY WARD HOLDING CORP. (Exact Name Of Registrant As Specified In Its charter) Delaware 36-3571585 (State Of Incorporation) (I.R.S. Employer Identification No.) Montgomery Ward Plaza, Chicago, Illinois 60671 (Address Of Principal Executive Offices) (Zip Code) Registrant's Telephone Number Including Area Code: 312/467-2000 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 As of April 27, 1996 the Registrant had 18,722,248 shares of Class A Common Stock and 25,000,000 shares of Class B Common Stock of the Registrant outstanding. PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements INDEX Page Montgomery Ward Holding Corp. Consolidated Statement ofIncome.................... 2 Consolidated Balance Sheet......................... 3 Consolidated Statement of Cash Flows............... 4 Notes to Consolidated Financial Statements........ 6 MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) For the 13-Week Period Ended March 30, April 1, (Millions) 1996 1995 Revenues Net sales, including leased and licensed department sales...................... $1,253 $1,357 Direct response marketing revenues, including insurance............................ 182 130 Total Revenues.............................. 1,435 1,487 Costs and Expenses Cost of goods sold, including net occupancy and buying expense................... 1,038 1,076 Operating, selling, general and administrative expenses, including benefits and losses of direct response operations (Note 3)................... 452 399 Interest expense.................................. 22 19 Total Costs and Expenses..................... 1,512 1,494 Loss Before Income Taxes............................. (77) (7) Income Tax Benefit................................... (29) (3) Net Loss............................................. (48) (4) Preferred Stock Dividend Requirements (Note 4)....... 3 1 Net Loss Applicable to Common Shareholders............................... $ (51) $ (5) Net Loss per Common Share (Note 2) Class A.......................................... $ (1.27) $ (.12) Class B.......................................... $ (1.07) $ (.10) Cash dividends per Common Share $ - $ - See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. CONSOLIDATED BALANCE SHEET (UNAUDITED ) ASSETS March 30, December 30, (Millions) 1996 1995 Cash and cash equivalents...........................$ 63 $ 37 Short-term investments.............................. 1 1 Investments of insurance operations................. 330 345 Total Cash and Investments................. 394 383 Trade and other accounts receivable................. 179 166 Accounts and notes receivable from affiliates....... 12 22 Total Receivables.......................... 191 188 Merchandise inventories............................. 1,569 1,770 Prepaid pension cost................................ 339 335 Prepaid federal income taxes........................ 26 - Properties, plants and equipment, net of accumulated depreciation and amortization........ 1,348 1,366 Direct response and insurance acquisition costs..... 540 395 Other assets........................................ 528 447 Total Assets........................................ $4,935 $4,884 LIABILITIES AND SHAREHOLDERS' EQUITY Short-term debt.................................... $ 701 $ 160 Trade accounts payable............................. 1,313 1,804 Federal income taxes payable....................... - 6 Accrued liabilities and other obligations.......... 1,219 1,195 Insurance policy claim reserves.................... 242 236 Long-term debt..................................... 422 423 Obligations under capital leases................... 65 66 Deferred income taxes.............................. 163 119 Total Liabilities......................... 4,125 4,009 Commitments and Contingent Liabilities (Note 6) Redeemable Preferred Stock (Note 4)............... 175 175 Shareholders' Equity Common stock.................................... 1 1 Capital in excess of par value.................. 46 45 Retained earnings............................... 707 758 Unrealized gain on marketable securities........ 10 10 Less: Treasury stock, at cost.................. (129) (114) Total Shareholders' Equity............... 635 700 Total Liabilities and Shareholders' Equity......... $4,935 $4,884 See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) For the 13-Week Period Ended March 30, April 1, (Millions) 1996 1995 Cash flows from operating activities: Net loss.............................................$ (48) $ (4) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization.................. 31 30 Amortization of Goodwill....................... 6 1 Amortization of Direct response and insurance acquisition costs................... 42 33 Deferred income taxes.......................... - 2 Net loss adjusted for non-cash expenses... 31 62 Changes in operating assets and liabilities: (Increase) decrease in: Trade and other accounts receivable............... 12 8 Accounts and notes receivable from affiliates.... 10 (12) Merchandise inventories.......................... 201 (3) Prepaid pension cost............................. (4) (2) Federal income taxes receivable, net............. (31) (17) Direct response insurance acquisition costs...... (64) (49) Other assets..................................... (10) (9) Increase (decrease) in: Trade accounts payable............................. (494) (474) Accrued liabilities and other obligations......... (57) (104) Insurance policy claim reserves................... 6 2 Net cash used for operations................. (400) (598) Cash flows from investing activities: Investment in Merchant Partners...................... (2) - Acquisition of Amoco Enterprises..................... (102) - Purchase of short-term investments................... (9) (28) Purchase of investments of insurance operations...... (104) (91) Sale of short-term investments....................... 9 25 Sale of investments of insurance operations.......... 117 94 Capital expenditures................................. (11) (18) Disposition of properties, plants and equipment, net...................................... 1 6 Net cash used for investing activities......... $(101) $ (12) See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) For the 13-Week Period Ended March 30, April 1, (Millions) 1996 1995 Cash flows from financing activities: Proceeds from short-term borrowings, net........... $ 541 $ 633 Payments of long-term debt......................... (1) (3) Payments of obligations under capital leases....... (1) (1) Proceeds from issuance of common stock............. 1 - Cash dividends paid................................ (3) (1) Purchase of treasury stock, at cost................ (10) (3) Net cash provided by financing activities..... 527 625 Increase in cash and cash equivalents.................. 26 15 Cash and cash equivalents at beginning of period....... 37 33 Cash and cash equivalents at end of period............. $ 63 $ 48 Supplemental disclosure of cash flow information: Cash paid during the period for: Income taxes......................................$ 1 $ 20 Interest..........................................$ 23 $ 16 Non-cash investing activity: Change in unrealized gain on marketable equity securities.......................................$ - $ 3 Non-cash financing activity: Notes issued for purchase of treasury stock..........$ 5 $ - See notes to consolidated financial statements. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Millions of dollars, except per share amounts) 1. Accounting Policies Basis of Presentation: The Consolidated Balance Sheet as of March 30, 1996 and the Statements of Income and Cash Flows for the three months ended March 30, 1996 and April 1, 1995 are unaudited. The interim financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The interim financial statements should be read in the context of the financial statements and notes thereto filed with the Securities and Exchange Commission in MW Holding's 1995 Annual Report on Form 10-K. Capitalized terms not otherwise defined herein have the meaning ascribed to such terms in the 1995 Annual Report on Form 10-K. Certain prior period amounts have been reclassified to be comparable with the current period presentation. Accounting for Long-Lived Assets Effective December 31, 1995, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed Of." 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 flows, the loss will be recognized in the income statement and certain disclosures will be made regarding the impairment. There was no financial impact from the adoption of this statement on the first quarter financial statements. 2. Net Loss Per Common Share Net Loss per common share is computed as follows: 13-Week Period Ended March 30, 1996 Class A Class B Net Loss applicable to Common Shareholders................................... $(24) $(27) Weighted average number of common shares outstanding.................................... 19,155,678 25,000,000 Net Loss per share............................. $(1.27) $(1.07) MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Millions of dollars, except per share amounts) 2. Net Loss Per Common Share (continued) 13-Week Period Ended April 1, 1995 Class A Class B Net Loss applicable to Common Shareholders......... $(2) $(3) Weighted average number of common shares outstanding........................................ 20,882,543 25,000,000 Net Loss per share................................. $(.13) $(.10) 3. Benefits and Losses Operating, selling, general and administrative expenses include benefits and losses related to direct response marketing operations of $39 and $28 for the 13-week periods ended March 30, 1996 and April 1, 1995, respectively. 4. Preferred Stock On January 31, 1996, GE Capital exercised the exchange option contained in the MW Senior Preferred Stock subscription agreement which allowed an exchange of the MW Senior Preferred Stock for senior preferred stock of the Company with substantially the same terms. On March 28, 1996, the Company's Certificate of Incorporation was amended to authorize the issuance of a new series of senior preferred stock (New Senior Preferred Stock). On March 29, 1996, the Company issued all of the 1,750 shares of New Senior Preferred Stock to GE Capital in exchange for the 1,750 shares of MW Senior Preferred Stock held by GE Capital. Dividends on the New Senior Preferred Stock are payable quarterly at an annual rate of $7,010 per share. The Company is required to redeem the New Senior Preferred Stock on June 30, 2002, with the option of redeeming all or any portion prior to June 30, 2002. 5. Acquisition of Amoco Enterprises, Inc. On December 31, 1995, Montgomery Ward acquired all of the outstanding capital stock of Amoco Enterprises, Inc. (Enterprises), operator of the Amoco Motor Club and a wholly- owned subsidiary of Amoco Oil Holding Company. The purchase price was $102. The acquisition was financed through the use of the majority of the proceeds generated from the issuance of the MW Senior Preferred Stock. On January 2, 1996, Montgomery Ward's wholly-owned subsidiary, Signature, purchased Enterprises from Montgomery Ward for $102. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Millions of dollars, except per share amounts) 5. Acquisition of Amoco Enterprises, Inc. (continued) The acquisition was accounted for as a purchase. The purchase price has been allocated to Enterprises' net assets based upon preliminary results of asset valuations and liability and contingency assessments. Actual adjustments may differ based on the results of further evaluations of the fair value of the acquired assets and liabilities. Any differences between preliminary and actual adjustments are not expected to have a material impact on the Consolidated Financial Statements. The preliminary allocation is summarized as follows: Accounts receivable.......................... $ 25 Federal income tax receivable................ 1 Properties, plant & equipment................ 3 Direct response and insurance acquisition costs......................... 123 Goodwill..................................... 67 Other assets................................. 6 Trade accounts payable....................... (3) Accrued liabilities and other obligations.... (76) Deferred income taxes........................ (44) $102 6. Commitments and Contingent Liabilities MW Holding, Montgomery Ward and its subsidiaries are engaged in various litigation and have a number of unresolved claims. While the amounts claimed are substantial and the ultimate liability with respect to such litigation and claims cannot be determined at this time, management is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to have a material impact on the financial condition and the results of operations of the Company. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Millions of dollars, except per share amounts) 7. Customer Credit Agreement A. Effective April 1, 1996, Montgomery Ward entered into interim agreements with GE Capital and its wholly-owned subsidiaries Montgomery Ward Credit Corporation ("Montgomery Ward Credit") and Monogram Credit Card Bank of Georgia ("Monogram") reflecting a prior memorandum of understanding with GE Capital pursuant to which Monogram is extending credit to retail customers of Montgomery Ward under open-end revolving credit plans on a non recourse basis. For the Montgomery Ward memorandum of understanding interim agreements provide for the sharing of certain additional revenues generated by increases in interest rates and late fee charges to customers with the extension of credit to the customers made directly by Monogram. Certain of these additional revenues will be applied to reduce the obligations of Montgomery Ward for prior losses incurred under the original Account Purchase Agreement with Montgomery Ward Credit and Montgomery Ward's obligation to pay Credit losses in excess of 3.9% of the average receivable balance up to 5%, and 50% of the losses in excess of 5% up to 8%, incurred by Monogram under the new agreements. Except as noted above, the new agreements together generally impose obligations upon and provide benefits to Montgomery Ward and GE Capital and its subsidiaries, Montgomery Ward Credit and Monogram similar to the prior arrangements under the Account Purchase Agreement. If definitive agreements are not entered into by July 31, 1996 by Montgomery Ward, Monogram, Montgomery Ward Credit and GE Capital permanently implementing the changes contemplated by the memorandum of understanding and interim agreements for the Montgomery Ward credit customers, Montgomery Ward credit transactions will revert to the original Account Purchase Agreement. B. Effective March 13, 1996, Lechmere, Inc., a subsidiary of Montgomery Ward, entered into interim agreements with GE Capital and its wholly-owned subsidiaries Montgomery Ward Credit and Monogram reflecting a prior memorandum of understanding with GE Capital pursuant to which Monogram is extending credit to retail customers of Lechmere under open- end revolving credit plans on a non recourse basis. The Lechmere memorandum of understanding and interim agreements provide for a guaranteed Monogram Bank/GE Capital annual return on its equity of 17.50%. For any shortfalls, an annual payment would be made by Lechmere. Any return above 17.50% will be shared equally by Lechmere and Monogram/GE Capital. For any annual credit losses over 4.25% and less than 8% of the average receivable balance, Lechmere is responsible for 50% of said losses. It is envisioned that a similar relationship will be established for Montgomery Ward's "Electric Ave. & More" credit card customer receivables. If definitive agreements are not executed by August 31, 1996, the Lechmere interim agreements will expire. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Millions of dollars, except per share amounts) 7. Customer Credit Agreements (continued) C. In addition, pursuant to an agreement dated April 3, 1996, Montgomery Ward and Lechmere agreed to sell to Montgomery Ward Credit receivables from certain commercial customers of Montgomery Ward and Lechmere. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of results of operations for MW Holding compares the first quarter of 1996 to the first quarter of 1995. All dollar amounts referred to in this discussion are in millions, and all income and expense items are shown before income taxes, unless specifically stated otherwise. MW Holding's business is seasonal, with one-third of the sales traditionally occurring in the fourth quarter; accordingly, the results of operations for the first three months are not necessarily indicative of the results for the entire year. Results of Operations First Quarter 1996 Compared with First Quarter 1995 Consolidated total revenues (net sales and direct response marketing revenues, including insurance) were $1,435 compared with $1,487 in 1995, a decrease of $52. The decrease reflects a $104 decrease in net sales and a $52 increase in direct response marketing revenues. Net sales of $1,253 in the quarter reflected a decline of 12% in apparel and domestics sales and a decline of 6% in hardlines sales. Comparable store sales decreased 8%. Credit sales in the first quarter at Montgomery Ward declined $70 in the quarter. The decline was attributable to a decline in the number of "new accounts" which started in the Fourth Quarter of 1995 and the confusion created from a March, 1996 notification to the credit card customer base. New programs for acquisition of credit card customers were established at the end of the first quarter which are expected to provide a double digit increase in new accounts for the entire year and which have early results reflecting increases of over 20 percent compared to the prior year. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Millions of dollars, except per share amounts) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations (continued) First Quarter 1996 Compared with First Quarter 1995 (continued) Sales at Lechmere declined $41 million from the prior year, being negatively impacted by two major transitions. First, was the integration of Lechmere systems into those of Montgomery Ward which required major changes to the older, marginal systems of Lechmere. Unfortunately, the changes resulted in data integrity problems which created inventory imbalances and significant out-of-stock problems in key items. The problems have been identified and are being corrected. Further, the entire Lechmere merchandising function has been relocated to Chicago which will provide additional leverage through one common buying organization. The second transition was related to the transfer of the credit portfolio from the previous provider to GE Capital who services the Montgomery Ward credit card. Lechmere had been in a dispute with the previous provider which was settled in Lechmere's favor in late 1995 with the transfer of the credit portfolio to GE Capital in April, 1996. Also impacting sales in the first quarter was the reduction in advertising pages and events which was done in response to the significant increase in paper and printing costs which occurred in the Fall of 1995. Pages will be added and events re-established late in the second quarter. As paper costs have started to moderate, the Fall season should reflect some favorable comparisons over the prior year. Direct response marketing revenues in the quarter were $182. Versus the prior year quarter, club revenues increased by $49, with approximately one-half of this increase due to the acquisition of Amoco Enterprises (See Note 5 to Consolidated Financial Statements) and the majority of the remainder resulting from growth in continuing businesses, and insurance revenues increased by $3. Gross margin (net sales less cost goods sold) dollars were $215, a decrease of $66, or 23%. The decrease in gross margin was due to a decrease in the gross margin rate of $38 and decreased volume of $28. Gross margin performance was impacted by intense retail competition and consumers' hesitancy to spend. The growth in inventories, in concert with the slowdown in sales in 1995, required significant action to be taken to impact the size and composition of the inventory. These aggressive actions, while necessary to liquidate goods in a competitive enviroment, also created some dislodgements of product and best selling merchandise. The Company has embarked on a program with a focus on narrowing the assortments and obtaining significant volume through key items and categories. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Millions of dollars, except per share amounts) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of Operations (continued) First Quarter 1996 Compared with First Quarter 1995 (continued) Operating, selling, general and administrative expenses increased $53 from the prior year, primarily due to added expenses related to the acquisition of the Amoco Motor Club of $26 (See Note 5 to the Consolidated Financial Statements). Other factors included increased payroll and other administrative expenses of Signature of $22, primarily due to Signature's continued growth of business; decreased income from the sale of product service contracts of $5; the impact of new store openings of $5; and increased advertising and promotional costs of $4; partially offset by decreased operating and other administrative expenses of Montgomery Ward and Lechmere of $9. Net interest expense increased $3 from the prior year to $22, primarily due to increased borrowings (as more fully described in the discussion of Financial Condition), and higher average borrowing rates related to longer term borrowings placed in 1995 to extend the maturity and fix the interest rate on a significant portion of the Company's debt. Net loss for the first quarter of 1996 was $48, which was $44 greater than the $4 loss experienced in the prior year period. 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 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 agreement is $175 in 1996. Under the terms of the interest rate exchange agreements, Montgomery Ward pays the banks a weighted average fixed rate of 7.4% multiplied by the notional principal amount in 1996 and will receive the one-month daily average London Interbank Offered (LIBO) rate multiplied by the notional principal amount. The average aggregate notional principal amount under the various cap agreements is $158 in 1996. Under the terms of the cap agreements, Montgomery Ward receives payments from the banks when the one-month daily average LIBO rate exceeds the 6.0% cap strike rate in 1996. 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 strike rate. The interest rate exchange and cap agreements increased the effective borrowing rate under the Agreements by .93% for the 13-week period ended March 30, 1996. MONTGOMERY WARD HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Millions of dollars, except per share amounts) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Discussion of Financial Condition (continued) 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 Company's cash flows are seasonal with negative cash flows historically experienced in the first quarter due to working capital levels. Net cash used in the Company's operating activities totaled $402 for first quarter 1996, which was $196 favorable to the cash used in operating activities in first quarter 1995. The improvement in cash flow primarily resulted from a $201 cash source from inventory reduction, which was a result of inventory management initiatives implemented in the third quarter of 1995, compared to a $3 cash use for inventory in first quarter 1995. Net cash provided by financing activities totaled $527 for the first three months of 1996, compared to $625 for the same period in 1995. The decrease was primarily due to decreased borrowings under the Agreements. Borrowings decreased as inventory purchases decreased in conjunction with inventory management initiatives. Future cash needs are expected to be provided by ongoing operations, the sale of customer receivables to Montgomery Ward Credit and borrowings under the Agreements Capital expenditures during the first three months of 1996 or $11 were primarily related to expenditures for the opening of one full-line store. Capital expenditures for the comparable 1995 period were $18. PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities. On March 29, 1996, the Company's Certificate of Incorporation was amended to authorize the issuance of a new series of senior preferred stock ("New Senior Preferred Stock"). On that date, the Company issued all of the 1,750 shares of New Senior Preferred Stock authorized by the Certificate of Incorporation to GE Capital in exchange for the 1,750 shares of MW Senior Preferred Stock held by GE Capital. Except as required by law, holders of New Senior Preferred Stock will not have any voting rights, other than the right to elect one director to be an additional member of the Company's Board of Directors (a) during the period following a default in the payment of accrued dividends on the New Senior Preferred Stock for four consecutive quarters until such accrued dividends shall have been paid in full and (b) during the period following any failure to make a mandatory redemption of New Senior Preferred Stock (as described below) until such failure shall have been cured. Holders of New Senior Preferred Stock are entitled to receive, before any dividends may be declared and paid upon or set aside for Common Stock of the Company, cumulative cash dividends of $7,010 per share per annum, in equal quarterly payments on the last business day of March, June, September and December. Dividend payments with respect to the New Senior Preferred Stock may be made only in cash. No dividends may be declared or paid on the New Senior Preferred Stock when such declaration or payment would constitute a default under any debt agreements governing indebtedness for borrowed money of the Company and its direct and indirect subsidiaries. The Company may, upon ten business days notice to the holders thereof, at any time redeem the whole or any part of the New Senior Preferred Stock at a price of $100,000 per share plus unpaid accrued dividends thereon. No such redemption may be made when such redemption would constitute a default under any debt agreements. On June 30, 2002, the Company is required to redeem all of the New Senior Preferred Stock at a redemption price of $100,000 per share plus unpaid accrued dividends thereon. No such redemption may be made when such redemption would constitute a default under any of the Agreements. Upon any liquidation, dissolution or winding up of the Company, the holders of the New Senior Preferred Stock shall be entitled to be paid, before any distributions or payment is made to any holder of Common Stock of the Company, an amount in cash equal to $100,000 per share plus unpaid accrued dividends thereon. PART II - OTHER INFORMATION Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. Pursuant to a Statement in Support of Solicitation of Written Consents dated March 28, 1996, the stockholders of the Company were asked to execute consents in lieu of a special meeting of the stockholders of the Company. All of the stockholders of record executed and returned the consents before March 29, 1996. Pursuant to the consent, the stockholders approved the amendment to the Certificate of Incorporation which revoked the authorization of the then authorized senior preferred stock of the Company, none of which was then outstanding, and authorized a new series of senior preferred stock, as described above (See Item 2). Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 10.(i)(H)(2) Amendment dated March 19, 1996 to the Long Term Credit Agreement dated as ofSeptember 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. 10.(i)(I)(2) Amendment dated March 19, 1996 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. 10.(i)(K)(1) Amendment dated March 20, 1996 to the Term Loan Agreement dated as of September 29, 1995 between Montgomery Ward & Co., Incorporated and The Industrial Bank of Japan, Limited, Chicago Branch. 10.(iv)(J) Form of Montgomery Ward Special Retention Plan document entered into with the following persons: Alan E. DiGangi, Spencer H. Heine, Carol J. Harms, Robert A. Kasenter, Frederick E. Meiser, Edwin G. Pohlmann, Robert J. Stevenish and John Workman. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (continued) 10.(iv)(K) Letter agreement dated March 1, 1996 between the Company and John L. Workman. 10.(iv)(L) Form of Montgomery Ward Change of Control Security Plan document entered into with the following persons: Alan E. DiGangi, Spencer H. Heine, Carol J. Harms, Robert A. Kasenter, Frederick E. Meiser, Edwin G. Pohlmann, Robert J. Stevenish and John L. Workman. 27. Financial Data Schedule. (b) Reports on Form 8-K. On January 16, 1996, the Company filed a Form 8-K with respect to the acquisition by Montgomery Ward of all of the outstanding stock of Amoco Enterprises, Inc. from Amoco Oil Holding Company on December 31, 1995. The press release issued by the Company on January 2, 1996 was attached as an exhibit thereto. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant 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 and Chief Financial Officer DATE: May 14, 1996 EX-10 2 Exhibit 10.(i)(H)(2) March 19, 1996 To the Banks parties to the Long Term Credit Agreement referred to below Re: Amendment to and Approval under 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, as amended (the "Long Term Credit Agreement") Gentlemen: This letter constitutes an agreement amending the Long Term Credit Agreement in certain respects. All terms when capitalized and used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Long Term Credit Agreement. The Company, GE Capital, MWCC and Monogram Credit Card Bank of Georgia ("Monogram"), a subsidiary of GE Capital, intend to replace the existing arrangements between MWCC and the Company relative to the acquisition of receivables generated from the sale of merchandise to the Company's customers as set forth in the MWCC Receivables Purchase Agreement. Attached is a Confidential Memorandum of Understanding, dated as of March 14, 1996, between the Company and GE Capital (the "Memorandum of Understanding") outlining the new arrangement (the "Credit Program"). The Credit Program will be formalized in an agreement or agreements between Monogram and the Company (the "Monogram Agreement"), an agreement or agreements between GE Capital and the Company (the "GE Capital Agreement") and possibly an agreement or agreements between MWCC and the Company (the "MWCC Agreement"). GE Capital will guarantee the performances of the respective obligations of Monogram and MWCC under the Monogram Agreement and the MWCC Agreement, if any (collectively, the "GE Capital Guaranties"). Upon the execution of the GE Capital Agreement, the Monogram Agreement and the MWCC Agreement, if any (together with the GE Capital Guaranties, collectively, the "Retail Credit Program Agreement"), the existing MWCC Receivables Purchase Agreement shall be terminated. By the execution hereof, the Banks hereby approve (i) the execution of the Retail Credit Program Agreement provided the Retail Credit Program Agreement embodies in all material respects the terms outlined in the Memorandum of Understanding except for such changes in such terms or additions to such terms as the Company may approve provided such changes or additions shall not materially adversely affect the Banks and (ii) the termination of the existing MWCC Receivables Purchase Agreement provided that such termination is concurrent with the execution and effective upon the effective date of the Retail Credit Program Agreement. Within 30 days after the execution of the Retail Credit Program Agreement and the termination of the existing MWCC Receivables Purchase Agreement, the Company will deliver copies of the Retail Credit Program Agreement to the Banks and the Agents certified as true and correct by an Authorized Officer on behalf of the Company. In consideration of the Banks' approval of the execution of the Retail Credit Program Agreement and the termination of the existing MWCC Receivables Purchase Agreement, the Company, the Banks and the Agents agree that effective upon the execution of the Retail Credit Program Agreement and the termination of the MWCC Receivables Purchase Agreement, on the terms set forth in this letter agreement, the Long Term Credit Agreement is hereby amended as follows: 1. Section 1.1 of the Long Term Credit Agreement is amended by (i) deleting the definition of the MWCC Receivables Purchase Agreement, (ii) by substituting "Retail Credit Program Agreement" for "MWCC Receivables Purchase Agreement" in the definition of Material Litigation and (iii) by adding the following definitions: "GE Capital Parties" means GE Capital, Monogram and MWCC. "Monogram" means Monogram Retail Credit Card Bank of Georgia, a subsidiary of GE Capital. "Memorandum of Understanding" means the "Memorandum of Understanding" as defined in that certain letter agreement dated March 19, 1996 among the Company, the Banks and the Agents. "Retail Credit Program Agreement" means the "Retail Credit Program Agreement" as defined in that certain letter agreement dated March 19, 1996 among the Company, the Banks and the Agents, as such Retail Credit Program Agreement may be amended, modified or supplemented from time to time in a manner which does not result in an Event of Default under Section 13.1(j)." "Seller Notes" means the Seller Notes as defined in and issued pursuant to the Account Purchase Agreement between the Company and MWCC dated as of June 24, 1988, as amended (including any amendments thereto pursuant to the Retail Credit Program Agreement), together with the Loss Note referred to in the Memorandum of Understanding and issued pursuant to the Retail Credit Program Agreement. 2. Sections 11.1(i), 11.2(a) and 15.3(c) of the Long Term Credit Agreement are each amended by substituting "Retail Credit Program Agreement" for "MWCC Receivables Purchase Agreement" wherever such term appears therein. 3. Section 13.1(j) of the Long Term Credit Agreement is amended to read in its entirety as follows: (j) Retail Credit Program Agreement. (i) An amendment which materially adversely affects the Banks shall be made to the Retail Credit Program Agreement without the prior written consent of the Required Banks, including, without limitation, any amendment to any provision thereto which secures any Seller Notes (other than as permitted by clause (ii) of this Section 13.1(j)) or provides for the mandatory payment of such Seller Notes on a date earlier than the date on which such Seller Notes are payable as at March 14, 1996 (except as otherwise contemplated in the "Loss Note Section" of the Memorandum of Understanding), or (ii) any of the Seller Notes shall be secured by any property or rights other than the receivables sold or financed under the Retail Credit Program Agreement, and collections and offset rights thereunder, or (iii) the Retail Credit Program Agreement shall fail to remain in full force and effect, or (iv) any default by the Company under the Retail Credit Program Agreement (after the expiration of any applicable grace period) shall occur and be continuing which has not been waived by the GE Capital Parties and which provides the GE Capital Parties thereunder with the right to terminate obligations of the GE Capital Parties to purchase customer receivables thereunder from the Company and to extend credit to the customers of the Company pursuant thereto, or (v) the Company or the GE Capital Parties shall give notice of termination or take any action to terminate thereunder (other than the notice to terminate the Retail Credit Program Agreement at the expiration of the term thereof (or such term as extended pursuant thereto) and other than a termination by the Company pursuant to which a wind down or transition of at least one year is provided). 4. Section 15.3 of the Long Term Credit Agreement is amended by substituting "GE Capital Parties" for "MWCC". Except as hereinabove expressly provided, all the terms and provisions of the Long Term Credit Agreement shall remain in full force and effect and all references therein and in any related documents to the Long Term Credit Agreement shall henceforth refer to the Long Term Credit Agreement as amended by this letter agreement. This letter agreement shall be deemed incorporated into, and a part of, the Long Term Credit Agreement. This letter agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This letter agreement shall be governed by and construed in accordance with the law of the State of Illinois. This letter agreement may be executed in any number of counterparts and by the different parties on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same agreement. If the foregoing is acceptable, please evidence your agreement thereto by your execution hereof in the space provided below. This letter agreement shall become effective upon the execution by the Required Banks. MONTGOMERY WARD & CO., INCORPORATED BY /Carol J. Harms/ Carol J. Harms Vice President & Treasurer ACCEPTED AND APPROVED: THE FIRST NATIONAL BANK OF CHICAGO, in its individual capacity and in its capacity as Documentary Agent By: /Jeanette Ganousis/ Name: Jeanette Ganousis Title: Senior Banker THE BANK OF NEW YORK, in its individual capacity and in its capacity as Negotiated Loan Agent By: /Michael Flannery/ Name: Michael Flannery Title: Vice President THE BANK OF NOVA SCOTIA, in its individual capacity and in its capacity as Administrative Agent By: /F.C.H. Ashby/ Name: F.C.H. Ashby Title: Senior Manager Loan Operations BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, in its individual capacity and in its capacity as Advisory Agent By: /MA Detrick/ Name: MA Detrick Title: Vice President CIBC INC. By: /David McGowan/ Name: David McGowan Title: Director NATIONSBANK OF NORTH CAROLINA By: /Christopher B. Torie/ Name: Christopher B. Torie Title: Senior Vice President THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By: /Mark A. Thompson/ Name: Mark A. Thompson Title: Vice President and Deputy General Manager CREDIT LYONNAIS CHICAGO BRANCH By: /Mary Ann Klemm/ Name: Mary Ann Klemm Title: Vice President and Group Head CREDIT LYONNAIS CAYMAN ISLAND BRANCH By: /Mary Ann Klemm/ Name: Mary Ann Klemm Title: Vice President and Group Head BANCA COMMERCIALE ITALIANA, CHICAGO BRANCH By: /Julian M. Teodori/ Name: Julian M. Teodori Title: Senior Vice President By: /Matthew V. Trujillo/ Name: Matthew V. Trujillo Title: Assistant Vice President THE DAI-ICHI KANGYO BANK, LTD., CHICAGO BRANCH By: /Takeshi Hemmi/ Name: Takeshi Hemmi Title: Vice President THE MITSUBISHI BANK, LIMITED, CHICAGO BRANCH By: /Noboru Kobayashi/ Name: Noboru Kobayashi Title: Joint General Manager THE NORTHERN TRUST COMPANY By: /David C. Blowers/ Name: David C. Blowers Title: Vice President THE SAKURA BANK, LTD. By: /Hajime Miyagi/ Name: Hajime Miyagi Title: Joint General Manager THE SANWA BANK, LIMITED, CHICAGO BRANCH By: /Gordon R. Holtby/ Name: Gordon R. Holtby Title: Vice President & Manager SWISS BANK CORPORATION By: /H. Clark Worthley/ Name: H. Clark Worthley Title: Associate Director By: /David J. Bergman/ Name: David J. Bergman Title: SEC Executive Director UNITED STATES NATIONAL BANK OF OREGON By: /Chris J. Karlin/ Name: Chris J. Karlin Title: Vice President UNION BANK By: /Richard A. Sutter/ Name: Richard A. Sutter Title: Vice President ABN AMRO BANK N.V. By: /David C. Sagers/ Name: David C. Sagers Title: Vice President By: /Laurie D. Flom/ Name: Laurie D. Flom Title: Vice President FIRST BANK NATIONAL ASSOCIATION By: /Merri Bernhardson/ Name: Merri Bernhardson Title: Vice President THE FIRST NATIONAL BANK OF BOSTON By: /Bethann R. Halligan/ Name: Bethann R. Halligan Title: Managing Director THE FUJI BANK, LIMITED By: /Peter L. Chinnici/ Name: Peter L. Chinnici Title: Joint General Manager PNC BANK, NATIONAL ASSOCIATION By: /Karen C. Brogan/ Name: Karen C. Brogan Title: Commercial Banking Officer THE YASUDA TRUST AND BANKING CO., LTD. By: /Joseph C. Meek/ Name: Joseph C. Meek Title: First Vice President & Manager THE FIRST NATIONAL BANK OF MARYLAND By: /Andrew W. Fish/ Name: Andrew W. Fish Title: Vice President ISTITUTO BANCARIO SAN PAOLO DI TORINO, S.P.A. By: /William DeAngelo/ /Robert Wurster/ Name: William DeAngelo/Robert Wurster Title: F.V.P./F.V.P. KREDIETBANK N.V. By: /Robert Snauffer/ Name: Robert Snauffer Title: Vice President By: /John F. Donohoe/ Name: John F. Donohoe Title: Assistant Treasurer UNION BANK OF SWITZERLAND - CHICAGO BRANCH By: /Walter R. Wolff/ Name: Walter R. Wolff Title: Managing Director WELLS FARGO BANK, N.A. By: /Mathew Harvey/ Name: Mathew Harvey Title: Assistant Vice President BANCA DI ROMA, S.P.A. By: /Aurora Pensa/ Name: Aurora Pensa Title: Vice President By: /Claudio Perna/ Name: Claudio Perna Title: Vice President and Deputy Manager COMERICA BANK By: /David L. Morrison/ Name: David L. Morrison Title: Assistant Vice President BANK OF AMERICA ILLINOIS By: /MA Detrick/ Name: MA Detrick Title: Vice President Confidential 3/14/96 Montgomery Ward Credit Program Memorandum of Understanding Summarized below are the principal terms and conditions agreed to by Montgomery Ward & Co., Incorporated (MW) and General Electric Capital Corporation (GECC) pursuant to which the MW Credit Program will be transferred to the Monogram Credit Card Bank of Georgia (Bank) and thereafter serviced by the Bank. This memorandum describes the basic business deal, but does not include all the terms and conditions to be included in the definitive documentation governing the arrangement. Cardholder Terms & Conditions *APR: A Fixed Annual Percentage Rate (APR) of 22.6% will be charged on entire account balances subject to standard 1/40th payment terms after a trigger purchase except for: Starter Cards (including Marginal accounts) - 26% Chairman s Cards presently at an APR of either 14.9% or 16.9% - no change Iowa - 19.8%, Wisconsin - 18.0% (both opt out states) California, Illinois, Montana, Oklahoma, Maine, Wyoming, Arkansas, Alabama, Alaska - only new purchases will be billed at exported rates. Foreign Accounts - no change 1/50th extended payment terms - applicable 1/40th APR less one (1) basis point Home Improvement - no change Trigger purchases will begin in May for approximately 90% of card base; new APRs will be effective with the next billing. To the extent that new Signature product sales can be identified, these purchases will be treated as trigger purchases. Signature renewals, product service renewal sales and any insurance sales will not be considered trigger purchases. Dual Balance Acount Treatment Prior to a trigger purchase, all dual balances will continue to be billed as before. Upon the trigger purchase, the entire balance will be assessed at 22.6% except in California, Illinois, Montana, Oklahoma, Wyoming, and Arkansas where existing balances will be collapsed to the lower APR. In Connecticut, Minnesota, Pennsylvania, and South Dakota, APRs lower than 18% will remain and any APRs at 18% or above will increase to 22.6%. *Late Fees: Trigger purchase required before assessment of exported late fee. Trigger purchases begin in April 1996 for approximately 90% of cardholders, new fees will be effective on May delinquent bills. Late fee of $15 per late/missed payment to be charged except for: - California,Iowa,New Jersey,Wisconsin - $10 - Pennsylvania - $12 - Indiana - $14.50 - Missouri - $10 or $5 if payment less than $25 - Texas, Puerto Rico - $0 (zero) - Foreign Accounts - $0 (zero) A "silent" five day grace period applies except for: - California, Indiana, Colorado, DC, Oklahoma, Utah, Missouri, New Jersey - 10 days - Iowa - 30 days - Pennsylvania - 34 days A "real" five day grace period in Wisconsin. California, Maine, and Wyoming require pay down of entire existing balance prior to assessing an exported late fee. *Payment Terms: Except for Starter Cards (including Marginal accounts), scheduled payment terms will remain unchanged at standard 1/40th, $10.00 minimum and extended 1/50th, $10.00 minimum on big ticket purchases (presently greater than $400 for initial purchases and $200 for add-on purchases). Starter Cards (including Marginal accounts) to remain at 1/40th, but scheduled minimum payment will be increased from $10.00 to $20.00. (Bank policy requires 90% of minimum payment due to prevent an account from becoming delinquent or aging further. This represents an increase from the current policy which requires 50% of minimum payment due.) Client Program Agreement *Term: New 15-year with 10 year written termination notice from date of contract execution. (Effectively extending current expiration date by five years, from December 31, 2006 to December 31, 2011). *Maximum Investment: The maximum investment amount will be increased from $6.0 Billion to $7.0 Billion. Pricing: No change in non-promotional credit sales - will continue to be settled at face amount (zero discount). No change in Starter Card monthly and annual settlements - a 2.00% discount will continue to be charged monthly in those states where the billed APR is less than 26%. Also, no change in either no interest/no payment promotions or after-the-fact-free (AFF) promotions - will continue to be billed at 17.14% annualized rate. No interest/no payment promotions will be billed monthly and AFF will be billed at time of finance charge reversal. No change in overlimit transactions - MW pays certain incremental charges associated with selected overlimit transactions. *Promo Reserve: To comply with regulatory requirements that Bank not carry any interest-free loans, MW will provide advance funding to Bank for the purpose of establishing a reserve equivalent to two months of estimated promotional finance charge revenues, which is expected to be approximately $3.5MM. Currently, a two month lag exists between the cardholder billing date and receipt of settlement payments from MW. The two-month reserve requirement will be reviewed and adjusted semi-annually if necessary. Money Costs: Current money cost pass-through provision will continue to apply - no money cost pass-through unless the blended rate exceeds 10% as specified in the current contract. *Operating Expenses: No change from current contract - all operating expenses, with the exception of marketing administration, credit merchandising, and in-store credit services, will be borne by Bank. Incremental "Signature only" operating expenses to be billed to Signature including 10% mark-up per current Signature letter agreement. *Credit Marketing Expenses: MW will pay vendor invoices directly as received. Monthly, Bank will credit MW for (a) 39 basis points of that month s credit sales plus a flat payment of $416,667, less (b) the lesser of five hundredths percent (.05%) of the year-to-date credit sales or the year-to- date actual credit merchandising expenses, reduced by the amounts paid year-to-date through the previous month for credit marketing administration expenses. *Competitive Credit Offerings: GECC will have the right of first refusal on all new credit programs and products (i.e., co-branded cards, affinity cards, secondary sourcing, etc.) Cross Marketing: Signature will continue to receive 100% of all revenues generated from the sale of Signature products and services. MW will continued to received 100% of all revenues generated from the billing statement insert programs. *Revenue Sharing: Upon conversion of the MW Credit Program to the Bank, incremental revenues resulting from the exportation of APRs and late fees will be realized by the Bank. Both MW and GECC agree to share such incremental realized revenues, as well as any incremental realized revenues that may occur due to increases in APRs or late fees in the future. Notwithstanding the above, there exists several previously agreed to revenue sharing arrangements between the parties. Going forward, a revenue sharing program will be developed which retains all previously agreed to revenue sharing arrangements. All incremental revenues realized from the Bank conversion (exportation of APRs and late fees) will be applied in the following order: (1)To cover both parties out-of-pocket Bank conversion expenses (2)To cover all parties incremental ongoing expenses including costs as applicable to comply with Section 106 of the Bank Holding Company Act Amendments of 1970 (Section 106), FDIC insurance, bank overhead assessment, increased state income tax rate, and MW s potential loss of sales tax recapture benefits (3)To cover any litigation and judgment expenses arising from legal actions related to the Bank conversion (4)To cover both parties current year unrestricted losses above 5.00%, including layers of loss rollbacks beginning in '97 (5) To cover MW s current year losses between 3.9% and 5.00% (6) To MW to pay off loss sharing note (due date to be extended beyond 2/98) (7) Remaining revenues shared 20% MW and 80% GECC Either State or Federal law changes may impact expected incremental revenues. MW and GECC agree that any additions or takeaways will affect the total pool of revenue available for sharing. *Loss Sharing: No change from current program agreement except that losses over 8.0%, if any, are included in the revenue sharing application (item #4). However, Bank write-off policy requires that accounts be written off at 7 payments due rolling 8 payments due (6 months past due). Currently, MWCC writes off at 14 payments due rolling 15 payments due (13 months past due). To spread out the effect of conforming with Bank write-off policy, for contractual loss sharing purposes, write-off timing will be accelerated as follows: Write-off At: 1996 14 Due Rolling 15 (no change) 1997 11 Due Rolling 12 1998 9 Due Rolling 10 1999 8 Due Rolling 9 2000 & Beyond 7 Due Rolling 8 In any event, finance charges and late fees will no longer be assessed on accounts once those accounts have rolled 8 payments due. CSP insurance may be assessed. If CSP insurance is assessed, the Signature Group agrees to pay 100% of related incremental losses. Starter Card losses will be shared as in the current agreement. However, MW will make a minimum annual cash payment to GECC equal to MW s share of Starter Card losses beginning in 1997 (see Loss Note below). *Loss Note: The term of the note will be extended from February, 1998 to February, 2003. MW will continue to pay interest on the note annually and may continue to add to the note during the 1996 transition year. Notwithstanding prior contractual agreements, MW agrees to apply its share of revenues from the 1992 rate increases in Texas, Florida, and Washington to the note balance, as well as the late fee increases effective 2/95 and 10/95, including MW s share of incremental late fees generated during the entire year of 1996. In addition, MW will pay towards the note at the end of 1996 the greater of $25 million or its share of Starter Card losses. In each of the years 1997 through 2000, MW will pay the amount specified below, plus its share of Starter Card losses. In all years beyond 2000, MW will continue to pay cash equivalent to its share of Starter Card losses, and any non-Starter Card loss sharing greater than the incremental revenues per the revenue sharing application (items #4 & #5). Any incremental revenues per the revenue sharing application (item #6) will be applied towards the note balance. Based upon current projections, this payment application will pay off the note by 2002. MW will pay any remaining note balance in February, 2003 in cash. Required Note Payment: 1997 $28MM 1998 $24MM 1999 $23MM 2000 $17MM *Out-of-Pocket Bank Conversion Expenses: All one-time, non-recurring conversion expenses incurred by either party will be funded with incremental revenues generated from the exportation of APRs and late fees per the revenue sharing application (item #1). Such expenses will include legal expenses, systems programming expenses, cardholder notification costs, obsolescence costs (MWCC stationery, card carriers, etc.) and any operations-related relocation/transfer expenses. *Incremental Ongoing Expenses: All incremental ongoing expenses associated with the Bank conversion incurred by either party will be funded with incremental revenues generated from the exportation of APRs and late fees per the revenue sharing application (item #2). Such expenses will include any costs to comply with Section 106, Bank s FDIC insurance and overhead, GECC s increased state income taxes, and MW's potential loss of sales tax recapture benefits. * Denotes change from current Program Agreement. Notwithstanding the above, Montgomery Ward Credit Corporation (MWCC) will continue to purchase accounts and related indebtedness from MW up to and including the date of the transfer (currently targeted for April 1, 1996). Thereafter, the Bank will extend credit directly to MW cardholders. This memorandum reflects the terms and conditions upon which the MW Credit Program will be transferred to the Bank. It is not intended to be all inclusive and the transactions contemplated hereby are subject to the receipt of all necessary approvals and the negotiation, execution and delivery of final documentation acceptable to both parties and their respective counsel. GECC will guarantee the Bank s performance in the same manner as it did for MWCC under the existing MW Credit Program. It is understood that this memorandum contains confidential information that should not be disclosed other than to those who have a specific need to know, including those whos approval is required to allow for the completion of the transaction. General Electric Capital Corporation /S/ GAIL N. LANIK Name: Gail N. Lanik Date: March 14, 1996 Agreed to and Accepted by: Montgomery Ward & Co., Incorporated /S/ JOHN L. WORKMAN Name: John L. Workman Date: March 15, 1996 EX-10 3 Exhibit 10.(i)(I)(2) March 19, 1996 To the Banks parties to the Short Term Credit Agreement referred to below Re: Amendment to and Approval under 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, as amended (the "Short Term Credit Agreement") Gentlemen: This letter constitutes an agreement amending the Short Term Credit Agreement in certain respects. All terms when capitalized and used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Short Term Credit Agreement. The Company, GE Capital, MWCC and Monogram Credit Card Bank of Georgia ("Monogram"), a subsidiary of GE Capital, intend to replace the existing arrangements between MWCC and the Company relative to the acquisition of receivables generated from the sale of merchandise to the Company's customers as set forth in the MWCC Receivables Purchase Agreement. Attached is a Confidential Memorandum of Understanding, dated as of March 14, 1996, between the Company and GE Capital (the "Memorandum of Understanding") outlining the new arrangement (the "Credit Program"). The Credit Program will be formalized in an agreement or agreements between Monogram and the Company (the "Monogram Agreement"), an agreement or agreements between GE Capital and the Company (the "GE Capital Agreement") and possibly an agreement or agreements between MWCC and the Company (the "MWCC Agreement"). GE Capital will guarantee the performances of the respective obligations of Monogram and MWCC under the Monogram Agreement and the MWCC Agreement, if any (collectively, the "GE Capital Guaranties"). Upon the execution of the GE Capital Agreement, the Monogram Agreement and the MWCC Agreement, if any (together with the GE Capital Guaranties, collectively, the "Retail Credit Program Agreement"), the existing MWCC Receivables Purchase Agreement shall be terminated. By the execution hereof, the Banks hereby approve (i) the execution of the Retail Credit Program Agreement provided the Retail Credit Program Agreement embodies in all material respects the terms outlined in the Memorandum of Understanding except for such changes in such terms or additions to such terms as the Company may approve provided such changes or additions shall not materially adversely affect the Banks and (ii) the termination of the existing MWCC Receivables Purchase Agreement provided that such termination is concurrent with the execution and effective upon the effective date of the Retail Credit Program Agreement. Within 30 days after the execution of the Retail Credit Program Agreement and the termination of the existing MWCC Receivables Purchase Agreement, the Company will deliver copies of the Retail Credit Program Agreement to the Banks and the Agents certified as true and correct by an Authorized Officer on behalf of the Company. In consideration of the Banks' approval of the execution of the Retail Credit Program Agreement and the termination of the existing MWCC Receivables Purchase Agreement, the Company, the Banks and the Agents agree that effective upon the execution of the Retail Credit Program Agreement and the termination of the MWCC Receivables Purchase Agreement, on the terms set forth in this letter agreement, the Short Term Credit Agreement is hereby amended as follows: 1. Section 1.1 of the Short Term Credit Agreement is amended by (i) deleting the definition of the MWCC Receivables Purchase Agreement, (ii) by substituting "Retail Credit Program Agreement" for "MWCC Receivables Purchase Agreement" in the definition of Material Litigation and (iii) by adding the following definitions: "GE Capital Parties" means GE Capital, Monogram and MWCC. "Monogram" means Monogram Retail Credit Card Bank of Georgia, a subsidiary of GE Capital. "Memorandum of Understanding" means the "Memorandum of Understanding" as defined in that certain letter agreement dated March 19, 1996 among the Company, the Banks and the Agents. "Retail Credit Program Agreement" means the "Retail Credit Program Agreement" as defined in that certain letter agreement dated March 19, 1996 among the Company, the Banks and the Agents, as such Retail Credit Program Agreement may be amended, modified or supplemented from time to time in a manner which does not result in an Event of Default under Section 13.1(j)." "Seller Notes" means the Seller Notes as defined in and issued pursuant to the Account Purchase Agreement between the Company and MWCC dated as of June 24, 1988, as amended (including any amendments thereto pursuant to the Retail Credit Program Agreement), together with the Loss Note referred to in the Memorandum of Understanding and issued pursuant to the Retail Credit Program Agreement. 2. Sections 11.1(i), 11.2(a) and 15.3(c) of the Short Term Credit Agreement are each amended by substituting "Retail Credit Program Agreement" for "MWCC Receivables Purchase Agreement" wherever such term appears therein. 3. Section 13.1(j) of the Short Term Credit Agreement is amended to read in its entirety as follows: (j) Retail Credit Program Agreement. (i) An amendment which materially adversely affects the Banks shall be made to the Retail Credit Program Agreement without the prior written consent of the Required Banks, including, without limitation, any amendment to any provision thereto which secures any Seller Notes (other than as permitted by clause (ii) of this Section 13.1(j)) or provides for the mandatory payment of such Seller Notes on a date earlier than the date on which such Seller Notes are payable as at March 14, 1996 (except as otherwise contemplated in the "Loss Note Section" of the Memorandum of Understanding), or (ii) any of the Seller Notes shall be secured by any property or rights other than the receivables sold or financed under the Retail Credit Program Agreement, and collections and offset rights thereunder, or (iii) the Retail Credit Program Agreement shall fail to remain in full force and effect, or (iv) any default by the Company under the Retail Credit Program Agreement (after the expiration of any applicable grace period) shall occur and be continuing which has not been waived by the GE Capital Parties and which provides the GE Capital Parties thereunder with the right to terminate obligations of the GE Capital Parties to purchase customer receivables thereunder from the Company and to extend credit to the customers of the Company pursuant thereto, or (v) the Company or the GE Capital Parties shall give notice of termination or take any action to terminate thereunder (other than the notice to terminate the Retail Credit Program Agreement at the expiration of the term thereof (or such term as extended pursuant thereto) and other than a termination by the Company pursuant to which a wind down or transition of at least one year is provided). 4. Section 15.3 of the Short Term Credit Agreement is amended by substituting "GE Capital Parties" for "MWCC". Except as hereinabove expressly provided, all the terms and provisions of the Short Term Credit Agreement shall remain in full force and effect and all references therein and in any related documents to the Short Term Credit Agreement shall henceforth refer to the Short Term Credit Agreement as amended by this letter agreement. This letter agreement shall be deemed incorporated into, and a part of, the Short Term Credit Agreement. This letter agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This letter agreement shall be governed by and construed in accordance with the law of the State of Illinois. This letter agreement may be executed in any number of counterparts and by the different parties on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same agreement. If the foregoing is acceptable, please evidence your agreement thereto by your execution hereof in the space provided below. This letter agreement shall become effective upon the execution by the Required Banks. MONTGOMERY WARD & CO., INCORPORATED BY /Carol J. Harms/ Carol J. Harms Vice President & Treasurer ACCEPTED AND APPROVED: THE FIRST NATIONAL BANK OF CHICAGO, in its individual capacity and in its capacity as Documentary Agent By: /Jeanette Ganousis/ Name: Jeanette Ganousis Title: Senior Banker THE BANK OF NEW YORK, in its individual capacity and in its capacity as Negotiated Loan Agent By: /Michael Flannery/ Name: Michael Flannery Title: Vice President THE BANK OF NOVA SCOTIA, in its individual capacity and in its capacity as Administrative Agent By: /F.C.H. Ashby/ Name: F.C.H. Ashby Title: Senior Manager Loan Operations BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, in its individual capacity and in its capacity as Advisory Agent By: /MA Detrick/ Name: MA Detrick Title: Vice President CIBC INC. By: /David McGowan/ Name: David McGowan Title: Director NATIONSBANK OF NORTH CAROLINA By: /Christopher B. Torie/ Name: Christopher B. Torie Title: Senior Vice President THE LONG-TERM CREDIT BANK OF JAPAN, LTD. By: /Mark A. Thompson/ Name: Mark A. Thompson Title: Vice President and Deputy General Manager CREDIT LYONNAIS CHICAGO BRANCH By: /Mary Ann Klemm/ Name: Mary Ann Klemm Title: Vice President and Group Head CREDIT LYONNAIS CAYMAN ISLAND BRANCH By: /Mary Ann Klemm/ Name: Mary Ann Klemm Title: Vice President and Group Head BANCA COMMERCIALE ITALIANA, CHICAGO BRANCH By: /Julian M. Teodori/ Name: Julian M. Teodori Title: Senior Vice President By: /Matthew V. Trujillo/ Name: Matthew V. Trujillo Title: Assistant Vice President THE DAI-ICHI KANGYO BANK, LTD., CHICAGO BRANCH By: /Takeshi Hemmi/ Name: Takeshi Hemmi Title: Vice President THE MITSUBISHI BANK, LIMITED, CHICAGO BRANCH By: /Noboru Kobayashi/ Name: Noboru Kobayashi Title: Joint General Manager THE NORTHERN TRUST COMPANY By: /David C. Blowers/ Name: David C. Blowers Title: Vice President THE SAKURA BANK, LTD. By: /Hajime Miyagi/ Name: Hajime Miyagi Title: Joint General Manager THE SANWA BANK, LIMITED, CHICAGO BRANCH By: /Gordon R. Holtby/ Name: Gordon R. Holtby Title: Vice President & Manager SWISS BANK CORPORATION By: /H. Clark Worthley/ Name: H. Clark Worthley Title: Associate Director By: /David J. Bergman/ Name: David J. Bergman Title: SEC Executive Director UNITED STATES NATIONAL BANK OF OREGON By: /Chris J. Karlin/ Name: Chris J. Karlin Title: Vice President UNION BANK By: /Richard A. Sutter/ Name: Richard A. Sutter Title: Vice President ABN AMRO BANK N.V. By: /David C. Sagers/ Name: David C. Sagers Title: Vice President By: /Laurie D. Flom/ Name: Laurie D. Flom Title: Vice President FIRST BANK NATIONAL ASSOCIATION By: /Merri Bernhardson/ Name: Merri Bernhardson Title: Vice President THE FIRST NATIONAL BANK OF BOSTON By: /Bethann R. Halligan/ Name: Bethann R. Halligan Title: Managing Director THE FUJI BANK, LIMITED By: /Peter L. Chinnici/ Name: Peter L. Chinnici Title: Joint General Manager PNC BANK, NATIONAL ASSOCIATION By: /Karen C. Brogan/ Name: Karen C. Brogan Title: Commercial Banking Officer THE YASUDA TRUST AND BANKING CO., LTD. By: /Joseph C. Meek/ Name: Joseph C. Meek Title: First Vice President & Manager THE FIRST NATIONAL BANK OF MARYLAND By: /Andrew W. Fish/ Name: Andrew W. Fish Title: Vice President ISTITUTO BANCARIO SAN PAOLO DI TORINO, S.P.A. By: /William DeAngelo/ /Robert Wurster/ Name: William DeAngelo/Robert Wurster Title: F.V.P./F.V.P. KREDIETBANK N.V. By: /Robert Snauffer/ Name: Robert Snauffer Title: Vice President By: /John F. Donohoe/ Name: John F. Donohoe Title: Assistant Treasurer UNION BANK OF SWITZERLAND - CHICAGO BRANCH By: /Walter R. Wolff/ Name: Walter R. Wolff Title: Managing Director WELLS FARGO BANK, N.A. By: /Mathew Harvey/ Name: Mathew Harvey Title: Assistant Vice President BANCA DI ROMA, S.P.A. By: /Aurora Pensa/ Name: Aurora Pensa Title: Vice President By: /Claudio Perna/ Name: Claudio Perna Title: Vice President and Deputy Manager COMERICA BANK By: /David L. Morrison/ Name: David L. Morrison Title: Assistant Vice President BANK OF AMERICA ILLINOIS By: /MA Detrick/ Name: MA Detrick Title: Vice President Confidential 3/14/96 Montgomery Ward Credit Program Memorandum of Understanding Summarized below are the principal terms and conditions agreed to by Montgomery Ward & Co., Incorporated (MW) and General Electric Capital Corporation (GECC) pursuant to which the MW Credit Program will be transferred to the Monogram Credit Card Bank of Georgia (Bank) and thereafter serviced by the Bank. This memorandum describes the basic business deal, but does not include all the terms and conditions to be included in the definitive documentation governing the arrangement. Cardholder Terms & Conditions *APR: A Fixed Annual Percentage Rate (APR) of 22.6% will be charged on entire account balances subject to standard 1/40th payment terms after a trigger purchase except for: Starter Cards (including Marginal accounts) - 26% Chairman s Cards presently at an APR of either 14.9% or 16.9% - no change Iowa - 19.8%, Wisconsin - 18.0% (both opt out states) California, Illinois, Montana, Oklahoma, Maine, Wyoming, Arkansas, Alabama, Alaska - only new purchases will be billed at exported rates. Foreign Accounts - no change 1/50th extended payment terms - applicable 1/40th APR less one (1) basis point Home Improvement - no change Trigger purchases will begin in May for approximately 90% of card base; new APRs will be effective with the next billing. To the extent that new Signature product sales can be identified, these purchases will be treated as trigger purchases. Signature renewals, product service renewal sales and any insurance sales will not be considered trigger purchases. Dual Balance Acount Treatment Prior to a trigger purchase, all dual balances will continue to be billed as before. Upon the trigger purchase, the entire balance will be assessed at 22.6% except in California, Illinois, Montana, Oklahoma, Wyoming, and Arkansas where existing balances will be collapsed to the lower APR. In Connecticut, Minnesota, Pennsylvania, and South Dakota, APRs lower than 18% will remain and any APRs at 18% or above will increase to 22.6%. *Late Fees: Trigger purchase required before assessment of exported late fee. Trigger purchases begin in April 1996 for approximately 90% of cardholders, new fees will be effective on May delinquent bills. Late fee of $15 per late/missed payment to be charged except for: - California,Iowa,New Jersey,Wisconsin - $10 - Pennsylvania - $12 - Indiana - $14.50 - Missouri - $10 or $5 if payment less than $25 - Texas, Puerto Rico - $0 (zero) - Foreign Accounts - $0 (zero) A "silent" five day grace period applies except for: - California, Indiana, Colorado, DC, Oklahoma, Utah, Missouri, New Jersey - 10 days - Iowa - 30 days - Pennsylvania - 34 days A "real" five day grace period in Wisconsin. California, Maine, and Wyoming require pay down of entire existing balance prior to assessing an exported late fee. *Payment Terms: Except for Starter Cards (including Marginal accounts), scheduled payment terms will remain unchanged at standard 1/40th, $10.00 minimum and extended 1/50th, $10.00 minimum on big ticket purchases (presently greater than $400 for initial purchases and $200 for add-on purchases). Starter Cards (including Marginal accounts) to remain at 1/40th, but scheduled minimum payment will be increased from $10.00 to $20.00. (Bank policy requires 90% of minimum payment due to prevent an account from becoming delinquent or aging further. This represents an increase from the current policy which requires 50% of minimum payment due.) Client Program Agreement *Term: New 15-year with 10 year written termination notice from date of contract execution. (Effectively extending current expiration date by five years, from December 31, 2006 to December 31, 2011). *Maximum Investment: The maximum investment amount will be increased from $6.0 Billion to $7.0 Billion. Pricing: No change in non-promotional credit sales - will continue to be settled at face amount (zero discount). No change in Starter Card monthly and annual settlements - a 2.00% discount will continue to be charged monthly in those states where the billed APR is less than 26%. Also, no change in either no interest/no payment promotions or after-the-fact-free (AFF) promotions - will continue to be billed at 17.14% annualized rate. No interest/no payment promotions will be billed monthly and AFF will be billed at time of finance charge reversal. No change in overlimit transactions - MW pays certain incremental charges associated with selected overlimit transactions. *Promo Reserve: To comply with regulatory requirements that Bank not carry any interest-free loans, MW will provide advance funding to Bank for the purpose of establishing a reserve equivalent to two months of estimated promotional finance charge revenues, which is expected to be approximately $3.5MM. Currently, a two month lag exists between the cardholder billing date and receipt of settlement payments from MW. The two-month reserve requirement will be reviewed and adjusted semi-annually if necessary. Money Costs: Current money cost pass-through provision will continue to apply - no money cost pass-through unless the blended rate exceeds 10% as specified in the current contract. *Operating Expenses: No change from current contract - all operating expenses, with the exception of marketing administration, credit merchandising, and in-store credit services, will be borne by Bank. Incremental "Signature only" operating expenses to be billed to Signature including 10% mark-up per current Signature letter agreement. *Credit Marketing Expenses: MW will pay vendor invoices directly as received. Monthly, Bank will credit MW for (a) 39 basis points of that month s credit sales plus a flat payment of $416,667, less (b) the lesser of five hundredths percent (.05%) of the year-to-date credit sales or the year-to- date actual credit merchandising expenses, reduced by the amounts paid year-to-date through the previous month for credit marketing administration expenses. *Competitive Credit Offerings: GECC will have the right of first refusal on all new credit programs and products (i.e., co-branded cards, affinity cards, secondary sourcing, etc.) Cross Marketing: Signature will continue to receive 100% of all revenues generated from the sale of Signature products and services. MW will continued to received 100% of all revenues generated from the billing statement insert programs. *Revenue Sharing: Upon conversion of the MW Credit Program to the Bank, incremental revenues resulting from the exportation of APRs and late fees will be realized by the Bank. Both MW and GECC agree to share such incremental realized revenues, as well as any incremental realized revenues that may occur due to increases in APRs or late fees in the future. Notwithstanding the above, there exists several previously agreed to revenue sharing arrangements between the parties. Going forward, a revenue sharing program will be developed which retains all previously agreed to revenue sharing arrangements. All incremental revenues realized from the Bank conversion (exportation of APRs and late fees) will be applied in the following order: (1)To cover both parties out-of-pocket Bank conversion expenses (2)To cover all parties incremental ongoing expenses including costs as applicable to comply with Section 106 of the Bank Holding Company Act Amendments of 1970 (Section 106), FDIC insurance, bank overhead assessment, increased state income tax rate, and MW s potential loss of sales tax recapture benefits (3)To cover any litigation and judgment expenses arising from legal actions related to the Bank conversion (4)To cover both parties current year unrestricted losses above 5.00%, including layers of loss rollbacks beginning in ' 97 (5) To cover MW s current year losses between 3.9% and 5.00% (6) To MW to pay off loss sharing note (due date to be extended beyond 2/98) (7) Remaining revenues shared 20% MW and 80% GECC Either State or Federal law changes may impact expected incremental revenues. MW and GECC agree that any additions or takeaways will affect the total pool of revenue available for sharing. *Loss Sharing: No change from current program agreement except that losses over 8.0%, if any, are included in the revenue sharing application (item #4). However, Bank write-off policy requires that accounts be written off at 7 payments due rolling 8 payments due (6 months past due). Currently, MWCC writes off at 14 payments due rolling 15 payments due (13 months past due). To spread out the effect of conforming with Bank write-off policy, for contractual loss sharing purposes, write-off timing will be accelerated as follows: Write-off At: 1996 14 Due Rolling 15 (no change) 1997 11 Due Rolling 12 1998 9 Due Rolling 10 1999 8 Due Rolling 9 2000 & Beyond 7 Due Rolling 8 In any event, finance charges and late fees will no longer be assessed on accounts once those accounts have rolled 8 payments due. CSP insurance may be assessed. If CSP insurance is assessed, the Signature Group agrees to pay 100% of related incremental losses. Starter Card losses will be shared as in the current agreement. However, MW will make a minimum annual cash payment to GECC equal to MW s share of Starter Card losses beginning in 1997 (see Loss Note below). *Loss Note: The term of the note will be extended from February, 1998 to February, 2003. MW will continue to pay interest on the note annually and may continue to add to the note during the 1996 transition year. Notwithstanding prior contractual agreements, MW agrees to apply its share of revenues from the 1992 rate increases in Texas, Florida, and Washington to the note balance, as well as the late fee increases effective 2/95 and 10/95, including MW s share of incremental late fees generated during the entire year of 1996. In addition, MW will pay towards the note at the end of 1996 the greater of $25 million or its share of Starter Card losses. In each of the years 1997 through 2000, MW will pay the amount specified below, plus its share of Starter Card losses. In all years beyond 2000, MW will continue to pay cash equivalent to its share of Starter Card losses, and any non-Starter Card loss sharing greater than the incremental revenues per the revenue sharing application (items #4 & #5). Any incremental revenues per the revenue sharing application (item #6) will be applied towards the note balance. Based upon current projections, this payment application will pay off the note by 2002. MW will pay any remaining note balance in February, 2003 in cash. Required Note Payment: 1997 $28MM 1998 $24MM 1999 $23MM 2000 $17MM *Out-of-Pocket Bank Conversion Expenses: All one-time, non-recurring conversion expenses incurred by either party will be funded with incremental revenues generated from the exportation of APRs and late fees per the revenue sharing application (item #1). Such expenses will include legal expenses, systems programming expenses, cardholder notification costs, obsolescence costs (MWCC stationery, card carriers, etc.) and any operations-related relocation/transfer expenses. *Incremental Ongoing Expenses: All incremental ongoing expenses associated with the Bank conversion incurred by either party will be funded with incremental revenues generated from the exportation of APRs and late fees per the revenue sharing application (item #2). Such expenses will include any costs to comply with Section 106, Bank s FDIC insurance and overhead, GECC s increased state income taxes, and MW's potential loss of sales tax recapture benefits. * Denotes change from current Program Agreement. Notwithstanding the above, Montgomery Ward Credit Corporation (MWCC) will continue to purchase accounts and related indebtedness from MW up to and including the date of the transfer (currently targeted for April 1, 1996). Thereafter, the Bank will extend credit directly to MW cardholders. This memorandum reflects the terms and conditions upon which the MW Credit Program will be transferred to the Bank. It is not intended to be all inclusive and the transactions contemplated hereby are subject to the receipt of all necessary approvals and the negotiation, execution and delivery of final documentation acceptable to both parties and their respective counsel. GECC will guarantee the Bank s performance in the same manner as it did for MWCC under the existing MW Credit Program. It is understood that this memorandum contains confidential information that should not be disclosed other than to those who have a specific need to know, including those whos approval is required to allow for the completion of the transaction. General Electric Capital Corporation /S/ GAIL N. LANIK Name: Gail N. Lanik Date: March 14, 1996 Agreed to and Accepted by: Montgomery Ward & Co., Incorporated /S/ JOHN L. WORKMAN Name: John L. Workman Date: March 15, 1996 EX-10 4 Exhibit 10.(i)(K)(1) March 20, 1996 The Industrial Bank of Japan, Limited Chicago Branch 227 W. Monroe Street Suite 2600 Chicago, IL 60606 Re: Amendment to and Approval under the Term Loan Agreement dated as of September 29, 1995 between Montgomery Ward & Co., Incorporated and The Industrial Bank of Japan, Limited, Chicago Branch (the "Term Loan Agreement"). Gentlemen: This letter constitutes an agreement amending the Term Loan Agreement in certain respects. All terms when capitalized and used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Term Loan Agreement. The Company, GE Capital, MWCC and Monogram Credit Card Bank of Georgia ("Monogram"), a subsidiary of GE Capital, intend to replace the existing arrangements between MWCC and the Company relative to the acquisition of receivables generated from the sale of merchandise to the Company's customers as set forth in the MWCC Receivables Purchase Agreement. Attached is a Confidential Memorandum of Understanding, dated as of March 14, 1996, between the Company and GE Capital (the "Memorandum of Understanding") outlining the new arrangement (the "Credit Program"). The Credit Program will be formalized in an agreement or agreements between Monogram and the Company (the "Monogram Agreement"), an agreement or agreements between GE Capital and the Company (the "GE Capital Agreement") and possibly an agreement or agreements between MWCC and the Company (the "MWCC Agreement"). GE Capital will guarantee the performances of the respective obligations of Monogram and MWCC under the Monogram Agreement and the MWCC Agreement, if any (collectively, the "GE Capital Guaranties"). Upon the execution of the GE Capital Agreement, the Monogram Agreement and the MWCC Agreement, if any (together with the GE Capital Guaranties, collectively, the "Retail Credit Program Agreement"), the existing MWCC Receivables Purchase Agreement shall be terminated. By the execution hereof, the Bank hereby approves (i) the execution of the Retail Credit Program Agreement provided the Retail Credit Program Agreement embodies in all material respects the terms outlined in the Memorandum of Understanding except for such changes in such terms or additions to such terms as the Company may approve provided such changes or additions shall not materially adversely affect the Bank and (ii) the termination of the existing MWCC Receivables Purchase Agreement provided that such termination is concurrent with the execution and effective upon the effective date of the Retail Credit Program Agreement. Within 30 days after the execution of the Retail Credit Program Agreement and the termination of the existing MWCC Receivables Purchase Agreement, the Company will deliver a copy of the Retail Credit Program Agreement to the Bank certified as true and correct by an Authorized Officer on behalf of the Company. In consideration of the Bank's approval of the execution of the Retail Credit Program Agreement and the termination of the existing MWCC Receivables Purchase Agreement, the Company and the Bank agree that effective upon the execution of the Retail Credit Program Agreement and the termination of the MWCC Receivables Purchase Agreement, on the terms set forth in this letter agreement, the Term Loan Agreement is hereby amended as follows: 1. Section 1.1 of the Term Loan Agreement is amended by (i) deleting the definition of the MWCC Receivables Purchase Agreement, (ii) by substituting "Retail Credit Program Agreement" for "MWCC Receivables Purchase Agreement" in the definition of Material Litigation and (iii) by adding the following definitions: "GE Capital Parties" means GE Capital, Monogram and MWCC. "Monogram" means Monogram Retail Credit Card Bank of Georgia, a subsidiary of GE Capital. "Memorandum of Understanding" means the "Memorandum of Understanding" as defined in that certain letter agreement dated March 20, 1996 between the Company and the Bank. "Retail Credit Program Agreement" means the "Retail Credit Program Agreement" as defined in that certain letter agreement dated March 20, 1996 between the Company and the Bank, as such Retail Credit Program Agreement may be amended, modified or supplemented from time to time in a manner which does not result in an Event of Default under Section 13.1(i)." "Seller Notes" means the Seller Notes as defined in and issued pursuant to the Account Purchase Agreement between the Company and MWCC dated as of June 24, 1988, as amended (including any amendments thereto pursuant to the Retail Credit Program Agreement), together with the Loss Note referred to in the Memorandum of Understanding and issued pursuant to the Retail Credit Program Agreement. 2. Sections 11.1(i), 11.2(a) and 15.3(c) of the Term Loan Agreement are each amended by substituting "Retail Credit Program Agreement" for "MWCC Receivables Purchase Agreement" wherever such term appears therein. 3. Section 13.1(i) of the Term Loan Agreement is amended to read in its entirety as follows: (i) Retail Credit Program Agreement. (i) An amendment which materially adversely affects the Bank shall be made to the Retail Credit Program Agreement without the prior written consent of the Bank, including, without limitation, any amendment to any provision thereto which secures any Seller Notes (other than as permitted by clause (ii) of this Section 13.1(i) or provides for the mandatory payment of such Seller Notes on a date earlier than the date on which such Seller Notes are payable as at March 14, 1996 (except as otherwise contemplated in the "Loss Note Section" of the Memorandum of Understanding), or (ii) any of the Seller Notes shall be secured by any property or rights other than the receivables sold or financed under the Retail Credit Program Agreement, and collections and offset rights thereunder, or (iii) the Retail Credit Program Agreement shall fail to remain in full force and effect, or (iv) any default by the Company under the Retail Credit Program Agreement (after the expiration of any applicable grace period) shall occur and be continuing which has not been waived by the GE Capital Parties and which provides the GE Capital Parties thereunder with the right to terminate obligations of the GE Capital Parties to purchase customer receivables thereunder from the Company and to extend credit to the customers of the Company pursuant thereto, or (v) the Company or the GE Capital Parties shall give notice of termination or take any action to terminate thereunder (other than the notice to terminate the Retail Credit Program Agreement at the expiration of the term thereof (or such term as extended pursuant thereto) and other than a termination by the Company pursuant to which a wind down or transition of at least one year is provided). 4. Section 15.3 of the Term Loan Agreement is amended by substituting "GE Capital Parties" for "MWCC". Except as hereinabove expressly provided, all the terms and provisions of the Term Loan Agreement shall remain in full force and effect and all references therein and in any related documents to the Term Loan Agreement shall henceforth refer to the Term Loan Agreement as amended by this letter agreement. This letter agreement shall be deemed incorporated into, and a part of, the Term Loan Agreement. This letter agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This letter agreement shall be governed by and construed in accordance with the law of the State of Illinois. If the foregoing is acceptable, please evidence your agreement thereto by your execution of the duplicate original hereof in the space provided below and your returning the same to me at Montgomery Ward & Co., Incorporated, 844 N. Larrabee, 5-3, Chicago, IL 6067l. MONTGOMERY WARD & CO., INCORPORATED BY /S/ Carol J. Harms Carol J. Harms Vice President & Treasurer ACCEPTED AND APPROVED: THE INDUSTRIAL BANK OF JAPAN, LIMITED, CHICAGO BRANCH By: /S/ Hiroaki Nakamura Name: Hiroaki Nakamura Title: Joint General Manager Confidential 3/14/96 Montgomery Ward Credit Program Memorandum of Understanding Summarized below are the principal terms and conditions agreed to by Montgomery Ward & Co., Incorporated (MW) and General Electric Capital Corporation (GECC) pursuant to which the MW Credit Program will be transferred to the Monogram Credit Card Bank of Georgia (Bank) and thereafter serviced by the Bank. This memorandum describes the basic business deal, but does not include all the terms and conditions to be included in the definitive documentation governing the arrangement. Cardholder Terms & Conditions *APR: A Fixed Annual Percentage Rate (APR) of 22.6% will be charged on entire account balances subject to standard 1/40th payment terms after a trigger purchase except for: Starter Cards (including Marginal accounts) - 26% Chairman s Cards presently at an APR of either 14.9% or 16.9% - no change Iowa - 19.8%, Wisconsin - 18.0% (both opt out states) California, Illinois, Montana, Oklahoma, Maine, Wyoming, Arkansas, Alabama, Alaska - only new purchases will be billed at exported rates. Foreign Accounts - no change 1/50th extended payment terms - applicable 1/40th APR less one (1) basis point Home Improvement - no change Trigger purchases will begin in May for approximately 90% of card base; new APRs will be effective with the next billing. To the extent that new Signature product sales can be identified, these purchases will be treated as trigger purchases. Signature renewals, product service renewal sales and any insurance sales will not be considered trigger purchases. Dual Balance Acount Treatment Prior to a trigger purchase, all dual balances will continue to be billed as before. Upon the trigger purchase, the entire balance will be assessed at 22.6% except in California, Illinois, Montana, Oklahoma, Wyoming, and Arkansas where existing balances will be collapsed to the lower APR. In Connecticut, Minnesota, Pennsylvania, and South Dakota, APRs lower than 18% will remain and any APRs at 18% or above will increase to 22.6%. *Late Fees: Trigger purchase required before assessment of exported late fee. Trigger purchases begin in April 1996 for approximately 90% of cardholders, new fees will be effective on May delinquent bills. Late fee of $15 per late/missed payment to be charged except for: - California,Iowa,New Jersey,Wisconsin - $10 - Pennsylvania - $12 - Indiana - $14.50 - Missouri - $10 or $5 if payment less than $25 - Texas, Puerto Rico - $0 (zero) - Foreign Accounts - $0 (zero) A "silent" five day grace period applies except for: - California, Indiana, Colorado, DC, Oklahoma, Utah, Missouri, New Jersey - 10 days - Iowa - 30 days - Pennsylvania - 34 days A "real" five day grace period in Wisconsin. California, Maine, and Wyoming require pay down of entire existing balance prior to assessing an exported late fee. *Payment Terms: Except for Starter Cards (including Marginal accounts), scheduled payment terms will remain unchanged at standard 1/40th, $10.00 minimum and extended 1/50th, $10.00 minimum on big ticket purchases (presently greater than $400 for initial purchases and $200 for add-on purchases). Starter Cards (including Marginal accounts) to remain at 1/40th, but scheduled minimum payment will be increased from $10.00 to $20.00. (Bank policy requires 90% of minimum payment due to prevent an account from becoming delinquent or aging further. This represents an increase from the current policy which requires 50% of minimum payment due.) Client Program Agreement *Term: New 15-year with 10 year written termination notice from date of contract execution. (Effectively extending current expiration date by five years, from December 31, 2006 to December 31, 2011). *Maximum Investment: The maximum investment amount will be increased from $6.0 Billion to $7.0 Billion. Pricing: No change in non-promotional credit sales - will continue to be settled at face amount (zero discount). No change in Starter Card monthly and annual settlements - a 2.00% discount will continue to be charged monthly in those states where the billed APR is less than 26%. Also, no change in either no interest/no payment promotions or after-the-fact-free (AFF) promotions - will continue to be billed at 17.14% annualized rate. No interest/no payment promotions will be billed monthly and AFF will be billed at time of finance charge reversal. No change in overlimit transactions - MW pays certain incremental charges associated with selected overlimit transactions. *Promo Reserve: To comply with regulatory requirements that Bank not carry any interest-free loans, MW will provide advance funding to Bank for the purpose of establishing a reserve equivalent to two months of estimated promotional finance charge revenues, which is expected to be approximately $3.5MM. Currently, a two month lag exists between the cardholder billing date and receipt of settlement payments from MW. The two-month reserve requirement will be reviewed and adjusted semi-annually if necessary. Money Costs: Current money cost pass-through provision will continue to apply - no money cost pass-through unless the blended rate exceeds 10% as specified in the current contract. *Operating Expenses: No change from current contract - all operating expenses, with the exception of marketing administration, credit merchandising, and in-store credit services, will be borne by Bank. Incremental "Signature only" operating expenses to be billed to Signature including 10% mark-up per current Signature letter agreement. *Credit Marketing Expenses: MW will pay vendor invoices directly as received. Monthly, Bank will credit MW for (a) 39 basis points of that month s credit sales plus a flat payment of $416,667, less (b) the lesser of five hundredths percent (.05%) of the year-to-date credit sales or the year-to- date actual credit merchandising expenses, reduced by the amounts paid year-to-date through the previous month for credit marketing administration expenses. *Competitive Credit Offerings: GECC will have the right of first refusal on all new credit programs and products (i.e., co-branded cards, affinity cards, secondary sourcing, etc.) Cross Marketing: Signature will continue to receive 100% of all revenues generated from the sale of Signature products and services. MW will continued to received 100% of all revenues generated from the billing statement insert programs. *Revenue Sharing: Upon conversion of the MW Credit Program to the Bank, incremental revenues resulting from the exportation of APRs and late fees will be realized by the Bank. Both MW and GECC agree to share such incremental realized revenues, as well as any incremental realized revenues that may occur due to increases in APRs or late fees in the future. Notwithstanding the above, there exists several previously agreed to revenue sharing arrangements between the parties. Going forward, a revenue sharing program will be developed which retains all previously agreed to revenue sharing arrangements. All incremental revenues realized from the Bank conversion (exportation of APRs and late fees) will be applied in the following order: (1)To cover both parties out-of-pocket Bank conversion expenses (2)To cover all parties incremental ongoing expenses including costs as applicable to comply with Section 106 of the Bank Holding Company Act Amendments of 1970 (Section 106), FDIC insurance, bank overhead assessment, increased state income tax rate, and MW s potential loss of sales tax recapture benefits (3)To cover any litigation and judgment expenses arising from legal actions related to the Bank conversion (4)To cover both parties current year unrestricted losses above 5.00%, including layers of loss rollbacks beginning in ' 97 (5) To cover MW s current year losses between 3.9% and 5.00% (6) To MW to pay off loss sharing note (due date to be extended beyond 2/98) (7) Remaining revenues shared 20% MW and 80% GECC Either State or Federal law changes may impact expected incremental revenues. MW and GECC agree that any additions or takeaways will affect the total pool of revenue available for sharing. *Loss Sharing: No change from current program agreement except that losses over 8.0%, if any, are included in the revenue sharing application (item #4). However, Bank write-off policy requires that accounts be written off at 7 payments due rolling 8 payments due (6 months past due). Currently, MWCC writes off at 14 payments due rolling 15 payments due (13 months past due). To spread out the effect of conforming with Bank write-off policy, for contractual loss sharing purposes, write-off timing will be accelerated as follows: Write-off At: 1996 14 Due Rolling 15 (no change) 1997 11 Due Rolling 12 1998 9 Due Rolling 10 1999 8 Due Rolling 9 2000 & Beyond 7 Due Rolling 8 In any event, finance charges and late fees will no longer be assessed on accounts once those accounts have rolled 8 payments due. CSP insurance may be assessed. If CSP insurance is assessed, the Signature Group agrees to pay 100% of related incremental losses. Starter Card losses will be shared as in the current agreement. However, MW will make a minimum annual cash payment to GECC equal to MW s share of Starter Card losses beginning in 1997 (see Loss Note below). *Loss Note: The term of the note will be extended from February, 1998 to February, 2003. MW will continue to pay interest on the note annually and may continue to add to the note during the 1996 transition year. Notwithstanding prior contractual agreements, MW agrees to apply its share of revenues from the 1992 rate increases in Texas, Florida, and Washington to the note balance, as well as the late fee increases effective 2/95 and 10/95, including MW s share of incremental late fees generated during the entire year of 1996. In addition, MW will pay towards the note at the end of 1996 the greater of $25 million or its share of Starter Card losses. In each of the years 1997 through 2000, MW will pay the amount specified below, plus its share of Starter Card losses. In all years beyond 2000, MW will continue to pay cash equivalent to its share of Starter Card losses, and any non-Starter Card loss sharing greater than the incremental revenues per the revenue sharing application (items #4 & #5). Any incremental revenues per the revenue sharing application (item #6) will be applied towards the note balance. Based upon current projections, this payment application will pay off the note by 2002. MW will pay any remaining note balance in February, 2003 in cash. Required Note Payment: 1997 $28MM 1998 $24MM 1999 $23MM 2000 $17MM *Out-of-Pocket Bank Conversion Expenses: All one-time, non-recurring conversion expenses incurred by either party will be funded with incremental revenues generated from the exportation of APRs and late fees per the revenue sharing application (item #1). Such expenses will include legal expenses, systems programming expenses, cardholder notification costs, obsolescence costs (MWCC stationery, card carriers, etc.) and any operations-related relocation/transfer expenses. *Incremental Ongoing Expenses: All incremental ongoing expenses associated with the Bank conversion incurred by either party will be funded with incremental revenues generated from the exportation of APRs and late fees per the revenue sharing application (item #2). Such expenses will include any costs to comply with Section 106, Bank s FDIC insurance and overhead, GECC s increased state income taxes, and MW's potential loss of sales tax recapture benefits. * Denotes change from current Program Agreement. Notwithstanding the above, Montgomery Ward Credit Corporation (MWCC) will continue to purchase accounts and related indebtedness from MW up to and including the date of the transfer (currently targeted for April 1, 1996). Thereafter, the Bank will extend credit directly to MW cardholders. This memorandum reflects the terms and conditions upon which the MW Credit Program will be transferred to the Bank. It is not intended to be all inclusive and the transactions contemplated hereby are subject to the receipt of all necessary approvals and the negotiation, execution and delivery of final documentation acceptable to both parties and their respective counsel. GECC will guarantee the Bank s performance in the same manner as it did for MWCC under the existing MW Credit Program. It is understood that this memorandum contains confidential information that should not be disclosed other than to those who have a specific need to know, including those whos approval is required to allow for the completion of the transaction. General Electric Capital Corporation /S/ GAIL N. LANIK Name: Gail N. Lanik Date: March 14, 1996 Agreed to and Accepted by: Montgomery Ward & Co., Incorporated /S/ JOHN L. WORKMAN Name: John L. Workman Date: March 15, 1996 EX-10 5 Exhibit 10.(iv)(J) MONTGOMERY WARD SPECIAL RETENTION PLAN PARTICIPANT: [NAME OF PARTICIPANT] DATE OF AGREEMENT: 3/1/96 PURPOSE OF PLAN The Special Retention Plan is provided to key executives of the Company to encourage their continued employment for the Retention Period. The Company expects that this Plan will enhance the selected participants economic security while remaining with the Company and provide a stable Executive Team throughout the Retention Period. RETENTION AWARD The participant will receive a Retention Award of [50% to 75% of base salary] if the participant remains with the Company for one year from the date of Agreement above. This Retention Award will be payable immediately if the participant should be terminated by the Company for any reason other than "Cause" as defined in the Senior Officer Severance Plan or any voluntary resignation. If the Company has a Change of Control prior to the completion of the entire Retention Period, the Retention Award will be payable upon the Closing Date of such transaction. ADDITIONAL PROVISIONS 1.) This Plan is provided in addition to any other salary, incentives, benefits or perquisite plans in which you participate and does not alter such plans. 2.) If you leave the Company voluntarily or are terminated for "Cause" prior to the end of the entire Retention Period or prior to an intervening sale of the Company, no payment will be due from the Plan. 3.) This Plan does not create an Employment Contract and does not alter the Employment-At-Will relationship between the Company and the participant. It merely provides compensation for meeting the conditions of the award. 4.) This Plan is confidential and is not to be discussed with anyone other than the Chairman and CEO or the EVP Human Resources. [NAME OF PARTICIPANT] IS SELECTED FOR PARTICIPATION IN THE SPECIAL RETENTION PLAN. /s/ Bernard F. Brennan March 1, 1996 I understand the terms and conditions of this Plan and I accept participation in the Special Retention Plan and agree to the Terms and Conditions of the Plan. /s/ [Name of Participant] March 1, 1996 EX-10 6 Exhibit 10.(iv)(K) March 1, 1996 John Workman EVP & Chief Financial Officer Montgomery Ward Dear John: This letter is a supplement to the Change of Control Security Plan in which you are a participant. In recognition of your valuable contributions to Montgomery Ward in your position as Chief Financial Officer and for the important role you would need to play with respect to any negotiations with respect to a sale or change of control of the Company, if Montgomery Ward concludes a sale or change of control transaction prior to December 31, 1996, you will receive, as a supplement to your benefits under the security plan, the following: 1. A one-time bonus payment of $775,000 (after taxes). The gross-up will be 36% for federal and 3% for state taxes. 2. A loan from Montgomery Ward for up to $250,000. The loan will be for one year and have an interest rate equal to "prime" on the date you receive the loan. The principal and interest will be due in a balloon payment at the end of one year. This special supplement is intended to provide you an equitable opportunity, in the event of any sale or change of control of the Company, to truly benefit from the value you have added to Montgomery Ward since the purchase in 1988. However, this agreement is highly confidential and should not be discussed with anyone except Bob Kasenter and me. Sincerely, /s/ Bernie Brennan EX-10 7 Exhibit 10.(iv)(L) MONTGOMERY WARD CHANGE OF CONTROL SECURITY PLAN PARTICIPANT: [NAME OF PARTICIPANT] PURPOSE OF PLAN This Plan is created to provide the selected executives with financial security in the event of the sale or Change of Control of the Company. Additionally, the Plan is designed to encourage the participant's cooperation with any marketing and sale which may be undertaken with respect to the Company and the continuation of the successful operation of the Company during and after any such sale. All benefits of this Plan are due only if the Company is sold or has a Change of Control and the participant is a "Qualified Participant" on the Closing Date of such transaction. A "Qualified Participant" must either be actively employed by the Company on the Closing Date of a transaction or been terminated for reasons other than voluntary resignation or "Cause" as defined in the Senior Officer Severance Plan within one year of the Closing Date of a transaction. PLAN BENEFITS In the event of a sale or Change of Control of the Company, you will be eligible for: 1.) Sale Bonus A Sale Bonus of [one-third of base salary] is payable on the Closing Date of such transaction. In addition, you are eligible to receive a Discretionary Award supplement of up to [one-third of base salary] which will be based upon an evaluation of your contribution and cooperation in such a sale of the Company. The Discretionary Award supplement amount will be recommended by the Chairman and C.E.O. with the approval of the Board of Directors prior to the Closing Date. 2.) Enhanced Severance Plan Upon the completion of such a sale of the Company, you will receive an enhanced Severance Plan that will provide an additional twelve months of base salary above the normal Senior Officer Severance Plan coverage if you are either terminated by the Company for any reason other than voluntary resignation or "Cause" as defined above; or you are "demoted" during the first two years following a Change of Control. For purposes of this Plan, "demoted" is defined as any negative change to the participant's position responsibilities, Job Title, Compensation, Benefits or a relocation more than 50 miles from Chicago without the participant's prior written agreement to such change. If you are separated under the conditions of this provision, you will also receive: A.) Continuation of all your benefits for the entire severance period at the Associate's premium rates. B.) Executive Outplacement Services consistent with past executive plans and capped at $20,000 cost to the Company. C.) Continuation of Tax Preparation and Financial Planning Services Plan for one year. ADDITIONAL PROVISIONS 1.) This Plan is a supplement to the normal Senior Officer Severance Plan and does not diminish the benefits of that plan in any way. 2.) This Plan will terminate two years and one month after December 31, 1998 unless specifically renewed. 3.) This Plan does not create an Employment Contract and does not alter the Employment-At-Will relationship between the Company and the Participant. It only provides the benefits stated if conditions are met while the participant is employed by the Company under the terms of this Plan. 4.) This Plan is confidential and is not to be discussed with anyone other than the Chairman and CEO or the Executive Vice President Human Resources. [NAME OF PARTICIPANT] IS SELECTED TO PARTICIPATE IN THE CHANGE OF CONTROL SECURITY PLAN. /s/ Bernard F. Brennan March 1, 1996 I understand the terms and conditions of this Plan and I accept participation in the Change of Control Security Plan and agree to the terms and conditions of the Plan. /s/ [Name of Participant] March 1, 1996 EX-27 8
5 1,000,000 3-MOS DEC-28-1996 MAR-30-1996 63 331 191 0 1569 0 2070 722 4935 0 0 175 0 1 634 4935 1253 1435 1038 1038 452 0 22 (77) (29) (48) 0 0 0 (48) (1.27) (1.27)
-----END PRIVACY-ENHANCED MESSAGE-----